Auto Industry Shakeup, Part 2: Insurers Anxious About Autonomous Cars & Shrinking Profits

March 6, 2015

Yesterday, we discussed automakers' growing concern over Apple and Google. They're not just worried about the tech firms' plans to begin selling autonomous vehicles by 2020, they're also worried about the ways in which autonomous vehicles themselves will radically change the auto industry.

As it turns out, though, automakers aren't the only ones concerned about self-driving cars. Insurance companies have taken notice, too -- and they're warning investors that autonomous vehicles could put some big, ugly dents in their bottom lines. An article published by the Wall Street Journal (syndicated at Marketwatch) cites three firms that have included notices in their annual reports, pointing out that automotive autonomy has the potential to disrupt the insurance industry's very profitable business model.

That's because, even though we hate to admit it, self-driving vehicles will cause fewer accidents than those with human drivers. Fewer accidents means less risk, and in the world of insurance, less risk means lower rates. That, in turn, means slimmer profit margins for insurance companies.

Naysayers have countered that autonomous vehicles will be prohibitively expensive at first, which will slow consumer demand. That's probably true, but remember: insurance is a major cost of vehicle ownership. As a recent survey demonstrated, if insurance companies begin offering significantly lower rates to owners of autonomous vehicles, that could be a game-changer. Depending on the discount, some owners could do the math and discover that they'll pay far less over the life of their vehicle if they shell out more upfront for an autonomous ride.

And that's not the only problem that self-driving cars pose to the insurance industry's status quo: 

  • As autonomous vehicles begin gaining traction, demand for pricier insurance plans -- the ones with low deductibles and high coverage -- could shrink, as the odds of needing so much coverage diminish.
  • Simultaneously, owners of non-autonomous cars could also see a rate drop. Even though their vehicles will still rely on human drivers, they'll be operating on roads full of self-driving cars, reducing their own risk of winding up in accident. 
  • Even before we reach an era full of autonomous vehicles, we will have entered an age of geotrackers -- that is, devices that calculate how far and how often we travel. Such devices are already being used by insurers like Progressive to set rates, and because much of their technology overlaps with that found in autonomous systems, the two are evolving hand-in-hand. Geotracking has the potential to magnify the expected drop in insurance rates, particularly among people with short commutes.

(As a side note, the article mentions that auto parts suppliers are also worried about self-driving cars. If autonomous vehicles usher in an era of fewer accidents -- as they almost certainly will -- consumers will need far fewer replacement parts for their vehicles.)

We doubt that many of you are worried about insurance company CEOs starving in the streets, but on the off-chance that you are, remember: they'll still be charging you through the nose for your homeowners insurance and life insurance, not to mention non-autonomous vehicles like boats and motorcycles. Everything's going to be fine.


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