Driverless cars, like this Lexus SL 600 Integrated Safety driverless research vehicle on display at this years’ Consumer Electronics Show in Las Vegas, are creating new risks and opportunities for manufacturers and insurers alike.[/caption]Once a sci-fi fantasy, driverless cars are quickly becoming a reality. “Autonomous” automobile test models have been on the road since 2009, so far driving hundreds of thousands of miles without an accident.
“No matter how you feel about this topic, the question is, what are you doing to prepare for this possibility?” said Laura J. Hay, national insurance practice leader with KPMG. Speaking at the KPMG Insurance Industry Conference in New York, she focused on the opportunities possible with driverless cars, and referred to a popular YouTube video of a visually-impaired man who was able to get into a driverless car, travel to a dry cleaner, pick up his laundry and return home safely.
In the United States, the National Highway Traffic Safety Administration reports that 34,080 people died in motor vehicle accidents in 2012—up 5.3% from 2011 and the first year-to-year increase since 2005. Some 3,331 people were killed in accidents specifically involving distracted drivers in 2011 and 387,000 more were injured.
Many experts believe these numbers could be significantly reduced with driverless cars. “Google says that driverless cars will dominate the roadways in the near future and that 90% of the 1.2 million global fatalities due to auto accidents could be avoided with driverless cars,” Hay said.
New York is wasting no time in its preparations for a driverless future. State Sen. Greg Ball (R-Patterson) introduced a bill that would authorize operation of “autonomous” cars on New York roads. The legislation will allow Toyota, in partnership with Google, to test these vehicles.
“Vehicle accidents, year after year, always rank in the leading causes of death in New York state and across the United States,” Sen. Ball said in a June press release. “In the early testing stages, this futurist technology has proven to be safer and more reliable than human-operated vehicles. I believe that New York state should welcome this technology with open arms.”
The test vehicles are equipped with Google technology, which relies on a system of lasers and GPS to maneuver the cars. According to the release, California, Florida and Nevada have also introduced legislation to allow the testing of autonomous vehicles.
Manufacturers are starting to recognize the marketing opportunities as well. Nissan announced in late August that it will come out with “revolutionary, commercially-viable autonomous drive in multiple vehicles by the year 2020.” Its engineers have been doing extensive research on the technology for years, “alongside teams from the world’s top universities, including MIT, Stanford, Oxford, Carnegie Mellon and the University of Tokyo.” Nissan said its autonomous driving cars will also have “realistic prices” for consumers.
Not to be left out, in January, Toyota also announced an autonomous car, the Advanced Safety Research Vehicle. The car is equipped with sensors and automated control systems that the company said can observe, process and respond to the vehicle’s surroundings.
The vehicle is based on a Lexus LS and has systems capable of scanning object movement, distinguishing a green light from a red light, and measuring vehicle trajectory on the road.
The car also includes GPS, stereo cameras, radar and light detection and ranging laser tracking. Toyota hopes its technologies will one day lead to a fully autonomous car and that its developments will enhance the skills of the driver, believing a more skillful driver is a safer driver.
Despite the promise of this new technology, however, not all consumers are convinced. In a study conducted by ORC International for the Chubb Group of Insurance Companies, only 18% of those surveyed said they would purchase an autonomous vehicle and only one-third said they would feel safe on the road with one.
Insurance Implications
Nevertheless, autonomous cars are coming, which will have implications for insurance. According to industry experts, there are a lot of elements to consider. “Imagine a world where we have one million driverless cars. What does that mean for [insurers]? Certainly there would be significantly fewer accidents and fatalities. We would also have a much smaller auto insurance market,” Hay said, pointing out that Forbes estimates auto premiums could plummet by as much as 75%.
The cost of auto insurance is primarily based on the frequency of car accidents and their expense. If driverless technology succeeds in reducing both, consumers should see that reflected in the form of lower insurance costs. “That said, I don’t think anybody really knows how much premiums could go down until those cars are on the road for a few years,” said Loretta Worters, vice president of communications with the Insurance Information Institute.
But insurance rates are not the only concern. Lance J. Ewing, hospitality and leisure industry practice group leader with AIG, observed, “With more than five million vehicle accidents in the U.S. resulting in over 30,000 deaths, any enhancement is welcome, but there may be collateral results from the driverless highways.”
He noted that the issues involving driverless cars will include, but not be limited to, hacking and cyberattack, whether semis and long-haul trucks will have the same technology or continue to rely on human drivers, privacy issues for employees with company cars tracking vehicle locations, whether the drivers’ education industry will become obsolete, and whether smaller auto insurance carriers will remain in business due to lower rates from reduced accidents.
“Anything that can improve safety is welcomed by the insurance industry, but we also have to be aware of the potential problems that could result,” Worters said. For example, if two driverless cars get into an accident, who pays for the damages? “It will take court decisions to sort through the legal morass of driverless car liability.”
Liability disputes could also become high-profile cases as personal injury attorneys may seek to hold Google, car manufacturers or computer manufacturers accountable instead of drivers. “If driverless cars become more of a reality, insurers will need to create a new auto insurance product,” Worters said.
She also pointed out the inherent risks to be considered when GPS and other technologies used on autonomous cars go awry. Although driverless technology eliminates some human error, there are other factors that could be just as risky, such as the possibility of an accident resulting from a driver overriding the robot.
And while there is a tendency to believe driverless technology will reduce or eliminate the number of accidents, “There will always be some level of risk when a driver gets on the road,” she said, “even when the car is doing most of the driving.”