Self-Driving Cars: The End of the Car Insurance Era?

For those of us who are old enough to remember the Jetsons, the idea of afuturistic utopia of flying self-driving cars, video calls, and robot butlers were more of a fantasy than a reality. Sure, we imagined that our world would someday look like that, but how many of us actually believed we would get so close to some of these inventions in our lifetime?

Think about it: we already have the capability to make video calls from our mobile phones, tablets, and other modern devices. We have robot vacuum cleaners for now, but companies are starting to shape the reality ofrobot butlers, too.

By far the most exciting Jetsons-esque achievement we're getting ever so close to making a reality is self-driving or automated cars.

Pretty soon, we'll just need to plug our final destination into the car's database while we sit back and enjoy the ride to get there. Everything from changing lanes to parallel parking will be done for us. Since driving will be automated, and accidents will be a thing of the past, the mere notion of car insurance may be considered unnecessary.

While it sounds ideal for you not to have to worry about paying your auto insurance premiums, car insurance companies will be wondering how to find their place in our new future. After all, if we're not technically driving, we really don't need to be covered for accidents, do we?

Well, sort of.

Now that we're on the edge of this new reality, we're going to spend time today discussing how self-driving cars will indeed affect our future and the future of the automobile insurance industry. Today's article will tackle everything from what a self-driving car can technically do to how our world will change when these become our preferred mode of transportation.

Let's start with the basics.

What is a Self-driving Car?


As the name suggests, a self-driving car is a vehicle that can sense its environment and navigate accordingly without the use of human interference. It's like having a computer chauffeur for your vehicle.

Essentially, automated cars are wired and programmed to detect differences in the road during driving by using sensors. These electronic sensors pick up information from other cars nearby to avoid collisions and keep traffic flowing safely. They even help the car judge how wide lanes and parking spaces are during navigation.

As the sensors gather this valuable information, signals are sent to the main control panel. The computer then delivers further instructions as to what to do next and then those moves are executed.

So can you just set it and forget it?

Autopilot Goes Beyond Cruise Control

Unlike the Jetsons' ride, we're not completely driver-free just yet with the self-driving models currently in testing and production. Such cars like the Tesla Model S are still technically being controlled by the driver and not the car. Because of this, these are considered to be semi-autonomous vehicles.

A pioneer in the technological advancements of self-driving cars, Tesla's autopilot system is a true game-changer. Essentially, this technology mimics what airplane pilots use on a clear day. You can think of it as a more advanced cruise control. Drivers set their car to their preferred speed, and the car does the rest.

At times the driver may be "hands-free" but, they're always in control of their vehicle.

How is that possible you ask?

According to Tesla, "A forward radar, a forward-looking camera, 12 long-range ultrasonic sensors positioned to sense 16 feet around the car in every direction at all speeds, and a high-precision digitally-controlled electric assist braking system" are responsible for making this possible.

The designers boast that they're the first company to combine four feedback modules (camera, radar, ultrasonics, and GPS) to work together to make autopilot functional and safe.

As these four units work together cohesively, the system continuously sends real-time feedback to the Tesla team to ensure that all systems are continually improving and updating.

Now you may be thinking, Okay, but what can it do?

The Tesla Model S can change lanes using a simple tap, keep the vehicle in its lane, and use "traffic-aware" cruise control to maintain a legal and safe speed. Digital controls also steer the car to avoid accidents and keep the vehicle from veering off the road.

Tired of looking for parking? Well, the Tesla Model S can also scan the parking lot for you as well as give you a heads up when a spot becomes available. Heck, the car will even parallel park for you.

As the innovative brand boasts, "Tesla Autopilot relieves drivers of the most tedious and potentially dangerous aspects of road travel."

What About Google's Self-driving Car?

On top of Tesla paving the way with automated vehicles, Google also decided to jump on board with the idea of creating its own self-driving car prototype so as not to be outdone in the innovation world.

According to the Google Self-Driving Car Project, here's how it works:

  • The car determines where it is first using maps and sensor information
  • Sensors then detect what's around the vehicle
  • Special software is used to identify and classify objects nearby based on their size, shape, and movement pattern
  • The software anticipates the object's movement pattern next (cyclist will ride forward, pedestrian may cross) and executes a safe speed and path accordingly
  • In the case of a cyclist or pedestrian, the car would move around it automatically

Now, unlike the Tesla, Google's vehicle does not have a steering wheel or pedals. The inside is designed for lounging, not driving, according to the project. This means that the Google car is fully autonomous as opposed to Tesla's semi-autonomous status.

As a side note: the Google pod is also running on electric batteries instead of gasoline.

