But as to when exactly this calamity is going to hit, is far less certain. Some say as early as 2025, while others pin the date much further out around 2050 or even later. Though the date may be uncertain, most see it as an inevitable end state. And why not?
The impact of Autonomous Vehicles
You can read thousands of articles as how and why our lives will be saved and improved with the advent of autonomous vehicles. Only a few of these articles mention the elimination of the motor insurance claim, used car salesmen, taxi drivers, traffic police, drunk driving, looking for car parking and motor accident lawyers – all excellent reasons (halleluiah!) in themselves for the accelerated adoption of self-driving vehicles.
But seriously, there will be some sectors of the economy where job losses due to self-driving technology will have an immense human impact over the medium term. However, these same reports also note that many jobs will be positively impacted by the adoption of autonomous vehicles.
One wonders if recent reports of attacks on autonomous vehicles are signalling the start of a popular anti-technology uprising aimed at halting the progress of self-driving cars. It is somewhat reminiscent of the attacks on “Glassholes” several years ago that, in part, lead to the demise of Google Glass. Just because we have the technological capability, doesn’t mean it’s the right thing to do?
Governments around the world will play a crucial role in the adoption or otherwise of autonomous vehicles. For many countries, they seem to have already made up their minds and deemed it a good thing. They are proactively smoothing the way for the testing and adoption of self-driving vehicles on their public roads, while providing legal certainty for insurers and other stakeholders. These proactive governments include the US, UK, Germany, Australia, China, and Singapore, to name a few. India is one of the more notable holdouts, citing job retention as a major consideration in blocking the entry of self-driving cars there.
So where will we first see mainstream adoption?
Interestingly, KPMG’s 2018 Autonomous Vehicles Readiness Index (AVRI) places Singapore as #2 in the world for self-driving car readiness. However, I believe they will actually be first, primarily due to their tight control over getting new vehicles on the road and their COE policy, which effectively means the removal of vehicles after 10 years. Their private vehicle population is around 500,000 vehicles and the government are heavily promoting ride sharing. So, with the combined will of society, Singapore could easily switch to a completely new autonomous vehicle population within a couple of years of the technology being ready.
For most other countries, which don’t have similar controls, it will take decades for autonomous vehicles to become dominant through the natural replacement cycle. The Netherlands, for example, has a population of around eight million private cars and approximately 400,000 new cars hit the road annually. At that rate, it would take 20 years for the entire population to be replaced. Of course, there are alternative strategies which could speed up this process, but that’s a topic for another blog.
Singapore will definitely be an interesting place to watch as a microcosm of how the transition to autonomous vehicles plays out across the whole of society (not just insurance).
Why should we mourn the loss of motor insurance anyway?
With the imminent death of motor insurance apparently approaching, some may view it as a ‘mercy’ killing. Indeed, motor insurance has always been a loss leader in acquiring business – give us your car, home and contents and we’ll give you a nice (subsidised) discount. Why should the industry care if a loss-making line of business is eliminated? In the US in 2017 private auto had a combined ratio of 105.9 and a RoE of -0.83%, yes that’s a minus. Commercial auto was worse, with a combined ratio of 110.2 and a RoE of -1.86%. So, while auto insurance generates the vast proportion of general insurance premiums, it also generates an even greater proportion of claims.
But will motor insurance really be dead? In terms of how we know it today, almost certainly. Most in the industry expect private ownership to decrease rapidly as the cost and convenience of ride-sharing comes to the fore. So we can expect fleets of self-driving vehicles will become the subject of insurance. Accidents will still happen, but at a much lower frequency, so insurance will still be needed for own damage, bodily injury and third party property, just the fleet owner will be paying it. Overall a much reduced premium pie will likely mean small and medium sized motor insurers will no longer be viable. However, while we are eliminating risk from human driving errors, we will be substituting for other forms of risk that may give opportunity to these insurers.
The new personal cargo risk
Since vehicles will likely be shared, personal contents will need to be removed and loaded from/to the vehicle at the beginning and end of each journey. Storage lockers will need to be retrofitted in homes and buildings to hold these contents securely. Rather than requiring a huge structural investment (al la Minority Report), lockers would be a cost-efficient way of facilitating the transition. Additionally, it would provide a route to monetisation as ‘parking’ revenue is lost. All contents would become containerised in some way. Items that we would typically put in the boot (trunk) would be packed in a variety of containers, with some containers dedicated to carrying perishable food & groceries, others for frozen or warmed food and still others for carrying hazardous goods. Items usually stored in the glove compartment would be in a special container with the ability to access from within the vehicle’s passenger compartment.
Every container would need to be scanned for threats such as explosive devises, firearms or the like for the safety of all users of the transportation system. Potentially, there could be cargo only transports like a self-driving trailer. In a mobility on demand world, there is no necessity that we carry our things around with us. This would be useful for tradespeople who need their tools to be available at their next work site, but not while they are quoting for a job.
All of this will give rise to new insurable opportunities, that are variants of what we are doing today – think cargo on steroids. If simply getting the shopping home from the store becomes somebody else’s problem, then you would have billions of insurable micro journeys on a weekly basis. Amazon might already have this market cornered?
However, as society embraces autonomous vehicles as part of the public transport system, some brand new risks emerge.
New risks and the darkside
Flash mobbing: Just like pranksters today, who send lots of pizza’s to the target of the prank, will self-driving cars be similarly mobilised by future pranksters, to create physical Denial of Service attacks on individuals and businesses?
Terrorism: In 2016, there were rumours that ISIS was experimenting with self-driving vehicles as a smart bomb delivery system. Counter terrorism groups see self-driving vehicles as a game changer for both the good guys, but also very much the bad guys. The FBI reports as of 2018, that ISIS has already worked self-driving cars into their play book for bombing and ramming attacks.
Cyber Warfare and State Sponsored Hacking: Already critical infrastructure is the target of state sponsored hacking. Various countries have been the subject of attacks on their power generation and distribution infrastructure. With the widespread adoption of self-driving vehicles and the likelihood of centralised software updates and overall traffic orchestration, is this not creating a new attack surface? Are we, in fact, swapping one diffuse risk (eliminating human error from driving) for a much more potent risk (disruption of all mobility within a city or country). In insurance we call it risk accumulation and insurers take great pains to understand/limit their total exposure from single catastrophic events.
Hopefully, these and other nightmare scenarios will be systematically mitigated as autonomous vehicles become part of the mainstream public transport infrastructure.
The bottom line
Self-driving cars present society with the biggest change since the transition from horse and carriage to the car. That original transition was allowed to run its own course with commensurate decades of turmoil. This time around I truly hope we can formulate an overall blueprint that maximises the up-side of the transition to autonomous vehicles for everyone while minimizing or eliminating the negative effects on those individuals whose current job will be impacted. Interesting times indeed!
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Andrew Dart is an Insurance industry veteran of over 30 years, a telematics practitioner and the editor of ‘Insurance Connected’ an irregular column for The Digital Insurer.