Who is at fault in an auto accident? No driver to cover based on your age or accident history, this is a great question. Safety improvements should also reduce claims, threatening to erode the nearly $ 200 billion that only car insurance premiums reach annually in the United States.
Warren Buffett, president of Berkshire Hathaway (NYSE: BRKa), owner of insurer Geico has said that driverless cars will be bad for business. Allstate has echoed the sentiment and is spending money on data scientists and other ways to develop new products and services.
What is bad for insurers may be good for society, but only if existing structures evolve to encourage computerized drivers once they are safer than humans. Regulations are important, as is the assignment of blame in accidents. Liability premiums reached $ 116 billion in 2015, according to the Insurance Information Institute, a business that could be drastically reduced and changed.
Existing technology requires drivers to stay alert. Tesla Motors (NASDAQ: TSLA), for example, has made it clear that its autopilot system is not fully autonomous. Vehicles without a driver in the test phase also have people behind the wheel. However, with full autonomy probably only a few years away, insurers need to know if the responsibility will lie with the owner, the automaker, the software developer or any other. The first money is in a move to manufacturers like General Motors (NYSE: GM) or potentially to Google (NASDAQ: GOOGL), perhaps with insurance essentially covered in the selling price. That would be a radically different model from what exists today.
Most accidents are caused by human error, so ensuring a standalone vehicle should cost less. Despite driver assistance systems, claims continue to increase in the United States. It is not clear which technology or time frame will change this situation. A new risk is that cars will need software upgrades and, most likely, real-time connectivity. The potential cost of cyber security failures that allow entry or viruses or hackers is huge.
The US government unveiled in September a policy of autonomous vehicles that will guide the debate. In November, Michigan passed the first state legislation that provides for fully driverless vehicles, compared to the simple tests already allowed in half a dozen other states.
If the crashed May 2016 accident involving the Tesla autopilot system ends in court, or if a similar case arises, we might have some more legal light on this issue. as well. Overall, 2017 should help insurers have the information they need to have greater control of cars without drivers.