Late last year, Tesla CEO Elon Musk raised eyebrows when he declared that the days of human-driven cars are numbered.
When does he expect all of those vehicles to drop dead? Sometime within the next 20 years.
Beyond that, any cars “that don't have full autonomy will have negative value," Musk said. "It will be like owning a horse. You will only be owning it for sentimental reasons."
A fair number of experts question Musk’s timeline. Only a few, though, suggest the main part of his prediction—that self-driving cars will replace today’s—is off the mark.
After all, tech giants like Apple, Google, and Uber make the news all the time because of their efforts to develop these vehicles. The same is true of some automakers as well—from BMW and Ford, to Toyota and Volvo.
Autonomous cars are such a hot topic now even President Obama and the National Highway Traffic Safety Administration are chiming in on the topic.
While we all wait to see how the situation pans out, there are worse ways to spend your time than considering how this driverless future could impact your car insurance policies and rates.
Experts Weigh in on Driverless Car Insurance
What do analysts, researchers, and other in-the-know folks think about this possible shake-up of the car and insurance industries?
Deutsche Bank kicked off the conversation last summer when it downgraded Progressive’s rating to “sell.” It took that step due to uncertainty about the company’s long-term prospects. The reason: the rise of both ridesharing and driverless cars “presents real questions as to whether there will even be an auto insurance industry” in 20 years.
Investment bank Keefe, Bruyette & Woods is similarly bearish about the future of the car insurance business. In fact, analyst Meyer Shields told Canada’s Financial Post in August that self-driving vehicles would “eviscerate” auto insurers. “If there’s much less risk involved in owning a car, then there’s just less need for insurance.”
Research firm Celent also has gone on the record to predict a decline among car insurance providers as driverless vehicles move from fantasy to reality. Specifically, it expects auto liability premiums to drop 60 percent between 2018 and 2022. And it expects physical damage premiums to drop 80 percent in the same period.
Safer Roads Equal Lower Auto Insurance Rates
Perhaps no one has had more to say about the subject so far than advisory firm KPMG. A case in point: in 2015 it published a 40-page report titled Automobile Insurance in the Era of Autonomous Vehicles.
The report’s opening line does a pretty good job of summing up KPMG’s opinion on the matter: “The conversion to autonomous vehicles will change the amount, type, and purchase of automobile insurance.”
“It could bring about the most significant change to the automobile insurance industry since its inception,” says Jerry Albright, a principal in KPMG’s Actuarial and Insurance Risk practice.
“The risk profile of [self-driving cars] is making the roads safer,” he adds. And the resulting drop in industry loss costs may reduce the size of the auto insurance market by as much as by 60 percent within 25 years.
That news should please a lot of car owners. For starters, Joe Schneider, managing director at KPMG Corporate Finance LLC, says the rise in driverless vehicles should allow them to “demand lower premiums to reflect fewer accidents.”
People with poor driving records could benefit too. “The safety technology of driverless vehicles may reduce their risk profiles,” Albright says. And that might make them eligible for more standard policies and lower rates.
Carmakers May Be Ready, But Car Insurers Are Not
Just don’t hold your breath waiting for insurers to introduce any or all of these changes.
The majority “believe they won’t feel the effects of autonomous vehicles on their business for at least another decade,” Schneider says. Also, most “have done little to prepare for the potential disruption.”
That lack of preparation could haunt them down the road, Celent senior analyst Mike Fitzgerald recently told the Financial Post.
He believes auto insurers should “put themselves in the position of record companies before iTunes came out.” It was “years before they could really see how they were going to change their business model to accommodate the new technology.”
For all sorts of obvious reasons, leaders in the insurance space should be wary of following in those footsteps. Consumers should be wary too – especially of those who suggest car insurance rates will decrease or disappear anytime soon.
After all, says Robert Peterson, that won’t happen until fully autonomous cars take over our highways and byways.
When it does, “responsibility for crashes [likely will] shift more to the commercial side,” adds the Santa Clara Law professor. As long as people buy and use vehicles that let them control some part of the driving experience, “there will still be a role for … traditional auto insurance.”