Dan Peate, a venture capitalist in California, was thinking of buying a Tesla Model X a few years ago—until he called his insurance company and found out how much his premiums would rise.
“They quoted me $10,000 a year,” Peate recalled.
For all the concern over accidents involving driverless cars, including Tesla’s troubles with its limited self-driving “Autopilot” mode, it’s easy to forget one of the supposed virtues of autonomous vehicles: they will make the roads safer.
A sophisticated array of lidar, radar and cameras is expected to be more adept at detecting trouble than our mortal eyes and ears. And computers never get drunk, check Tinder or fall asleep at the wheel.
Peate, 40, wanted to launch a new firm specializing in insurance for vehicles with automated-driving modes (and eventually fully-autonomous cars), and on January 30 announced the creation of Avinew, with US$5 million in seed funding led by Los Angeles’ Crosscut Ventures.
Its insurance product will monitor drivers’ use of autonomous features on cars made by companies including Tesla, Nissan, Ford and Cadillac, determining discounts based on how often the feature is used.
Avinew has agreements with most manufacturers, and is working to tie up the rest, Peate said, allowing it to access driving data once a customer gives it permission. It said it expects to be writing policies later this year in select states.
The transition points to a larger, existential crisis for the multi-billion dollar car insurance industry. If nobody’s driving, why do we need auto insurance?
Premiums—and company revenues—are based on a driver’s likelihood of being in an accident and actual crash rates. With more than 90 percent of accidents caused by human error, taking the driver out of the equation is going to mean big changes for insurers.
“When you think of all these sensors and calibration, a little fender-bender could be a much more costly proposition,” said David Ross Keith, an assistant professor of system dynamics at the Massachusetts Institute of Technology.
As automation reaches Levels 4 and 5—fully autonomous capability with the option for a human driver to take over, and fully autonomous with no human involvement, respectively—insurance is going to change dramatically.
“It’s foreseeable that insurance is a much less consumer-facing industry in the future,” Keith said.
That’s because the driver won’t be the risky part. “Liability is likely to migrate from the individual to the manufacturer and the licensers of the software that drives the AV,” said Rodney Parker, an associate professor of operations management at Indiana University.
That means insurers will be selling more policies to companies and fewer to drivers: carmakers and suppliers of communications systems, software, and sensors are going to be on the hook for the failure of their products, rather than drivers paying for not checking their blind spot.
Nationwide is one insurance company that’s started thinking about this problem. Drivers today are rated based on factors including sex, age and driving history. “If we’re getting data from the vehicle, that rating changes dramatically and gets very complex,” said Teresa Scharn, associate vice-president of product development.
Determining who’s at fault when something goes wrong could get thorny in this new world. If the lidar goes on the blink, is that the carmaker’s fault or the supplier of the lidar? What if the driver failed to get the latest firmware update—so now it’s his fault? If a Cadillac with Super Cruise loses its internet connection, is that on GM or Verizon?
“As a society we’ll have to figure out who’s liable for these different things and that will determine who’s required to insure against what risks,” MIT’s Keith said.
Nationwide thinks the smoothest road ahead will be one on which insurers and automakers each have a hand on the wheel. “We’re working to build deeper relationships with car manufacturers,” Scharn said.
And if that sounds like it hints at mergers on the horizon between insurers and automakers, you’re not off the mark. Other analysts confirm “those conversations are going on as we speak.”