The insurance impact of self-driving cars and shared mobility

“We’re going to see more change in the next five to 10 years than we’ve seen in the last 50,” said Mary Barra, CEO of General Motors, on record. While that statement is now a year old, it continues to ring true. Vehicle ownership is changing and self-driving cars will be implemented in the next decade. What will affect the insurance industry more: self-driving cars or shared mobility?

Self-driving cars

One of Google’s self-driving cars recently was involved in one of the most damaging driverless car collisions yet. It wasn’t the autonomous car’s fault when a driver ran a red light and collided with the side of the vehicle, causing the airbags to deploy, but it was a scenario the car did not know how to avoid.

The driver took over and applied the brakes, but it was too late to prevent a collision.

While self-driving cars will likely be much safer than human-driven vehicles once they’re widely adopted, will they really be safer when there are still people driving on the road? How do you account for the complex and elusive “human element”?

Which leads us to the question: What happens when insurance is brought into the picture? The traffic light was green for six seconds before the self-driving car pulled through — and it was still hit.

The self-driving car industry is expected to grow exponentially over the next 20 years, and insurers will have to learn to swim — or sink.

Auto insurance will have to adapt to this impending technology in the immediate future, as well as in the long term. While self-driving cars are expected to reduce accidents by 90 percent, 81 percent of Americans feel they are safer driving themselves. If they feel that way, will drivers be willing to pay more for the technology? Volvo recently stated that their autonomous car technology will likely add $10,000 to the car’s cost.

With consumer hesitation and other legal barriers, it may take decades before self-driving cars are fully adopted. As a result, there will likely be a more immediate, transitional period that insurers will need to plan for — a period where both self-driving vehicles and human-driven vehicles are on the road.

As self-driving cars are released to the public, there may be accidents involving that “human element” as the public adapts to the technology. Insurers will have to cover these types of collisions — perhaps, ones similar to Google’s self-driving car accident — in the short term. In the future, there also will be new risks to insure, such as sensor damage, satellite failure and other new technology.

Perhaps, insurance will take on a no-fault form, in which neither party is at fault, and each car owner’s insurance covers their own vehicle. Or insurance could become similar to utility cost with a premium cost based on mileage or usage. There also may be risks involving driverless-car hacks and cybersecurity. Will insurers cover cybersecurity issues or will the manufacturer?

The answers to these questions can’t all be determined now, but insurers will have to react to this paradigm shift sooner rather than later. Comprehensive coverage for fires, animals, floods, theft, earthquakes and vandalism will still be necessary, and that type of insurance will not need to change very much, except for replacement cost adjustments.

Infrastructure is also expected to change as self-driving cars become readily available, and this could impact the way that insurance operates, as well. Currently, not all roads are smoothly paved with clean, visible road lines. What about snow and other weather conditions? How long will it take before self-driving cars can drive everywhere and not only on perfectly lined, mapped roads? Self-driving cars still have a long way to go before they’re fully autonomous at SAE Level 5, but once there — if the safety claims are true — insurance costs will likely decrease for both drivers and providers.

Shared mobility

Cars are parked 95 percent of the time. For that reason, and because of convenience, ridesharing services have exploded in recent years, resulting in a very profitable and innovative industry. Uber is currently valued at nearly $63 billion and Lyft has seen recent record growth. Shared mobility of cars is expected to continue expanding in the coming years through ridesharing services, but also through carsharing.

Carsharing, in which multiple drivers have access to the same vehicle, will likely grow in popularity in the coming years. Services, like Maven or Zipcar, that connect drivers to available vehicles will continue expanding because of increased competition and economic scale. As shared mobility is offered in more locations with focused customer segments, more transportation needs will be met. Over time, households may have less of a need for car ownership; as a result, multi-vehicle households may become single-vehicle households. Eventually, people may decide not to own a vehicle at all.

While shared mobility will likely overlap with self-driving cars at some point, it may affect the insurance industry in different ways as car ownership changes.

Shared mobility will have a more immediate impact on the insurance industry. Cars will wear down faster with more frequent use, and there may be more accidents with multiple drivers. Insurers will need to adapt to covering multiple drivers who may not be in the same household or family, and who may not always be driving the same vehicle.

As a result, coverage will likely become more focused on driving habits with usage-based insurance (pay how you drive) or become more centered on a pay-per-mile basis. Companies like MetroMile are already using this model, and it will likely grow in popularity as carsharing does. Instead of paying for insurance even while your car is parked, you pay based on the miles you drive.

Insurance tech will also play a role with shared mobility as telematics devices can more accurately measure in real time who is driving the vehicle and how safe a driver they are.

Self-driving cars or shared mobility?

While shared mobility will have a more immediate impact on the insurance industry, self-driving cars will certainly impact the insurance industry more overall. A car driving itself changes a lot more for insurers than does multiple drivers using the same vehicle.

That said, the two sectors will overlap at some point in time. Self-driving features will continue to be incorporated in ridesharing, and will eventually be implemented in the carsharing industry. At that point, the two sectors will collide as insurance continues to adapt to new developing risks. Self-driving cars and shared mobility will both be disruptive for the industry — it’s only a matter of time.