Will driverless cars wreck auto insurance?

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I live in Los Angeles where traffic is legendary. Autonomous vehicle running on the street with city buildings on the background At one point in my career, I had a downtown office 23 miles away from my suburban home.  That commute almost always took at least an hour and a half.  On brutal days, it took two hours.  Each way!  Three to four hours ofevery workday wasted sitting in a car.  Books on tape anyone?

I wasn’t alone.  Today, most LA commuters are enduring more than an hour drive each way to and from work.  As a result of these extended commutes, people in LA do everything in their cars while driving.  They eat, put on make-up, and text with abandon (even though it’s illegal).  Worse, I’ve spotted people reading the newspaper while they negotiate stop-and-go traffic on the freeway.  You can guess what happens when a reader and a texter meet on the freeway.  And, it happens.  A lot.  Making traffic even worse.

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 90% of folks would drive an autonomous car if doing so resulted in cheaper auto insurance.  Now, here’s a chance for insurance companies to work with the automobile industry to improve people’s lives!

Let’s envision a world where autonomous 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 automatically brake when an unexpected object is hurtled in front of them.  They even have judgment.  If weather or road conditions become too difficult, 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.

Talk about improved customer experience!  I get a personal chauffeur who is the best driver ever.  I get more free time for conference calls, eating, reading, or gawking at the celebrity in the car next to mine.  I can even sleep better at night because it’s likely that my family will never be in an auto accident. (90% of accidents are due to driver error.)  To top it all off, my car insurance is cheaper!

Even insurers win.  Risk becomes much easier to determine for driverless vehicles.  The number of traffic accidents goes way down.  Fewer claims are paid out.  In the short term, that should spell larger profits.  For the longer term, there’s the likelihood of new revenue streams.  In addition to selling insurance to millions of individual drivers (which will continue until drivers can’t turn their “automatic driving” feature off), insurers should start selling insurance to automakers as well.   After all, a malfunction in the automakers’ systems will be the most likely cause of accidents.  Ironically, fewer drivers may mean more customers for prepared insurers.  What’s more, new products like hacking protection insurance may also gain traction!

Semi-autonomous cars are already here.  Today, the Mercedes S-Class includes an optional “intelligent drive” package that at least one expert says is 70% autonomous.  What’s even more interesting is that 50% of buyers are already on the road with this feature — even though it costs an additional $2,800!

There is no doubt in my mind that driverless cars will change the insurance business and soon.  In fact, one analyst estimates that 10 million driverless cars will be on the road in less than four years!

Is your insurer ready?

For more food for thought, insurers can check out “Innovating Insurance: Lessons from the World’s Leading Innovators”.  For more insight on digital marketing and lead management, explore the IBM Marketing Cloud.

Global Cloud Leader, IBM Institute for Business Value

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