InsurTech

Will driverless cars wreck auto insurance?

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cars wrecking at stoplight

I live in Los Angeles where traffic is legendary. At one point in my career, while working as a management consultant for PriceWaterhouseCoopers, I had an office in Century City (adjacent to Beverly Hills). Nice place to work. I lived near Pasadena, CA, roughly 23 miles away. The commute almost always took at least an hour and a half. On brutal days, it took two hours. Each way. Three to four hours of every workday wasted sitting in a car. Books on tape anyone?

I wasn’t alone. Today, many LA commuters are enduring more than an hour drive each way to and from work. As a result of these extended commute times, people in LA do everything in their cars while driving. They eat, put on make-up, and yes, text and talk with abandon (even though it’s illegal, many of them are still holding phones up to their mouths with one hand while driving with the other). More people than you’d think are even reading the newspaper as they negotiate stop-and-go traffic on the freeway. You can guess what happens when a paper reader and a texter meet on the freeway. And, it happens. A lot. Making traffic even worse that day.

So, I wasn’t surprised to see a survey that said over 75% of drivers would consider buying a car with autonomous capabilities. In a Los Angeles minute! But, what really got me thinking was the next statistic – a whopping 86% of folks would buy a driverless car if doing so resulted in much cheaper auto insurance. Now, here’s a chance for insurance companies to work with the automobile industry to be a force for positive change in people’s lives!

Let’s envision a world where driverless cars own the road. Via the Internet of Things, driverless cars are aware of traffic signals, speed limits, weather and road conditions, and are in communication with their fellow cars. They brake when an unexpected person or object hurtles itself in front of them. They even have judgment. If weather or road conditions prove too obstructing or confusing, they tell you to either pull over or take over. In this world, car accidents become relatively rare (even in LA!), saving millions of lives and millions of dollars currently lost to work leave and healthcare costs.

Talk about improved customer experience! I get a personal chauffeur who is the best driver ever. I get more free time to do conference calls, eat, read, or gawk at the rich celebrities shopping on Rodeo Drive. I can even sleep better at night because I and my children are at much less risk of ever being in an auto accident (90% of accidents today are due to driver error). And, to top it all off, my car insurance is cheaper!

Even insurers can win. Risk becomes much easier to determine for driverless vehicles. The number of traffic accidents goes way down, so fewer claims are paid out. In the short term, that should spell larger profits. For the longer term, there’s the possibility of new revenue streams. In addition to selling insurance to millions of individual drivers (this won’t go away until humans stop taking their cars out of “automatic driving” mode), auto insurers should start selling auto insurance to automakers as well. After all, a malfunction in the automakers’ systems will be the most likely new cause of accidents. Ironically, driverless cars may bring to prepared insurers a new set of auto insurance customers. What’s more, perhaps consumers and automakers alike can be sold hacking protection insurance!

What’s an insurer to do?
1. Go deeper with customer analytics to better understand the behavioral segmentation of your current customers. Otherwise, you won’t know which customers will go “driverless” first and be ready with corresponding “driverless” insurance options you can offer in ways your early adopters will find compelling.
2. Interconnect with automakers’ “driver assist” systems via multi-enterprise process collaboration to synchronize critical information flows across your entire auto insurance value chain.
3. Reshape governance, risk and compliance processes to achieve security for near-real-time risk identification and remediation in increasingly complex data transfer situations, particularly where files are being transferred outside your company to more diverse parties, including automakers.

Driverless cars are in our near future. They are not 15 to 20 years out as some pundits suggest. Today, the Mercedes S-Class includes an optional “intelligent drive” package that at least one expert says is 70% autonomous. It can take over in traffic jams, recognize and avoid pedestrians and animals, stay in lanes, park, warn about rear-end crashes, stabilize the car in crosswinds, and automatically adjust the suspension BEFORE the car hits a bump in the road! It has night vision. It even figures out if you are tired and tells you where to get coffee. (I wonder, does it do that in a German accent?) What’s even more interesting is that 85% of current buyers are on the road with this feature — even though it costs an additional $2,800! Mercedes is already expanding this option into its E- and C-classes.

There is no doubt that driverless cars will change the insurance business and soon. In fact, within six years, Mercedes, GM, Nissan, Volvo, and Google are planning to have self-driving cars on the road.

Is your insurer ready? Has your insurance company had a chat with Mercedes about auto insurance yet?

For more food for thought, insurers can check out IBM Smarter Insurance, IBM Smarter Commerce and “Winning Strategies: How industry leaders are excelling outside the comfort zone.”

Global Cloud Leader, IBM Institute for Business Value

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