I want everyone to take a trip down memory lane with me real quick and see if you can recall where you were on October 21, 2015? If you are having a hard time remembering, let me jog your memory a bit. October 21, 2015 is the day we all woke up to see the Chicago Cubs had finally won a world series, skateboards are now known as hoover boards, cars can fly, and Marty McFly just came back to the future for the second time! I am obviously referring to the classic movie series Back to the Future because the Cubs still haven’t won the world series and I still have to parallel park my own vehicle, but the reference is relevant because future car technology is headed that way!
While a flying does seem awesome, the timeline doesn’t seem realistic quite yet. However, autonomous cars, whether they are driverless or self-driving, are here and they are here to stay. I am no expert on future car technology or where I think the automobile industry of America is headed, but I have been in the insurance industry for a decade and I can tell you-this is going to change things!
Before we dive into the automobile industry changes, let’s do a quick recap of how your insurance works and is rated. There are three parts to your car insurance policy that are the main cost driving factors, they are also the most relevant to this conversation. These three parts are your liability coverage, collision coverage, and comprehensive coverage. The liability portion is the part of insurance that is required by law. It will pay out for injuries and damages that you caused in an at-fault accident. Your collision coverage is the portion that will pay out if your car is damaged in an at-fault accident. Comprehensive coverage is to protect your vehicle from everything else that is not a car accident.
We are first going to talk about your liability coverage. Depending on the age and value of your car this might be the most expensive part of your insurance especially if you have had a few tickets or accidents. When you get in an at-fault accident your liability has to pay for all the damage that you caused, but self-driving cars are preventing accidents. There are tests currently being conducted all over the world and as the data comes in industry experts are seeing that self-driving technology is working. I personally spoke with a gentleman in the Northern Virginia area that has a Tesla equipped with the self-driving option. He told me a story of how he put his car into self-drive mode on Interstate 495 (DC beltway/nightmare) and didn’t have to worry about a thing. Now I could have included any amount of research or data in the place of this story, but if you are familiar with 495 and realize that this guy took his hands off the steering wheel while driving 60 MPH then that is all the proof you need. The point is that with accident prevention, the cost of liability insurance will decline as an increased number of the population moves into autonomous vehicles.
Not only could you see a decrease in your liability insurance, but the collision portion of your insurance could see a reduction as well. Your collision coverage, as previously mentioned, will pay for the damages that are done to your car when involved in an at-fault accident. As we just discussed earlier, if you purchase a self-driving car the hope is that car accidents may be a thing of the past, or at least decrease immensely. Now, if you are in an accident that is not your fault, the other driver’s insurance will be paying for your car. So with that being said, you could see a major discount on your collision coverage if you have a self-driving car because your car insurance company might never have a reason to pay for your car again.
What about comprehensive coverage? Will we see a decrease in price here too? I am really not sure, but let’s talk about it. Comprehensive coverage protects your vehicle from anything that is not an accident, i.e. someone breaks your window, a tree falls on your car, your car is stolen, etc. Future car technology won’t prevent any of the items listed, and while liability and collision incidents are being avoided, all of the technology could drive up the price of comprehensive coverage. Let’s say there was a hailstorm and your car was damaged so, you took it to the shop and they removed the dents for you. Now imagine that same hailstorm, but instead of a dozen dents, you now have a dozen broken sensors on your car. Those repair bills will be drastically different and it is because of the technology and advancements in the car.
Now that we have gone through and looked at the different ways that you might start noticing a reduction in your car insurance bill, I’m going to explain the other side of the conversation, the side of the insurance companies. To help paint a picture lets use an example:
- Due to the advent of driverless cars and future car technology every licensed driver in the United States receives a $100 a year reduction in their car insurance premium. Yay, everyone is happy!
- Due to the advent of driverless cars and future car technology every licensed driver in the United States receives a $100 a year reduction in their car insurance premium. According to the 2010 census there were 210,000,000 licensed drivers in the U.S. Reducing all of their car insurance premiums by $100 a year just cost the insurance industry $21,000,000,000 (that’s billions).
From a personal perspective if I save $100 a year I’m pretty happy. If I were going to lose $21 billion, you better believe I’m going to look for a solution and that is what insurance companies are doing.
The first thing insurance companies are looking at is when this change is actually going to take place. There are a lot of cars on the road. There are over 200 million drivers in America and the average age of vehicles on the road right now is between 10-12 years old. In order for everyone to switch to driverless cars that would mean that 200 million people would have to be limited to just driverless cars, be motivated to purchase one, and actually have the money to do so. If you ask the manufacturer of this driverless car they will tell you the whole market will change over in 10 years. If you ask Warren Buffet (owner of Geico insurance) he estimates that 10% of the population will have autonomous cars by 2030. If you ask executive members at Erie Insurance they estimate more along 30- 40% by 2030. No matter how quick the saturation of the market is, the change is coming and they are all predicting lower insurance costs for the consumer.
With the price of insurance being reduced, insurance companies are going to look for other ways to collect that premium and this is another area that consumers will benefit from. Insurance companies are starting to look into other products and adding services to their current policies. In the near future, don’t be surprised if your car insurance will cover your oil change or a battery replacement. When cars have less mechanical parts and more computer parts, the car service and maintenance industry will shift with it and look for insurance companies to start providing more products better suited for the new age of cars.
Speak with a Bridge First Insurance Agent today! (571) 249-3857
Previously on the Blog:
Dave has accumulated extensive knowledge of commercial insurance and the skill set that it takes to succeed. In 2013, he and co-founder Jack Cordes, joined forces to establish Bridge First Insurance. Through Bridge First Insurance, Dave utilizes his knowledge and unique expertise to offer clients the best care in insurance.