Written by: Ana Caceres-Silva, Professional MBA Class of 2018; James Dennany, Professional MBA Class of 2018; Katia Kobayashi Avanzini, Professional MBA Class of 2018
For today’s vehicle owners in the United States, buying auto insurance is not just a legal requirement; it is an expensive requirement. Drivers understand their auto insurance obligations. Auto insurance companies understand how to price their risks --after all, they have more than a century of experience with this model, along with historic data for underwriting traditional auto-insurance plans. But how will this change in the coming decades, as vehicles become more autonomous and perhaps become the norm?
As AV technology advances, traffic accidents will decrease. As accidents decrease so goes lower insurance premiums. It is an oft-cited statistic: more than 90%of all car accidents are caused by human error1. As AV becomes widely available and safety features are added, the human error factor will be reduced and the number of car accidents will dramatically decrease2. In fact, experts predict the reduction in accidents to be close to 81%. With fewer accidents, individuals will see a reduction in annual premiums3. It is estimated that premiums will drop 20% by 2035 and potentially more than 40% by 2050. Individual policyholders can expect this reduction to directly benefit them as average premiums decline.
Although this change will come with tangible savings for individuals, many issues regarding question of liability will need to be resolved. Accidents will still happen in the age of AV — caused by human error, hardware or software defects, or external conditions—and the resulting liability questions will gain complexity. We expect individual vehicle owners, product developers, and network providers will buy insurance accordingly. AV technology has the potential to allow insurers to easily identify causes of accidents and assign liability. Ultimately, questions of liability will still be decided by the courts, but we believe the benefits of reduced premiums will greatly outweigh the growing pains of liability considerations.
Despite the added complexity, savings on auto insurance premiums is certainly an attractive benefit of a future with Autonomous Vehicles and will be a part of a more affordable and robust transportation ecosystem available to us through this technology.
This blog is part of a series created under the direction of Bonnie Pierce, Lecturer in Strategic Management and Public Policy, for the GW Business School class “Business and Society: Autonomous Vehicles.”
1 U.S Department of Transportation. (2017). AUTOMATED DRIVING SYSTEMS 2.0. NHTSA. U.S Department of Transportation.
2 AON Empower results. (2016). Global Insurance Market Opportunities. AON Benfield.
3 Ibid.
