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Driverless Cars and the Future of Automobile Insurance

Insurance Insights

Automobile insurance premium rates have been on the rise for the past several years, and they are expected to continue to increase in the immediate future.

What is behind the higher rates and how might rapidly evolving technology affect automobile insurance in the years to come?

How Technology Is Affecting  Auto Insurance Premiums

Technology has been a double-edged sword when it comes to automobile insurance loss results. Many technological developments have resulted in significant safety advancements for vehicles. However, there are a few ways in which new technology has caused auto insurance rates to increase.

Technology has given people the ability to text and talk on the phone while driving. Fumbling with GPS and MP3 players is another diversion from the task of driving. According to the National Highway Traffic Safety Administration, in 2016 alone, 3,450 lives were claimed in accidents involving distracted driving. An additional 391,000 people were injured.

Another factor affecting auto premium rates is that newer cars contain high-tech features and materials. Although many of these advancements are designed to make cars safer, the unfortunate fact is that even small fender-benders are now quite expensive to repair.

Complex sensors and digital components in car bumpers, doors, and mirrors need to be replaced if they are damaged. The advanced technology means that more steps, time, and skill are involved in even the smallest repair, and special equipment is needed to recalibrate the vehicle, which adds to the cost.

How Technology Is Being Developed to Reduce Distracted Driving

The issue of distracted driving is being addressed, but human behavior is difficult to change. Most new cars include Bluetooth hands-free cellular phone access and text messaging, although concerns remain that “hands-free” does not prevent cognitive distraction.

Companies are developing apps that halt all cellular communications while driving, but they only work if you make an effort to use them. This will be an ongoing challenge.

Some insurance companies allow drivers to install a device in their car, or download an app, that monitors their driving habits over a period of a few months, measuring such things as sudden stops, speed, and distance and hours driven. The insurance companies then adjust their premium rates to reflect the individual’s driving habits.

Driverless Cars: An Emerging Reality

Undoubtedly the biggest jump in the advancement of automobile technology will be the common use of driverless cars. Autonomous vehicles are expected to gradually become a reality over the next decade.

In the world of autonomous vehicles, distracted driving – and, eventually, all human error – will be removed from the equation. Accidents caused by inattention, driver intoxication (or other impairment), fatigue, errors in judgment, or slow reaction time will be eliminated.

Autonomous cars are expected to evolve through several levels of capability as technology progresses:

  • Level 0: No autonomous features
  • Level 1: Cars can handle one task at a time, such as automatic braking
  • Level 2: Cars have at least two automated features
  • Level 3: Cars can handle “dynamic driving tasks,” but might still need driver intervention
  • Level 4: Cars are officially driverless in certain environments
  • Level 5: Cars can operate entirely on their own without any driver present

Source: SAE International

We are currently somewhere between Levels 0 and 1.

The Future of Automobile Insurance

If technology advances as predicted, the changes to personal automobile insurance will be significant.

Premiums will decrease as accidents caused by human error will rapidly decline. Widespread adoption of self-driving cars could eliminate 90 percent of auto accidents in the United States, according to a report by McKinsey & Co.

Questions of liability will arise when cars reach the capabilities of Levels 2 and 3 listed above. For example, was the accident the fault of the driver, or was it a programming/technology failure of the car?

Eventually, when cars reach the capabilities of Levels 4 and 5, liability for accidents will likely be placed solely on the car manufacturer, rather than the individual owner.

So, although consumers will probably see auto insurance premiums continue to climb before they fall, in the not-too-distant future, personal automobile insurance could become much less costly, or even obsolete, and go the way of pay phones and folding road maps.

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