How Will Self-driving Cars Affect Your Insurance Agency?

Innovation in one sphere will often influence another unintentionally. For example, when Edison created the light bulb, electricity quickly became standard in many homes, which then decreased the need for kerosene.

Did Edison mean to disrupt the kerosene industry? I doubt it, though I could be wrong. My guess would be that he wanted to create a product, and was thrilled that he had invented something that would change the lives of people all over the globe. Still, it had a major impact on a completely different industry.

We can apply that to Tesla and the self-driving car. Tesla has not only created some pretty slick cars, but is soon going to be offering self-driving cars to consumers. As an insurance agent, there are lots of questions, like who will cover the liability, and how?

These are good questions. I’ll give my opinion on these points, which can change based on more information. Don’t judge me if it’s 2030 and I was way off. With that nice little disclaimer, let’s dive in:

Who will cover the liability?

Here is a handy dandy chart, courtesy of Dragan Radovanovic of Business Insider and their worthwhile read on self-driving cars to help me explain:

Here’s how I see it playing out: if there is a steering wheel, it means that there is a human element, and the owner needs to have a policy in case he is driving. I would also guess that there may be discounts if a car is self-driven more, and it will be tracked in some fashion, perhaps similar to how progressive, Safeco, and others can currently track your driving to get discounts.

Once the steering wheel is completely gone (level 5), I believe the only thing that makes sense is to have insurance fall back on the manufacturer. Don’t start to panic yet, as we’re probably a ways off from that.  However, the technology for autonomous driving is rapidly approaching, and someday it may be illegal to drive (though I doubt it).

However, when self-driving cars become safer than human-driven cars, the public may outlaw the latter. Hopefully not.

— Elon Musk (@elonmusk) March 17, 2015

How will insurance work on self-driving cars?

Well, for starters, Tesla is planning on selling lifetime insurance with the vehicle purchase price.  Pretty crazy, right? Don’t freak out yet, because right there in the article it clearly states that Tesla itself will not be trying to reinvent the wheel:

Musk insisted that this move is not about disrupting the insurance market — as long as insurance companies agree to play nice. "If we need to we’ll insource it," he said of the included insurance plan, "but I think we’ll find that insurance partners do adjust rates proportionate to the risk of a Tesla.

They are planting seeds to let insurers know that they expect to deserve a discount.  I see this working out in one of three ways.

The first is that insurance companies as whole will start to work out discounts for self-driving cars. As there is more data available for actuarial tables, the rates and competition will begin to level out. It will be a fun development, and agents can keep the lion’s share of business if it works out this way. The insurance would be similar to how insurance is included in a home purchase: provided by a third party, but included as part of a monthly payment.

The second is that one or two insurance companies will “bid” on being the insurer of choice, and will take out the agent all together.  If Tesla is planning on including insurance in the purchase price, my guess is someone like Geico, Liberty Mutual, Progressive, or another forward-thinking insurance company would try to create a program specifically for Tesla.

In a recent article, we wrote that agents bring value to companies by marketing and doing service (among other things).  If a company has an automotive referral each time Tesla sells a car, I believe they may be willing to circumvent the agent and offer a discounted price to ensure that they get all of the business.

The third option is that Tesla gets into the insurance game. I honestly don’t see this is terribly realistic (until level 5), since Tesla probably isn’t eager take on someone’s liability. They may have confidence in the self-driving car, but not in the human. Or in the US legal system. 

Accidents - the human element.

However, if Tesla can’t work out a deal with a company to get what they want, this is a possibility - however unlikely for now.

There are other scenarios, like Tesla covering comp and collision, and outsourcing liability to the insurance companies themselves.  There are lots of ways this could work out.

In conclusion:

 Ultimately, I do believe that change is certainly on its way, and this is something that most insurance agents are aware of. Although Tesla is known for the self-driving car for now, I believe that it is only a matter of time before the software is available to all car companies, and an autonomous vehicle will be somewhat common. What is happening right now will be fascinating as it will undoubtedly influence what insurance looks like in 20 years.

If you’re feeling nervous, don’t fret. Insurance companies have been around much longer than cars.  As long as you can prove value as an agent (or carrier rep, or whatever position you hold), you should be in good shape! Also, there is always safety in commercial insurance ?

How do you think insurance will respond to autonomous cars? 
How will they affect the industry?

Ben Griffioen