Question

Suppose your first job after graduating from college is working at a large insurance company. Your boss asks you to analyze the impact self-driving cars will have on revenues from car insurance policies. List four ways self-driving cars could impact the insurance industry. Justify your answers.

Answer 1

In the next decade or so, it’s predicted that our roads will be awash with driverless cars, with estimates that they will account for a quarter of global car sales by 2035. This will present either a huge opportunity for the insurance sector or a challenge that could lead to its downfall. Car insurance has long been a lucrative business, generating billions of dollars in annual revenue and supporting thousands of jobs. So the disruption promised by driverless cars is a genuine concern.

Impacts :-

• Automakers will assume liability

When an accident occurs without the involvement of a human driver, who’s liable for the damages — the manufacturer? That seems to be the consensus at this point. If you’re having a hard time believing that automakers will assume the cost of insurance in the event of an accident, that’s understandable. But the precedent has already been set.

• Insurance premiums will drop as accidents become rarer

As self-driving cars become the new normal, experts predict a sharp decline in accidents — over time, at least. There may be some initial hiccups as drivers and driverless cars mix on the road, since neither human nor AI drivers seem able to accurately predict what to expect from one another at this point. But eventually, there will likely be a downward trend in accidents. That’s a great thing, because an astonishing 37,000 people are killed in road crashes every year in the United States alone.

• The insurance industry may struggle as more drivers reduce or drop coverage

At a certain point — likely in the 2040s, by current estimates — drivers will realize there’s no longer a need to carry personal accident insurance. While there is a benefit to always carrying full coverage, society may end up in a situation where everyone invests in the minimum legal coverage required simply because they have to.

• The biggest impact to insurance companies will be the problem of not being able to have higher premiums for those with bad driving records

Right now a big part of insurance premiums is based around the punishment model, have an accident and you end up paying higher premiums even if it wasn't your fault. Likewise if you get a traffic ticket, your premiums skyrocket.