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The Rough Notes Company Inc.



April 25
09:48 2017

To the Point

How will autonomous vehicles change the insurance game?

Do you remember the day you got your driver’s license? Do you recall the freedom that came with it? Do you remember the first car you owned? I do; it was a red 1971 Plymouth Barracuda, decked out with Cragar mag wheels and an 8-track tape stereo system. I loved driving that car.

Cars have changed a lot since then—automatic windows and door locks, front wheel drive, airbags, and antilock brakes, just to name a few features. Today I drive a Jeep Grand Cherokee with added safety features, like sensors to warn me if a car is next to me while changing lanes. It even hits the brakes when traffic slows down quickly in front of me. Never in my wildest dreams did I imagine I would be turning over the driving of my car to a computer.

Michigan, my home state, just established regulations for the testing, use, and eventual sale of self-driving cars. Ten other states —Alabama, California, Florida, Louisiana, Nevada, North Dakota, Pennsylvania, Tennessee, Utah, and Virginia—have passed similar legislation related to autonomous vehicles. Some experts predict there will be driverless trucks on the road before driverless cars. A scary thought.

Uber recently purchased a company called Otto, which is developing driverless trucks. In addition to Otto, Daimler is working to have its driverless trucks on the road by 2020. The Daimler test truck made history in October 2015 by operating on a real highway with traffic, marking the first time a big rig drove semi-autonomously on the road. There may also be platoons of trucks going down the highway—a truck up front with a driver leading the way. I can’t wait to see that for the first time. Or maybe I can. The thought of a 10-ton tractor trailer barreling down a highway at 75 miles per hour—with no driver—is terrifying.

Personal auto insurance’s future?

Some in the insurance industry are concerned that self-driving cars will eliminate the need for personal auto insurance. I’m sure it could change the rating methods, but as long as these vehicles can cause bodily injury and property damage, there will be a need to finance this risk with insurance. As we all know, autonomous or self-driving cars are already here, but they still require a driver to monitor everything. Google, Apple, and Tesla all claim they will have a driverless car ready by 2020.

Can you imagine having your car take you from one appointment to another while you sit in the back seat, making calls or getting some needed rest? How about a trip to Florida with only fuel and bathroom breaks needed, while you take naps, read or watch Netflix along the way? What about getting rid of your car and using an app on your phone to summon a driverless Uber whenever you need a lift? Wow, that would be something.

The thought of a 10-ton tractor trailer barreling down a highway at 75 miles per hour—with no driver—is terrifying.

Unfortunately, technology is not perfect. Recently, a man in a Tesla was killed when a truck turned in front of him and the self-driving system didn’t recognize the danger, because the white trailer of the truck blended in with the landscape behind it. Before the fatality, interest in driverless cars was only 3%; awareness increased to 85% after the incident.

Today, 34.4% of all property and casualty premium is private passenger auto. That is about $200 billion in premium. Driver error causes at least 80% of all accidents, so eliminating the driver should lower overall claim costs. Experts say not much will change in the next seven to eight years, and by 2040, total auto premium will be down to $40 billion.

I am sure carriers are thinking about this, but they don’t seem to be saying too much. Allstate, the largest publicly traded home and auto insurer, and its CEO made a statement recently, saying that the current system is inefficient. We drive to work, our cars sit all day, and we drive home. He indicated that we could eliminate parking lots and increase family wealth by at least 5%. He said the system must change but did not address how it would affect our business.

The Los Angeles Times recently reported that billionaire investor Warren Buffett, whose Berkshire Hathaway Inc. owns GEICO, told an automotive forum last year that “we would not be throwing a party at our insurance business” when self-driving cars arrive, even though that day remained “a long way off.”

Interestingly, in 2011, a new pay-per-mile auto insurer, Metromile, started up. It raised $19.2 million and is selling in all 50 states. Elephant Insurance out of Richmond announced it would expand into four states. Maybe they know something we don’t.

There are a few possible scenarios that could play out in the next few years:

  • The auto insurance industry will remain relevant. It will find that, even if the liability coverage gets shifted, there will still be a need for medical, comprehensive, and collision. There may even be a market for liability coverage, as the owner may still be liable even if not driving.
  • Car manufacturers will insure the vehicles themselves, or pay insurance by a tax at the gas pump, making a separate auto insurance industry irrelevant.
  • The auto insurance industry will become obsolete. I would be surprised if this happens, but significant change is certainly possible.

As an industry, we need to prepare for a future so we don’t end up like the milkman, the telephone operator, or the video store clerk. I like the advice given by Jack Welch, retired chairman and CEO of General Electric, who said, “Control your own destiny or someone else will.”

The author

Randy Boss, CRA, CRM, SHRM-SCP, is a Certified Risk Architect at Ottawa Kent in Jenison, Michigan. As a Risk Architect, he designs, builds and implements risk management and insurance plans for middle market companies in the areas of human resources, property/casualty and benefits. He has 39 years of experience and has been at Ottawa Kent for 34 years. He is the co-founder of, an OSHA compliance and injury management platform. Randy can be reached at


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