Who’s Afraid of the Driverless Car?


Local insurance agency executives say it’s a matter of when, not if, driverless cars will begin appearing on the nation’s highways. And when they do, the $200 billion-a-year auto insurance premium market will be turned upside down.

“If you’re getting rid of the driver, it could remove the need for private insurance,” said Tyler Bartosh, an agent in the Traverse City office of Top O’ Michigan Insurance.

Say goodbye to Flo, the perky advertising spokeswoman for Progressive Insurance, and the Geico Insurance gecko as there would no longer be a reason to market insurance to individual consumers. Auto insurers would sell primarily to the commercial market, including auto manufacturers and other transportation providers.

But self-driving cars, also known as autonomous or connected vehicles, aren’t the only mobility innovations threatening to roil the auto insurance industry. Ride-sharing services, including Uber and Lyft, and car-sharing services such as Zipcar, will likely contribute to a shrinking market for individual car insurance policies.
Uber, Lyft and Maven, General Motors’ new car-sharing service, also are working to develop self-driving cars.

“Those dynamics would change the world of auto insurance as we’ve known it,” said David Ford, a principal at the Ford Insurance Agency in Traverse City.

Self-driving cars will be on the market in the next five to 10 years, many experts believe. But today’s vehicles already incorporate some of the technological innovations required by autonomous vehicles, including automatic braking, adaptive cruise control and lane departure warning systems.

Those new technologies, combined with taking humans out of the driver’s seat, could result in the number of accidents in the United States falling by 80 percent over the next 25 years, according to a report last year by consulting firm KPMG.

“There are a lot of bad drivers out there,” Ford said.

And the auto insurance industry could shrink by as much as 60 percent by 2040 as claims from accidents and premiums fall, according to the KPMG report.

Self-driving cars would virtually eliminate drivers being distracted by texting, talking on the phone and fiddling with navigation systems. Such distractions have become a major highway safety factor.

A 2014 study by the National Highway Traffic Safety administration found that distracted driving crashes resulted in $46 billion in economic losses in 2010, or 17 percent of all total highway crash costs.

“Distracted driving is huge,” Bartosh said.

But it’s hard to say exactly how a self-driving future will play out, making it difficult for insurers to plan for it.

Insurance premiums are established based on actuarial assumptions from past accident and loss data, said Peter Kuhnmuench, executive director of the Insurance Institute of Michigan, which represents property and casualty insurance companies such as AAA Michigan and State Farm Insurance. But no such data exists for self-driving cars.

“Another thing will be the pace of acceptance” of self-driving cars, he said. “There’s a lot of uncertainty.”

A national survey in March by AAA found that 75 percent of Americans said they are afraid to travel in a self-driving car. And nearly 40 percent of those fearing self-driving cars said they do not want any semi-autonomous features already available on the market in their next car or truck.

“With the rapid advancement toward autonomous vehicles, American drivers may be hesitant to give up full control,” said John Nielsen, AAA’s managing director of automotive engineering and repair. “What Americans may not realize is that the building blocks toward self-driving cars are already in today’s vehicles and the technology is constantly improving and well-trusted by those who have experienced it.”
Insurance agency executives say another complicating factor in the march toward self-driving cars is that they won’t be completely autonomous, at least initially. Driverless cars likely will have manual overrides, allowing drivers to take control when they want.

The California Department of Motor Vehicles has proposed a controversial regulation requiring that a licensed driver be inside a moving autonomous vehicle. That’s significant because California has the largest vehicle market in the county.
Google, which is working to develop driverless cars, opposes the proposed rule. It says such a regulation could make autonomous vehicles less safe because of poor decision making by human drivers.

“There are huge implications to this,” said Linda Fisher, owner of the Cardinal Insurance Group in Traverse City. “We could see personal insurance go by the wayside.”

Automakers would likely warrant that their self-driving vehicles won’t crash, similar to the warranties they now provide against defects.

But individuals still might need liability insurance if the cars provide manual overrides of autonomous driving, said Fisher, who represents northern Michigan as a board member of the Michigan Association of Insurance Agents.

There are questions of who’s using (a self-driving) vehicle and who has permission to use it,” she said. “Can I change the vehicle’s features? A lot of factors play into it.”
And there will continue to be a market for insuring the more than 250 million vehicles on the road in the United States, local insurance executives say.

“If (self-driving cars) are greeted by the market, it will take a long time to turn over the existing fleet,” Ford said. “It will take a generation.”

But Ford and others say insurers need to start planning for how self-driving cars could change their business models.

“Agency owners will have to adapt their product mix,” Ford said. “If one dries up, they will need to refocus on other products.”

Fisher compares the situation to the rapid rise of Uber in which vehicle owners started using their personal cars to transport paying passengers. The practice created numerous insurance liability issues. “Uber was a shock to the industry,” she said. “We weren’t prepared for that.”

Local insurance executives say they aren’t panicked by the promise of driverless vehicles, but add that they would be foolish to ignore it.

“It would be naïve and irresponsible not to consider that you could lose a large segment of premium dollars,” Bartosh said. “It would be detrimental to our industry if we ignore it.”