Back in 2010, the technology was already in place for Google driverless cars to travel through the streets of Washington, DC, drawing information from Google Street View that would be interpreted alongside data gathered from on-car sensors. All of the information would then be processed using artificial intelligence software to guide the Google driverless car car through the city. This technology is now keeping insurance providers from getting a full night’s sleep.
With the Google Self-Driving Car Project set to roll out to customers in select US cities later in 2015, car insurance providers are confused about how they should approach the situation. Providers expect for car insurance revenue to diminish if driverless cars erode sales of standard vehicles. Quite simply, this is because a driverless car will technically be safer than one driven by a person.
According to key business strategist Chunka Mui, more than $200 billion worth of revenue is generated from annual car insurance premiums in the US. Ultimately, it is estimated that a staggering 60-90% of that $200 billion figure would disappear if driverless cars succeed. And health insurance providers would also be negatively affected by a decline in car-related medical cases.
Google’s dedicated Self-Driving Car Project website reports that 1.2 million die every year from traffic accidents. Further justifying its upcoming launch, Google has explained that 94% of US traffic accidents are caused by human error. Thus, being able to remove human error from driving would revolutionise road safety.
However, expectations have to be tempered, as Mui forecast it would take until 2035 before driverless cars will achieve a 25% share of all global sales. But insurance providers are so concerned about the potential of cars that drive themselves that they are already trying to figure out how to cover a loss in premiums.
Warren Buffet is the legendary American entrepreneur who owns US insurance giant Geico. While speaking with Fortune.com, Buffet openly stated that cutting accidents by 30-50% “would be wonderful.” However, Buffett went on to honestly explain that his company “would not be holding a party” following such an outcome. As a respected philanthropist, it is fascinating that even Buffett has mixed feelings towards driverless car technology.
Another factor worth touching upon is the litany of hacking issues blighting connected cars in the US this summer. A number of car manufacturers have been impacted by hackers seizing control of their connected vehicles, but one of the most prominent occurred when Fiat Chrysler Automobiles had to recall 1.4 million cars after hackers breached connected driving software.
Hacking connected cars is extremely dangerous for drivers for a number of reasons, including their engine being killed or their brakes being disabled. Obviously, there is frightening potential for drivers of connected vehicles to become in dangerous accidents if their cars are hacked.
In theory, connected vehicles are supposed to be safer than normal models, but there could be a trend of rising premiums until the consistent stream of hacking stories ends. Google will need to convince potential customers that its driverless cars will not have the same hacking issues as those encountered by connected car manufacturers. Of course, Google does have superior experience with developing sophisticated digital systems that are tough to hack.
Here in the UK, insurance providers will scrutinise the US driverless cars market from the moment Google sells its first vehicle. Like their US counterparts, UK providers will be eager to have contingency plans in place for covering a 60-90% loss in car insurance revenue. But like Buffet indicated, some insurance providers could prefer for driverless cars to be little more than a niche market, though that is to be expected in business.
For now, one of the potential future solutions for providers is to come up with insurance packages that can be offered to Google and other manufacturers of the driverless car. Manufacturers will be liable for any damages caused by their creations, so it will be on them to have insurance in place. However, the potential revenue would likely be lower than the current market because driverless accidents will likely be less frequent than those caused by human error.