Auto Insurers Prepare for Self-Driving Cars and Frayed Nerves

There's a good chance autonomous cars will be on the road in the next five to 10 years.

Mar 20, 2014 at 1:53PM
Cars

The self-driving car is already in motion, offering motorists the chance to sit back, relax and let a computer take the wheel. But insurance companies say that it won't put an end to auto insurance.

"There's a good chance autonomous cars will be on the road in the next five to 10 years," says Kishore Ponnavolu, the head of MetLife's auto and home subsidiary. "But they will not eliminate the risk of automobile ownership."

In fact, quite the opposite.

While the frequency of accidents may decline, the cost of crackups will be more severe, predicts Carol Csanda, who leads the "innovation project" for State Farm, the nation's largest auto insurer.

The rationale: Cars loaded with the high-tech parts needed for self-driving will cost more, so the dollar amount to replace this new technology, if damaged, will be far greater.

"The higher costs associated with driverless cars will also be reflected in other forms of insurance that will still be unavoidable," says spokesperson Loretta Worters of the Insurance Information Institute, which represents the insurance industry. In other words, you'll probably still want comprehensive coverage, which pays for theft, flood, fire and other damage occurs when the car isn't in motion.

And it gets worse. Not only do you need to keep all your regular coverage, you may need new forms of coverage.

"In fact, new kinds of driverless-car insurance, such as cyber coverage to protect vital computer parts and software, may become part of the yearly insurance contract," says Csanda, adding that car "recalls may no longer involve going to the dealership. Instead they'll be downloads to your car's computer."

Ford goes to bat
As cars get smarter, insurance will have to become smarter too, which is why State Farm has teamed up with Ford and the University of Michigan to get "a window inside the driverless car," Csanda says.

The university and the car maker will take the lead on the mechanical development of the new Ford Fusion Hybrid, which will come equipped with four rooftop 360-degree infrared sensors that scan the surroundings millions of times a second and report back to a 3-D map. This is comparable to the way a bat uses its sensors to navigate at night.

State Farm will "provide insight from many years of claims experience and our knowledge of driver behavior and know-how to help make the vehicle safe," says Csanda.

Battle of the 'black box'
As advanced technology infiltrates a car, the most important piece of the puzzle will be the "black box" positioned under the steering wheel that monitors the driver's activity. Almost all new cars have them, and most simply record what happens prior to and during a crash. But this monitor, and who has access to it, will become even more important in the future.

It will be able to tell whether the driver or the car's computer was in control of the vehicle at the time of a crash, something insurance companies, car makers, law enforcement and the National Highway Traffic Safety Administration (NHTSA) will want to know. Another possible argument after a crash: How long did it take the computer to transition control of the car to or from the driver, and what happened in those few, possibly fatal, seconds.

A future black box would also monitor the "health" of the computer that drives the autonomous car. If an owner fails to maintain it or repair a known malfunction, he or she could be held responsible for a computer failure.

Trying to keep pace
Driverless technology could outpace the roads it will travel on and the laws that will govern it, as well as public acceptance. A recent survey by Chubb Corp. showed that 70 percent of Americans preferred driving themselves, only 4 percent wanted a driverless car and just 22 percent would even let their families get into an autonomous vehicle.

But some of the new technology for driverless cars has already been accepted by the public. The Chubb survey shows that most drivers want a warning system that alerts drivers when they cross lanes, automatic breaking systems and cruise control, while a third would like self-parking.

It doesn't come cheap
A big problem: price. While driverless cars could be on the road by 2020, they won't come cheap. Many of the early models will come from high-end car makers such as Mercedes-Benz and Lexus, as well as newcomers like Tesla and Google.

This means that drivers at the lower end of the car-buying spectrum, who now keep their cars an average of 11 years, may opt to keep the old heap running even longer, or settle for a lower priced model that is only self-driven.

And then there's this: a deteriorating highway system with inconsistent or missing road signs and a 50-state regulatory system where the rules are often confusing and contradictory.

Only four states have even begun to address the issues that pertain to driverless cars.

One of those issues is the traditional "driving test" given to those who want to obtain a driver's license, as well as seniors who might have to requalify. Future testing would have to examine a driver's ability to program the car's high-tech devices, such as the autonomous navigator.

As for insurers, they have no data yet to tell them how safe a particular make or model is until it's actually on the road. How will they set accurate car insurance rates?

Convoys and 'platooning'
But there are advantages that an autonomous vehicle can offer. For instance, the computer that drives your car can also talk to other computers. Together they can negotiate the least time-consuming route to a destination as well as link up with other cars traveling in the same direction.

Computer technology would allow these cars to "platoon," or travel almost bumper-to-bumper at the same speed, reducing the current car lengths required for safety and the amount of road space needed.

Cars traveling this way could make nervous wrecks out of insurers and motorists -- until they are used to it. But it's also the road to the future.

Not going anywhere
Despite the vehicle costs, the questions and the frayed nerves, we might save money, "since 95 percent of all crashes are now due to driver error," says Worters.

"Groups that might be most affected include teenagers, seniors who now either cannot or should not drive, and some disabled people," she says. Driverless cars might also reduce the number of convictions for speeding and DUIs.

But one thing is for sure about insurers, says Csanda. "We don't believe we will be obsolete."

The original article: Auto Insurers Prepare for Self-Driving Cars and Frayed Nerves appeared on Insure.com

Discover (and profit from!) more life-changing technologies
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.

Additional car insurance articles can be found on Insure.com.

Car insurance rates by state, 2014 edition

Car insurance discounts in every state

12 ways to save money on car insurance

The Motley Fool recommends Ford, Google, and Tesla Motors. The Motley Fool owns shares of Ford, Google, and Tesla Motors. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at www.fool.com/podcasts.

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to www.fool.com/podcasts, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.

 


Compare Brokers