Driverless cars could cut insurance premiums by 80%
Driverless cars, better data usage and the rising popularity of car sharing are set to drive car insurance premiums down by up to 80% according to a study from Boston Consulting Group (BCG) and Morgan Stanley.
Car insurance is one of the largest sectors of the insurance industry, accounting for 42% of total property and casualty insurance in the US, but research found that the cost of car insurance is set to decline dramatically over the next 25 years.
Self-driving cars are expected to cut the cost of premiums by reducing the severity and number of accidents - studies have shown that around 93% of car accidents in Australia are caused by human error - and car sharing will mean there are less vehicles on the road and being insured to begin with.
“You have got a cocktail of different effects, from speed controls to connected technology and autonomous features,” said senior partner at Boston Consulting Group, Miguel Ortiz.
“The industry won’t feel the heat for the next five years or so but then things will accelerate.”
Insurers are bracing for the time when these changes really do start to redefine the industry.
“I find it difficult to use the phrase ‘pessimistic’ if we’re talking about safer roads,” said David Williams, technical director at Axa. “If accidents happen less and cost less, premiums will come down. The problem is quantifying it.”
“I think the impact will be really gradual and those insurers who embrace it will be able to deal with it more easily.”
Aussies are largely hopeful about the prospect of autonomous vehicles - an ADVI survey recently found that 47% of Aussies think self-driving cars will be safer. 76% said they would use a driverless car when they were feeling tired or fatigued, though only 28% thought they’d be likely to actually fall asleep in a self-driving car.
Boring commutes (69%) and heavy traffic (60%) were other areas where Aussies were happy to hand over the wheel to an autonomous vehicle, although they were more reluctant to use the technology picking kids up from school (25%).
But Williams, who also chairs the Association of British Insurers’ research group on driverless cars, says the transition to these vehicles may not be as smooth as we all hope.
“The bit we haven’t got to grips with is that accidents will be fewer but, as people switch between autonomous and fully controlled vehicles, there could be more larger claims. If the car is doing a lot of the work for you, you’re going to be practising your skills less,” he said.
The shift toward driverless cars might also change the way people purchase car insurance. At the moment, 80% of car insurance policies are bought by consumers, but commercial buyers, like carmakers, are expected to dominate the industry by 2040. By that year, individual drivers might make up only 30% of car insurance purchases.
“If you move from insuring a bunch of personal vehicles to insuring an Uber fleet, the chances are that Uber can manage the risk for their pool of drivers. The potential to self insure when you have a pool is much higher than it is for individual drivers,” Ortiz said.
In the meantime however, Aussie drivers should make sure they’re safe on the road with a comprehensive car insurance policy. You can find and compare some of the best deals around at Mozo’s car insurance comparison page.