Self-driving cars will become mainstream. It’s not a question of if anymore, it’s a question of when. Tesla is clearly leading the pack now but consumers can expect to see more autonomous features released with other popular car manufacturers in the near future. So, how will this influx of autonomous vehicles affect the auto-insurance industry?
One of the most touted features of autonomous vehicles is their safety. The thinking goes that with more sensors, and computers able to react faster than any human, that self-driving cars will make the roads safer. It stands to reason, that if that is the case that insurance for self-driving cars will be cheaper than an insurance policy for a traditional vehicle. As it turns out, the opposite is true.
Dan Peate, a venture capitalist and entrepreneur in Southern California has identified this issue and is working to create a company to address this specific issue. According to Bloomberg, Peate was considering purchasing a Tesla himself when his traditional auto-insurer quoted him at $10,000 a year—substantially more than a auto-insurance would cost for a non-autonomous vehicle. That experience was all the confirmate Peate needed to move forward with his business idea.
What is interesting about this scenario is that while insurance for self-driving cars costs more now, it will likely cost less in the future. The problem comes down to data. Insurance is an industry that is entirely predicated on data analysis. When a new product comes out, like a self-driving car, the lack of data surrounding that product makes it more expensive to insure. As more data is gathered, and it becomes clear that self-driving cars are in fact safer than normal cars, we can expect the insurance rates to drop.
Thankfully, that data will come more quickly with self-driving cars than with other products because these vehicles are constantly gathering data about their performance. Right now the individual companies own that data, but you can bet Tesla and others will be happy to share it with insurers if it will make their cars more desirable to the average consumer.
The truth is that that transition will be slower than most people expect. Tesla represents the first generation of autonomous vehicles. Everyone knows that more are coming, but unless there is sweeping legislation, it will be decades before a statistically significant number of drivers switch to truly driverless cars. Until driverless cars are more common, insuring them will always be more expensive.
What is going to change the car insurance industry first is the influx of data that all of these modern cars are constantly collecting. Teresa Scharn, associate vice president for product development at Nationwide spoke with Bloomberg about this. According to Scharn, “If we’re getting data from the vehicle, that rating changes dramatically and gets very complex…it’s getting to be an even bigger muscle that we have to flex.”.
The nature of private transportation is changing and the insurance industry is going to have to adapt with it. No one knows exactly what that is going to look like, but everyone paying attention understands that changes are inevitable.