Driverless doesn’t mean an end to car insurance

It had to happen sooner or later and last December it did – a third-party insurance company announced that it would begin writing policies for self-driving cars.

The company is Trov, a young insurer based in California that so far has focused on usage-based coverage of consumer electronics, such as smartphones. It will be providing coverage for Waymo passengers once the company makes the first deployments of its ride-hailing service. Trov and Waymo have been fairly quiet on the specifics of their deal; regardless they’ve made history because this is the first arrangement between an autonomous car fleet operator and an insurer.

Trov says that diving into the world of insured autonomy is “us taking advantage of an amazing opportunity to utilise and extend the capabilities of our platform into new territories (like autonomous ride-hailing),” says company CEO Scott Walcheck. “On-Demand Insurance for personal mobility is a natural progression for us as we build a platform that enables an increasingly smarter and more contextual cover,” he added.

Trov won’t be diving alone. The Waymo policies will be underwritten by an affiliate of Munich Re, the big global reinsurance company. This isn’t going to be auto insurance as we all know and love (okay, maybe not “love”) today. That’s because the policyholder is going to be the car company, not the rider, meaning said passenger has zero responsibility to provide his or her own insurance. The rider will be on Waymo’s coverage simply by entering the car and going for a ride. Trov’s insurance covers such mishaps and annoyances as property loss, medical expenses and trip interruptions. Again, we don’t yet have details but at this early stage the coverage seems rather comprehensive.

This is a brave new world the insurance industry is venturing into, and as such no one has much of an idea what it’s going to look like. It’s possible that the Trov-Waymo deal will become a template for an autonomous future in which vehicles are hired on a per-trip basis, rather than owned outright.

Rick Gorvett, staff actuary at the Casualty Actuarial Society in the US, points out that “many believe that the future of personal car insurance will be based upon a products liability model, with policies issued to manufacturers/providers in order to cover any losses resulting from use of the vehicles by their customers.”

Yet Donald Light, director of the North America property/casualty practice at researcher Celent, cautions that “it’s too early to predict a final pattern of insurers and policyholders for fully autonomous vehicles”.

He’s not at all surprised that a hungry young company like Trov has taken the first leap into autonomous insurance. After all, “insurers traditionally rely on large data sets of exposures (e.g. drivers and vehicles) and losses,” he says. “Since autonomous vehicles are so new, the data sets are extremely small. So, this is a game for the more adventurous to play.”

That raises the question of what’s going to happen with the less adventurous, i.e. the current auto insurance incumbents. After all, if we get to a scenario where only self-driving cars with solid systems are prowling the roads, eventually there will be few if any accidents and, theoretically, little or nothing to insure (and charge a healthy premium for).

Light’s research indicates this will happen sooner rather than later, even assuming the earliest meaningful deployment of autonomous vehicles in around 2030. Even by then, thanks to advances in ADAS solutions, insured losses on vehicle accidents are set to decline by a significant 22%.

For obvious reasons, top players in the auto insurance game are certainly worried about this. One prominent example is Warren Buffett, whose investment vehicle Berkshire Hathaway holds several insurers that offer auto coverage. Buffett fretted that since the premiums insurers charge will be drastically reduced, this would “very significantly” hurt the business of companies deep in the auto coverage segment like his GEICO. However, let’s tap the brakes for a moment. Gorvett says: “such an analysis is likely very superficial and does not reflect the fact – seen consistently through history as technologies evolve – that behaviors change and new risks emerge to replace the old ones. In addition, even if the frequency of accidents falls, it is entirely possible that the severity of losses – the cost of repairing or replacing expensive technological components of autonomous vehicles – will be higher.”

Besides, the surrendering of the driver’s seat to machine and system will change the nature of driving in ways we can’t yet imagine. This opens the possibility for new insurance products we haven’t yet concocted. Or, perhaps, some clever minds are concocting at the moment.

“Insurers will (and some are) actively looking for non-insurance products and services to provide – under the general heading of ‘connected car’,” says Celent’s Light. “These other services could relate to maintenance, choosing best routes, e-commerce via the car’s infotainment systems, connecting with connected homes, etc.”


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