Auto Insurers Warn that Driverless Cars May Affect Profitability
While driverless cars could be hitting the roads in as little as five years from now, many auto insurers are worried about the far-reaching implications this autonomous technology could have on their industry’s bottom line. According to the Insurance Information Institute (III), the industry brought in $107.4 billion in passenger-car auto insurance premiums in 2013, the latest year for which figures are available.
In a March 3rd Wall Street Journal article, “The Driverless Car, Officially, Is a Risk,” it was reported that three insurance suppliers as well as an auto parts manufacturer have already cautioned investors in their most recent annual reports that the dawn of the self-driving vehicle and its technology may greatly affect their business model in the future.
Companies usually regard their annual report’s risk-factor disclosures as a place to point out potential difficulties and disruptions and to protect against their liability—not as a prediction of what’s to come. But the fact that driverless cars have been mentioned in several annual reports is telling.
According to the WSJ article, Cincinnati Financial Corp., which produces about a quarter of its premiums from commercial and consumer auto policies, warned its forecasts could be flawed due to “Disruption of the insurance market caused by technology innovations such as driverless cars that could decrease consumer demand for insurance products.”
In addition, Mercury General Corp. said that “the advent of driverless cars and usage-based insurance could materially alter the way that automobile insurance is marketed, priced, and underwritten.” The company provides most of its auto coverage in California.
Industry analysts believe a variety of consequences could result by taking the driver out of the equation:
- Insurers may sell fewer individual policies
- Insurers may have to cover fewer accidents
- Technologically-advanced cars may cost more to repair
- Some of the expense from consumer auto insurance may shift to commercial liability policies as more automakers and software firms face litigation for accidents
- Larger policyholders could have more bargaining power than many small ones, potentially putting more pressure on premium revenue
The Insurance Information Institute also addressed this topic on its website. According to the III’s recently-updated report, driverless cars are viewed by the organization as one natural outgrowth from a multitude of advances in safety technology.
Numerous developers of driverless cars are concerned that regulatory matters and costs could delay their launches to market, but in any event, these technologies are still moving forward.