Published on 08/30/2016 | Use Cases
Our world is becoming digital in nearly every way. Digital business is disrupting every industry, requiring businesses to rethink traditional business models and forge new partnerships that cross industry lines. Insurance is certainly no exception. The combination of a digitally aware buying public and advances in technology is having a dramatic impact on how risk is measured, managed, and covered. Autos are becoming safer and causing fewer injuries and fatalities. And the rapid assimilation of self-driving cars into society is causing traditional insurers to take notice. How soon will there be a critical mass of these vehicles on the road? How will this change society’s collective driving behavior? And how will the very nature of the auto insurance industry change as a result?
If you’re wondering how close we are to realizing this technology, it’s actually here today. And it’s not just Google; every auto manufacturer is designing and delivering self-driving cars. They are already on the road, and their numbers will dramatically increase in the next five years. For example, Toyota and Lexus are planning a 2017 release of crash-avoidance technology. Some analysts are boldly predicting that by the year 2021 self-driving cars will be the norm.
Regardless of the pace of adoption, the implications to the insurance industry are enormous. In the past, 94% of accidents were caused by human error, and insurers wrote the coverage to compensate all involved parties after the fact. In the future, will the insurer even own the liability, or is will the manufacturer of the self-driving car? We may actually see policy riders for human-driven vehicles become the exception rather than the rule.
Even today, the invention of features like responsive cruise control and parking assistance take the driver out of the picture through technologies such as radar and threat-recognition software. Some manufacturers are stepping up to cover damage if and when the software systems fail. Volvo is pushing for all car manufacturers to accept liability for accidents caused by autonomous driving technologies. Google and Mercedes Benz have made similar statements of responsibility for accidents caused by autonomous vehicles.
When self-driving technology becomes as common as cruise control or built-in speakerphones, it’s likely that losses caused by human control of autonomous cars and or by another driver’s reckless behavior won’t be covered. The huge reduction in losses and the liability that manufacturers will accept mean insurance companies will see fewer claims. But they also will have less coverage to write. They will have to forge partnerships with the manufacturers and with new entrants like Google to change from pure risk protection to focusing on risk prevention. It has been estimated that when self-driving cars are the norm, the need for traditional auto insurance coverage will drop by 75%. And it isn’t just for personal automobiles; it’s for buses and tractor-trailer rigs as well.
The disruption is real, and it is accelerating. To continue to thrive, insurers will need to rethink business models, accelerate the use of data science and analytics to become more responsive, and redesign customer-facing processes to be fully digital. Insurers must be able to connect with a much wider swath of industries, business partners, and channels. When you add in that far fewer cars will be on the road as people invest in car- and ride-sharing instead of owning their own vehicles, the key to success will be business innovation on a completely different scale.
