There is a lot of discussion about self-driving cars and how they could transform the way Americans move around the country, but these sci-fi vehicles won’t affect auto insurers such as Progressive, State Farm, and Geico for some time.
While there are “self-driving” cars available today, they are really an extension of a long-running trend toward safer cars. From rear-view mirrors, safety glass, and anti-lock brakes to electronic stability control, blind-spot indicators, back-up cameras, and lane-departure warning, there has been a steady increase in the number of safety features that have become standard in cars over the decades. But that hasn’t made insurers less profitable—in fact, because of the rising cost of repairing all this technology, insurance premiums have actually risen in the last couple of years. Every bump and fender bender means all the various sensors and indicators in the car need to be reset or replaced, which is time-consuming and expensive. And the extra costs mean that insurance companies can charge higher premiums.
Right now, even the most advanced cars sold commercially can’t take complete control of the vehicle. The driver is still driving—even if they aren’t holding the steering wheel at that moment, they are responsible if the car hits something. So, for now, car owners by law still need insurance. Eventually, though, some auto manufacturer will offer a model that does take complete control of the car’s operation away from the user (“driver” at this point ceases to be an accurate description of this person). This level of autonomy could shift liability for accidents.
Where that liability shifts to will be a question not just for the auto-insurance industry but for lawmakers and regulators as well. US autonomous-car company Waymo, for instance, self-insures its self-driving robotaxis. It’s possible that manufacturers become responsible for liability insurance for the cars they sell. Or maybe individual vehicle owners will still be responsible. It will all come down to regulations that haven’t even been written yet, which could slow down adoption.
Regardless, cars that drive themselves are not going to take over the nation’s roads any time soon. Mass-market autonomous vehicles could start hitting the market as soon as 2026 and could comprise 10% of the US auto fleet anywhere between 2035 and 2044, depending on adoption, Morningstar estimated. It will be years before self-driving cars make up even a small part of the nation’s auto fleet—and the number will not be growing very fast. It is not likely, therefore, to have a meaningful impact on Progressive, State Farm, and the other insurers in our investment horizon.
What will matter for auto insurers’ profitability in the years ahead is what matters now: access to data. It isn’t just car-crash frequency insurers care about. There are questions about crash severity, customer retention, changes in the probability and severity of a claim over time, as well as opportunities to cross-sell and upsell. These companies need to do complicated lifetime-value calculations on their customers when analyzing how much to spend to retain and acquire new ones. Having more data makes those calculations more accurate. The largest companies with the most customers and most data will have a marked advantage over their competitors. In this sense, autonomous vehicles are not a game-changer for insurers.
For now, the insurance industry can continue with business as usual, but with one eye on that day when autonomous vehicles take over the country’s roads. ∎