Will Self-Driving Cars Drive Insurers Out of Business?

If the futurists are right in their predictions, auto accidents may be a thing of the past. A recent report from McKinsey & Company, reported in The Wall Street Journal, states that the rise of self-driving cars could potentially eliminate 90% of auto accidents in the United States – not only saving thousands of lives, but preventing up to $190 billion in damages and annual health-costs.

We’re already inching our way to this new mode of transportation, the report adds. “In the 2014 model year, 1.4% of new vehicles had adaptive cruise control, up from 1.1% in 2013; 8.4% had lane-departure prevention technology, compared with 3.4%; and 10.1% had blind-spot alert, compared with 6.3% the prior model year.” Currently, it looks like self-driving cars will become somewhat commonplace in about 15 to 20 years.

The idea that auto accidents will be almost obsolete is a nice thought. Of course, even the best predictions don’t always pan out. And remember, robots still make their share of mistakes, too. All that is needed is a faulty or incompatible software patch or update. (These glitches do happen from time to time, don’t they?) Tellingly, the McKinsey report “predicts that insurance companies will shift their focus to technical failures and away from driver risk profiles over time.”

Still, the insurance industry needs to prepare for the changes that the digital economy is bringing. Driverless cars are just one aspect of the rising “Internet of Things” is paving the way for a huge interconnected network of buildings, homes, vehicles and people that provide well-rounded views of the assets insurers are charged with protecting. Big data plays into this picture as well. Just the other day, I learned of a life insurer that no longer administers blood tests to new policyholders, but instead relies on big data already available on individuals to assess any potential risks.

Yes, IoT may in some cases lower risks to the point that insurance may no longer make sense. But ultimately, it means more information and capabilities in the hands of insurers, to better target their efforts and products. Insurers will be fully aware, in real time, if earthquakes, hurricanes, fires or other disasters are impacting policyholders. They will be able to employ data analytics to get better assessments of risks. IoT may drastically alter some lines of business, but greatly enhance others. Stay tuned.