Insurance Industry Braces for an Uncertain Future as Driverless Motoring Becomes a Reality

Quadrant Information Services predicts a surge in insurance rates as a game-changing technology begins to upend auto coverage.

(Pleasanton, CA) October 26, 2016—On September 14, car hire service Uber brought the long-predicted driverless future measurably closer when it launched its first fleet of self-driving cars on the streets of Pittsburgh.1 Concurrent with the launch came the announcement of a partnership between Uber and Swedish automaker Volvo, wherein Volvo will provide Uber with its first self-driving model, the Volvo XC90, which has left the assembly line and is now ready for testing by the public.

“This opens a new chapter in the history of automobile insurance,” said Michael Macauley, CEO of Quadrant Information Services, a leading supplier of pricing analytics services to property and casualty insurance carriers. “For more than one hundred years, our industry has worked to protect the motoring public. We will continue to do so in the future, but we’ll be operating in a significantly altered landscape.”

Per the Volvo announcement, the XV90 model will be placed in the hands of Swedish drivers in 2017, followed by drivers in London and China. Volvo committed to the self-driving concept through its partnership with Uber; it has also partnered with parts supplier Automotiv to develop a software platform for autonomous driving that can be sold to other manufacturers.2 Meanwhile, other manufacturers have announced plans for the introduction of self-driving cars. Ford, for example, plans to roll out its first fully autonomous cars for ridesharing by 2021. Google is aiming for 2020, and Tesla plans to make its vehicles part of a car-sharing network once they are fully autonomous.3

The emphasis in all these announcements, Macauley noted, is on ridesharing rather than individual ownership. Both automakers and tech companies predict that the traditional car ownership model will dwindle with the rise of self-driving cars. The theory is that it will be cheaper for a consumer to just hail a driverless car than to own a personal vehicle. Indeed, Merrill Lynch predicted in a 2015 report that driverless taxis for companies such as Uber will comprise 43% of new car sales by 2040. A somewhat more conservative estimate from the Boston Consulting Group predicted that 23% of global new car sales will come from driverless taxis by 2040, resulting in a decline in vehicle ownership, especially in cities.4

The automobile has been omnipresent for many decades, and the effects of taking the driver out of the equation will be far-reaching and, at this point, impossible to predict with any accuracy. What is clear is that it will have a disruptive effect on a number of major players, among them insurance carriers. Early last year, in fact, publicly-held companies such as Cincinnati Financial Corp., Mercury General Corp. and Travelers Cos. warned stockholders that the technology could transform consumer demand, the way policies are

priced, and the patterns of crash frequency and severity that insurers use to predict their risks.5

“All of which is true,” said Macauley. “For property and casualty carriers, things are going to fundamentally change. However, that doesn’t mean that the sky is falling. Insurers may sell fewer individual policies or have to cover fewer accidents, but these more technologically advanced cars may very well be more costly to repair—against which possibility their owners will need to be insured. In the short- to middle-term, we’re predicting a surge in rates as the costs of this technology become more apparent.”

A major and still unanswered question has to do with liability: if somebody hits you and there’s no driver, whom do you sue? Crashes will happen, almost certainly resulting in litigation against car and software manufacturers—shifting at least some of the expense from consumer auto insurance to commercial liability policies. Macauley believes this transition will happen gradually and that there will be time to adjust and change business models as necessary.

Macauley added that the key thing is to stay abreast of events to minimize surprises. Quadrant will be staying right on top of the transition to driverless cars, and will be factoring information into calculations as fast as they come in. Insurers have a big wave of change to negotiate.

About Quadrant Information Services:

Quadrant Information Services, headquartered in Pleasanton, CA, provides pricing analytics solutions for property and casualty insurance companies. Quadrant gives actuary, product development, pricing, sales, and marketing personnel at its client companies—which include all the major insurance carriers in the United States—the data they need in order to make accurate, data-driven decisions. An industry innovator since its founding in 1991, Quadrant has provided the P&C insurance field with a long series of technological advances, including InsureWatch, the industry’s first cloud-based pricing tool, which allows the user to produce unlimited combinations of reports with the click of a mouse. For more information, and to learn why Quadrant is for insurance companies that are tired of losing the right customers and winning the wrong ones, please visit www.quadinfo.com.

1. Ranosa, Ted, “Uber Self-Driving Cars Hit Streets in Pittsburgh: Could This Be The End For Human-Driven Rides?”, Tech Times, September, 2016. http://www.techtimes.com/articles/177757/20160915/uber-self-driving-cars-hit-streets-in-pittsburgh-could-this-be-the-end-for-human-driven-rides.htm.

2. Adamczyk, Ed, “Volvo builds its first self-driving car,” UPI, September 13, 2016. http://www.upi.com/Business_News/2016/09/13/Volvo-builds-its-first-self-driving-car/1181473763575/.

3. Bigelow, Pete, “Ford Promises Fully Autonomous Cars by 2021,” Car and Driver, August 16, 2016. http://blog.caranddriver.com/ford-promises-fully-autonomous-cars-by-2021/.

4. Muoio, Danielle, “Uber is winning the driverless race, even though it isn’t using its own cars—here’s why,” Business Insider, September 14, 2016. http://www.businessinsider.com/how-uber-is-winning-when-it-comes-to-driverless-cars-2016-9.

5. Francis, Theo, “The Driverless Car, Officially, Is a Risk,” Wall Street Journal, March 3, 2015. http://www.wsj.com/articles/will-the-driverless-car-upend-insurance-1425428891.

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