When Delphi Automotive’s “Driverless Car” took its much publicised cross-country test run this spring, the nine-day journey drew cheers from champions of “Autonomous Technology.” Meanwhile, other onlookers started wondering how this disruptive technology might impact, of all things, insurance. It’s not just auto insurance that they’re wondering about. It’s also the life, health and annuity sector. What are the implications there? The question brings up some interesting possibilities.
First, some background. For the trip, Delphi, a Gillingham, U.K.-based supplier of car electronics, equipped an Audi Q5 sport-utility vehicle with an assortment of radars, vision-based cameras, light detectors, intelligent software algorithms and advanced drive assistance systems. The sensors were designed to facilitate transport without human touch on the controls (although a person was in the car).
The technical term for this car is “autonomous driving vehicle.” The autonomous term refers to the features that enable a vehicle to drive without a person having to control or monitor it physically. Not Yet, But… The vehicle made the 3,400 mile trip, but no one is going off the deep end here.
Full-functioning “driverless cars” are not in dealerships yet. But the vehicles are coming, and they may be here sooner that some think, Xavier Mosquet told InsuranceNewsNet. He is Senior Partner and the Driverless Car Expert for Boston Consulting Group. This year, he pointed out, a handful of automobile companies already are introducing many capabilities along these lines. By next year, “partial autonomy”— the next stage in autonomous vehicles — will be seen in some high-end vehicles. “These cars will have features that enable the operator to take hands off the wheel and eyes off the road while the car runs and steers itself in a single lane,” Mosquet said.
More features will follow, with true autonomy arriving in years 2020- 2025 for high-end cars and for special use vehicles (such as urban taxis). The expert believes driverless cars will be in widespread use by 2050, when older vehicles “will have completed their 20-year life expectancy.” The Insurance Issue is Safety The insurance hook in all this is safety. Proponents have long maintained that driverless cars will be much safer than today’s human-driven cars.
That prediction is based on all the sensors, cameras and other devices the vehicles will have to keep the cars — and their passengers — out of harm’s way much of the time. As more technologies are added, the incidents and severity of auto crashes will decline, Mosquet said. That will result in declines in auto accident injuries and fatalities.
A fully autonomous car might still encounter difficulties when driving in adverse weather conditions, Mosquet allowed, but the car likely will be able to respond by “driving itself to a safe spot.” Safety involves more than lowering the risk that driverless car operators will cause an accident, he added. But he noted that there is also the risk that other people, who do not yet have the same type of technology in their cars, might still cause accidents.
So there will be a transition period before the impact of improved safety can be fully measured. Where insurance is concerned, the commonly-voiced expectation is that, once auto insurers see data on the improved safety, they will respond by lowering rates or offering discounts to owners of autonomous-equipped vehicles.
This would be in keeping with discounts now available for cars with airbags, anti-lock brakes, rear-view cameras and numerous other safety features. But what about the life insurance industry? Will safety improvements from driverless cars have any impact there?
Impact on Life Lines of Insurance Timothy C. Pfeifer, President of Pfeifer Advisory in Libertyville, Ill., predicted that any impact to the life insurance lines will take a long time to play out. Insurance companies want to have data on the effect on mortality before making changes to products and prices, he explained.
“The companies need the data because they want it for pricing,” he said. In addition, the regulators and class action attorneys want it — because the data can show whether a carrier is treating one group of people differently than another group (i.e., unfairly discriminating in rates). Because of that, he said, “I’d be shocked if I were to see anything (by way of changes to life underwriting and pricing) within the next five years.”
But he didn’t rule out the possibility of seeing an impact later on, particularly if driverless cars become commonplace and auto safety improves. In his view, “any impact would start with life insurance, then medical insurance and annuities would pick up the rear.” Here are some of the possible impacts Pfeifer suggested could occur in those areas:
Life Insurance: If life carriers obtain data showing declines in auto-related deaths on demographic groups that currently have a high percentage of accidents, “that could have some benefits that translate into insurance cost,” he said. As examples, he cited rates for 20- to 29-year-olds and “those over 70 who probably shouldn’t be driving anymore but still do.”
There also could be a response if carriers see data showing a decline in incidents and fatalities related to texting while driving. One of the advantages attributed to driverless cars is that, because people won’t have to watch the road, they can text and do other things while being transported.
This has led to predictions that distracted driving incidents will decline substantially in a driverless car world. Term life rates might be the first life insurance rates to go down if carriers obtain data pointing to increased safety, Pfeifer predicted. This would especially be the case at life carriers that are affiliates of property-casualty companies, which will probably see the data first hand.
“Underwriters might view ownership of driverless cars as a sign of prudence, which could impact other areas of the person’s life,” Pfeifer said. “That could translate into lower insurance rates for that person, likely in the form of a rider added to a life policy. It would get you a haircut on the premium.”
That would fit in with the growing trend among underwriters to view applicants holistically. With the help of predictive analytics, “carriers are asking: Is this person living a safer lifestyle?” Pfeifer said. “One day, life insurance applications might ask: ‘Do you own a driverless car?’” Medical and Hospitalisation Insurance:
As with life insurance, if driverless cars result in fewer injury-causing accidents, “health insurance could be cheaper or there could be an ameliorating effect,” Pfeifer said. That would be for the same two age groups as mentioned earlier — 20-29 and 70 and older.
Annuities: If auto accidents decrease, that may contribute to greater longevity overall. That could lead to less attractive benefits under single premium immediate annuities and deferred income annuities, Pfeifer said.
However, that would take a long time to happen, and it may not have significant impact anyhow, primarily because “medical advances have more to do with longevity than driverless cars could have.” A Word About Auto Insurance Mosquet, the Detroit-based Driverless Car Expert, is more familiar with auto insurance questions. Like Pfeifer, he said that the carriers will be looking for data that supports the predictions of greater safety.
The data will likely arrive piecemeal, as each new autonomous feature comes on line. Assuming the carriers see proof of increased safety, “it will be up to them to decide if they want to reduce premiums, and thus create an incentive to purchase those devices or features.”
So far, he said, with the advanced systems already available, “the insurers are not reacting. But I think, with the next level, they will respond, and the insurance companies’ reaction will incent purchases. We are seeing this in Europe, with two or three companies.” Along the way, auto insurers will be sorting through new legal issues.
For instance, Mosquet said, “Today we know that the driver of a car is the person who is responsible. But, if it’s a driverless car, who is responsible then?”