Google's Self-driving Car is On the Road


No, you can't buy one of these adorable space pod looking self-driving cars yet, but the Google team is testing them on public roads. Keep an eye out for this tiny pod zooming around in states like California, Arizona, and Texas.

You may also see Google's Lexus SUVs on the road. These have been modified to be self-driving, and they're out in public, too. Of course, as the picture suggests, they're clearly marked so you can tell right away that it's a Google self-driving car.

"We've driven more than 1.5 million miles and are currently on the streets of Mountain View, CA; Austin, TX; Kirkland, WA; and Metro Phoenix, AZ," according to the Google Self-Driving Car Project.

Rest assured; these cars are running with safety drivers inside.

Speaking of safety drivers, you may be wondering how safe these self-operating machines are when it comes to accidents—and that's a good question.

According to Google, while the self-driving cars have been involved in a few accidents, they've never been responsible for any of them. But obviously, that's not to say that accidents won't ever happen.

In this article, Google reps explained a tricky situation that occurred when the self-driving vehicle was traveling slowly at 2 mph and clipped a bus traveling at 15 mph. Both the driver of the Google car and the bus driver assumed that the other driver was going to stop. Neither did so they were both in the same spot at the same time.

Luckily, no one was hurt in the incident, and Google reps uncovered an unpredictable, but possibly common, situation everyday drivers might experience. This meant they were able to update the software for this "bug" given this new piece of information from their real-world testing.

A Sneak Peek into the Google Car

If you're anything like us, you're probably wondering what it's like to drive in one of these pods. Well, the mystery has been cracked by someone at the Oatmeal who did all the snooping we were craving.

The first standout observation noted by the Oatmeal was the timid nature of the Google pod. "It drove slowly and deliberately," they write. And as it turns out, the Google pod is programmed to be less aggressive thanks to previous dry runs.

According to the article, earlier (more aggressive) versions were tested on closed courses and struggled to slow down in time when traffic cones and crash-test objects were present. As a result, the previous vehicles were always slamming on their brakes. Now, the latest prototype is much slower and not nearly as aggressive (read: much safer).

The writer at the Oatmeal also notes that after a few minutes, you don't even realize the car is driving on its own because it drives so much like a real person.

The last impactful point of the article focuses on how the technology is not 100% there, but is getting a lot closer.

Using their example, the Google pod was at a four-way stop and needed to make a right turn. Unfortunately for the pod, a pedestrian was waiting on the right side of the vehicle and proceeded to inch out as if they were planning on jaywalking. To err on the side of caution, the Google pod remained stopped instead of proceeding.

Now on one hand, it's better that the car stopped and didn't take the chance, but on the other hand, how often will these seemingly complex, yet incredibly common, situations throw off the sensors? If you live in a city, you'll see people crossing in the middle of the street while you're driving on a daily basis.

The good news is that when it comes to these types of situations, the car's priority is to keep driving safe. That means their self-driving car is more likely to stop than accelerate at any uncertainty. Which segues perfectly into our next point.

Studies Show Driverless Cars Reduce Accidents


"90% of motor vehicle crashes are caused at least in part by human error," according to Bryant Walker Smith of CIS. This means driverless cars should prove safer than traditional ones, right?

Let's take a look.

One report mentions that roughly 300,000 lives could be saved each year in the US alone, saving close to $190 billion per year in healthcare expenses connected to accidents, all from switching to driver-free vehicles. According to that math, 90% of accidents could be prevented from this one change. That's pretty impressive.

Another plus to using self-driving automobiles is that the number of vehicles on the road will eventually decrease thanks to more drivers choosing to carpool since they won't have to deal with the stress of physically driving.

These autonomous smart cars also give drivers with disabilities a chance to become more mobile. Older drivers and those with visibility issues won't have to worry about being able to see the road when they drive in inclement weather or dark, unlit areas at night.

And parents won't have to worry about their inexperienced teen drivers becoming distracted during driving since they won't have to be totally in control.

So if self-driving cars take away our driving capability, will we still need car insurance?

How Does This Affect Car Insurance?

Self-driving cars are not exactly what car insurance companies want to see in their version of the future. As Warren Buffett gently puts it, "Anything that cuts accidents by 30%, 40%, 50% would be wonderful, but we would not be holding a party at our insurance company."

If cars are automated and the number of accidents starts to decline, would we need car insurance anymore? Or could this be the end of the car insurance era?

The truth is, you may not even carry car insurance in the future. With automated vehicles, drivers could have enough coverage from their health or homeowners insurance to actually decrease their need for car insurance. According to Chunka Mui of Forbes, the insurance market demand may drop as much as 75%.

Yale student Jack Boeglin (as presented in Forbes) mentions a similar idea: "There would be no need for private insurance since all liability for AVs would be transferred to manufacturers."

