Self-driving cars may kill auto insurance as we know it
NEWYORK: Dan Peate, a venture capitalist and entrepreneur in Southern California, was thinking of buying a Tesla Model X a few years ago—until he called his insurance company and found out how much his premiums would rise. “They quoted me $10,000 a year,” Peate recalled.
For all the concern over accidents involving driverless cars, it’s easy to forget one of the supposed virtues of autonomous vehicles: they will make the roads safer.
A sophisticated array of lidar, radar and cameras is expected to be more adept at detecting trouble than our mortal eyes and ears. And computers never get drunk, check Tinder or fall asleep at the wheel.
The transition points to a larger, existential crisis for the multibillion dollar car insurance industry. If nobody’s driving, why do we need auto insurance? Premiums—and company revenues—are based on a driver’s likelihood of being in an accident and actual crash rates. With more than 90% of accidents caused by human error, taking the driver out of the equation is going to mean big changes for insurers.
More broadly, the nature of risk itself is going to change, said Hyejin Youn, a professor at Northwestern University. With human drivers, “uncertainty is randomness, and random chances follow a normal distribution.” If the risk is in faulty software or sensors, it becomes “more systematic.”
Determining who’s at fault when something goes wrong could get thorny in this new world.