Driving insurance in a different direction...?
The introduction of driverless cars may well be the catalyst that sees the demise of traditional motor insurance and 'corrects' the many shortcomings of, what may now be, a broken and unsustainable business model.
Recent research by KPMG and Munich Re concluded that "car connectivity and the introduction of increasingly sophisticated driver-assist technologies and autonomous driving will lead to significantly improved road safety", which in turn means, according to different estimates, that there will be "an 80% fall in crashes by 2035".
Given that insurance premiums are (or at least should be) based on a statistical analysis of the underlying data, it is not inconceivable that in the future motor manufacturers (who will own the performance data associated with driverless cars) will replace traditional insurers by dealing with first-party claims ('own damage') via their own repair garages. In fact, given their not inconsiderable balance sheet strength, motor manufactures could go so far as to offer third party ('liability') indemnities with the cost of the 'insurance' being built into the purchase price of the car.
With driverless cars, we will no longer have a driver who is (fully) responsible for an accident. As such, the issues of liability could become more complex - involving the driver, manufacturer and software provider - suggesting that the motor manufacturer may be best placed in the future to meet any and all claims associated with the use of a driverless vehicles. Of course, if third party indemnity is a stretch too far, then motor manufactures could still play to their strengths and simply provide first party protection with the third-party element being insured by the government similar to schemes operating successfully in New Zealand and other countries.
While it may be 10-15 years before we see the widespread use of driverless cars on our roads, there may be an opportunity for motor manufactures and governments to begin working on a joint initiative to develop a more holistic solution that provides a better, and less complex 'insurance' offerings, to the road user of the future.
Will this mean that the 'age-old' motor insurance model is replaced? If so, would this be a bad thing? I can't see too many insurers objecting as they continue to rack up losses under the current model.