Boeglin finishes by noting that, "Eliminating the entire automobile insurance industry (which has roughly $200 billion dollars in annual revenue) would be a monumental boost to administrative efficiency."

So what can auto insurance companies do?

Insurance Companies Must Shift Their Business Model

Mui also points out that, "Insurers make their profits on the float from their premium income, so plunging premiums spells doom for many insurers."

So what must they do to bounce back? A complete shift in their business model, according toMcKinsey.

Instead of providing everyday consumers with coverage for accidents involving human errors, car insurance companies will focus on insuring the manufacturers behind the technology. With this many computer components, technical failures are much more likely than human ones, meaning manufacturers will be held liable instead of the average consumer/driver.

By shifting from millions of small consumers to a few much larger ones, the stakes become much more costly (we're talking in the millions to billions range here). Since these figures may get to be so astronomical, manufacturers are likely to ask for more protection by law and will need to create technology that is so advanced it reduces their liabilities.

Plus, with this shift, insurance companies will be spending less money on covering individuals and more on covering the expensive technology instead. With these sophisticated machines, accidents are more costly to repair, especially if the damage is done to important, key sensors. They may not happen as frequently as with traditional vehicles, but when they do, they'll be much more costly to fix and maintain.

To compensate for this, insurance companies will probably increase the amount of coverage on your policy, but trust us when we say that you'll definitely pay extra for this each month.

How Soon Could This be a Reality?


As we mentioned earlier, these cars are already starting to hit the road. You may not have noticed them just yet, but you will fairly soon.

According to a recent article in Business Insider, "10 million self-driving cars will be on the road by 2020."

And it seems like those findings aren't too far off. According to McKinsey & Company, "Sales of autonomous cars, including driver control, will begin by 2025 and could reach 11.8 million in 2035; sometime after 2050, says IHS, almost all vehicles will be autonomous."

Are You Ready to Go Driverless?

If you're not so sure about self-driving vehicles yet, you're not alone; it doesn't seem like everyone is on board with the driverless revolution.

Let's take a look at the responses from a survey conducted by the World Economic Forum and presented inThe Motley Fool:

  • 58% of global respondents were willing to at least try a driverless car
  • 27% were "very likely" and 25% were "likely" in the United States
  • Developing countries were even higher, 85% in India and 75% in China

The research also discovered that, "Despite the relatively high number of people around the world willing to try self-driving vehicles, only 35% of those surveyed said they would let their children be driven alone in one. That suggests that despite a consumer openness to the idea, skepticism remains."

And that's not all. WEF also reported that "acceptance would be the biggest roadblock facing driverless cars at 56%, with technology following right behind at 44%."

But we're not so surprised there. Not everyone loves to jump on board the new technology train before the bugs and kinks are all worked out, so you'll always have some hesitancy there.

The last interesting point from The Motley Fool is that for those who are pro-driverless cars, the survey found that, "38% agreed they would be willing to shell out extra money for a driverless car, and 57% of those people decided that they would pay up to $5,000 more."

Companies are Speeding Up the Process

Since writing this article, Ford Motor Company, Uber, and Alphabet Inc's Google (plus two unnamed others) have joined forces to "push for federal action to help speed self-driving cars to market."

And they're not the only ones. Lyft, Uber's direct competitor, joined the Safer Streets Coalition along with Volvo Cars to work together with lawmakers, regulators, and the public to spread the awareness and benefits of the driver-free lifestyle.

China's Surpassing Both the US & Europe

While the US and Europe have been busy focusing on the technology driving the driverless cars, China's been hard at work on the mechanics behind the machine, as well as creating a universal roadmap. This important document would outline the "technical standards, including a common language for cars to communicate with each other and infrastructure, and regulatory guidelines."

By focusing on the rules and regulations, China hopes to surpass the US & Europe when it comes to launching a full fleet of driverless cars. And these ambitious plans are set to begin within the next 3–5 years, according to VentureBeat.

Whether you're proud to be part of Team Hands-free, or you like the feeling of gripping the wheel when you drive on the open road, it's clear to see that these Jetson-esque driverless cars are right around the corner.

They offer a safer, more efficient alternative and give people with disabilities or impaired vision access to driving that they normally wouldn't have.

As we're starting to see more and more hit the market, we'll soon notice a shift in car insurance companies too, especially since they will no longer be responsible for protecting the driver. Instead, their job will be reducing the liabilities of the manufacturers of these automated vehicles.

It will be interesting to see which countries adopt the largest fleet of self-driving vehicles first. In crowded cities where pollution and dense populations are a factor, these cars may be just the answer everyone's been searching for.

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