How will insurance industry respond to self-driving cars?

July 1, 2013 / 4 min read

In recent years, Google’s “self-driving” car has generated a great deal of publicity. According to Google’s statistics, its fleet of about a dozen vehicles has logged more than 300,000 miles of autonomous driving. That includes both city and highway. There’s a YouTube video that shows a Google car making a left turn at an intersection and actually stopping to allow a pedestrian to cross the street. In fact, the only reported accident involving any of these cars occurred after the driver disengaged the automation to operate the vehicle manually.

Injury Rate Decrease Chart

What kind of effect might an autonomous car have on society in general and auto insurance in particular? The technology has the potential to make a significant impact. Over the decades, improvements in automotive technology — from seatbelts and airbags to antilock brakes and electronic stability control — have reduced accidents, fatalities, and injuries to record lows when compared against the total number of miles driven.¹ As shown on the graph below, from 1988 through 2011, the injury rate per vehicle-mile driven dropped more than 50 percent. And since claim costs account for the bulk of insurance expense, that trend puts downward pressure on auto premiums.

Impact of Autonomous Cars

The fully automated vehicle

How do the Google cars really work? They’re actually loaded with sophisticated gear. Here’s a rundown of what they use:

a Velodyne 64-beam rotating laser mounted on the car’s roof, which generates a high-resolution 3D image of the environment surrounding the vehicle
four radars mounted on the bumpers, essentially on each “corner” of the car
a forward-looking camera mounted near the rear-view mirror for detecting traffic lights
a GPS and an inertial measurement unit
a wheel encoder (a device that monitors wheel rotation, enabling sensors to track even the smallest movements of the car)

And there’s more. Before the Google car drives on its own, engineers drive it over the proposed route one or more times to gather detailed images of the environment. Once the equipment records those images, the car can compare the images it generates during autonomous driving with those captured previously. Differences between the before-and-after images allow on-board computers to distinguish stationary objects from other cars or pedestrians.² What does all this technology cost? About $150,000.³

So, when will fully automated cars make it to a showroom near you? Not as soon as the publicity might suggest. While Google cars are truly impressive, the technology is still expensive, and the cars fall short of “full automation.” Full automation would include the ability to summon an empty car from a parking garage through an app on your smartphone. The car arrives shortly to whisk you and your family home — with no human intervention necessary. No one has to lay a hand on a steering wheel or a foot on a pedal.

The partially automated vehicle

If driverless cars aren’t around the corner, what is? Cars with features that fall into the category of “partial automation,” often referred to as assisted driving, are a closer reality. Technologies include lane keeping, adaptive cruise control, and automatic braking. The lane-keeping function steers the car so that it stays in its lane even as the highway changes direction. The adaptive cruise control applies brakes or throttle to maintain speed while keeping the car a safe distance from other cars. And automatic braking applies the brakes if it senses the car is tailgating or a collision is imminent.

Implications for auto insurance

What does all this mean for auto insurance? In the near term, advanced technologies have the potential to continue the downward trends in accident, injury, and fatality rates, thereby keeping claim costs under control. But as more vehicle functions and operations achieve automation, those advancements also have the potential to change how insurers price risk. While insurers currently base pricing more heavily on driver characteristics, increased automation may shift the emphasis toward vehicle, usage, and geographic characteristics.

What about the long term? Given what appears to be the inexorable advance of technology, it’s hard to imagine that vehicle automation will go no further than assisted driving technologies. A time will come when today’s cars will seem to future generations as the Model T does to us. And that day may not be far off. (Maybe a classic car will be one that doesn’t drive itself.)

Does that mean accidents will no longer happen and auto insurance will be obsolete? Probably not. An accident-free world is only possible in a perfect world. Auto insurance in some form is likely here to stay. It’s just going to be different.

1. http://www-nrd.nhtsa.dot.gov/Pubs/811701.pdf
2. http://spectrum.ieee.org/automaton/robotics/artificial-intelligence/how-google-self-driving-car-works
3. http://content.usatoday.com/communities/driveon/post/2012/06/google-discloses-costs-of-its-driverless-car-tests/1#.UbooMtjiHj