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Will Self-Driving Vehicles Change the Way Insurance Companies Work?



Will Self-Driving Vehicles Change the Way Insurance Companies Work?

The development of autonomous vehicles is mounting significant pressure on the auto insurance industry, with increased force expected over the next few years.

Traditionally, auto insurance providers have enjoyed relatively unchallenged dominance on international roadways. Nearly all 50 states require auto insurance of some kind, with minimum requirements and liability coverages expected on each policy. Insurance companies such as Progressive, Allstate, State Farm, and Geico control the greatest number of policyholders in the United States, and cumulatively manage billions of dollars’ worth of premiums and deductible payments each year.

Traditional insurance companies rely on a system of risk calculation that requires several factors to be present in order to reliably compute equations. The largest part of these calculations involves age, gender, and accident ratio, with younger male drivers who have been in an accident paying the highest amount per month. Older drivers, female drivers, and drivers with a lower claim frequency often pay much less per month than their counterparts.

Certain revolving incidents will vary the cost of auto insurance regardless of set factors. These may include: 

  • Variation in the severity of vehicle accidents.
  • Unpredictability in consumer driving habits.
  • Auto repair requirements and subsequent claims.
  • Variations in repair costs according to the vehicle model, make, and year.

Auto insurance companies protect their profit ratios by adding drivers from different risk pools into the same category. This covers any unexpected claims that may arise while ultimately ensuring that the bottom line remains untouched.

The rise of the autonomous vehicle is set to disrupt the traditional function of insurance policies in a big way.

Self-driving vehicles developed by companies like Tesla, Cruise, and Waymo are rising in popularity and national recognition. Fully autonomous vehicle types are already being tested, while augmented autonomy vehicles have been an established constant for several years. 

As the industry continues to grow, the question of liability continues to rise in the minds of drivers and insurance providers alike. In an accident, who takes responsibility? Man, or machine?

According to research, over 94% of all road accidents are caused by human error. These errors may include anything from driving over the limit to intoxication, and often involve a disconnect in concentration from the road. Only 6% of accidents are currently related to vehicle failure. With the rise of autonomous vehicles, many experts are wondering if the statistics will flip.

The development of autonomous vehicles will likely lead to decreased insurance premiums, fewer accident claims, and a large shift in liability that will fundamentally alter the way insurance policies are packaged.

  • Autonomous vehicle manufacturers may offer insurance policies directly to consumers.
  • ‘No fault’ or ‘split fault’ insurance programs would remove overhead liability from drivers.
  • Each new upgrade or model change would lower the cost of premiums significantly.

These factors are beginning to concern insurance providers more and more. In the coming years, auto insurance providers may need to change their tactics in order to maintain their widespread hold on drivers worldwide.

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Brian Wallace is the Founder and President of NowSourcing, an industry leading infographic design agency , based in Louisville, KY and Cincinnati, OH which works with companies that range from startups to Fortune 500s. Brian also runs #LinkedInLocal events nationwide, hosts the Next Action Podcast, and has been named a Google Small Business Advisor for 2016-present and joined the SXSW Advisory Board in 2019. Follow Brian Wallace on LinkedIn as well as Twitter.