
Self-Driving Cars Might Kill Auto Insurance as We Know It - rmason
https://www.bloomberg.com/news/articles/2019-02-19/autonomous-vehicles-may-one-day-kill-car-insurance-as-we-know-it
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joshe
This is some confusion about this, most of our insurance premiums go to paying
claims. Most insurance companies operate with a slight "underwriting loss" or
slight "underwriting profit", but usually quite close to even. The companies
then make money by investing the "float".

So premiums going down by 90% is an implied 90% reduction of harm from cars.
That's both property damage and human injury.

Warren Buffett: "...so vigorous indeed that it sometimes causes the P/C
industry as a whole to operate at a significant underwriting loss. This loss,
in effect, is what the industry pays to hold its float". [1]

[1] [https://www.businessinsider.com/warren-buffett-insurance-
flo...](https://www.businessinsider.com/warren-buffett-insurance-float-2017-4)
(with a nice explanation).

~~~
riskneutral
There is no confusion, 90% reduction in premiums directly leads to a 90%
reduction in “float.”

~~~
codyb
Wouldn't the insurance companies keep any float they'd received up until the
sharp decline in coverage costs?

~~~
riskneutral
Yes, "float" is on the asset side of the insurer's balance sheet. As coverage
costs decline, the liability side of the balance sheet will shrink, causing
the insurance company to be overcapitalized. Shareholders will then demand
that the excess capital be used to pay for share buybacks and dividends
(thereby returning the excess capital to investors so that it can be more
efficiently allocated).

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sek
The best insurer is the one with the most data and ability to analyse it.
Nobody can beat the self driving car operator, they need that information
anyhow to improve the capabilities of the car.

Interest alignment is also with the self driving company, they have any
incentive to improve safety of the car. They are simply liable so they act as
an insurer and just add that to the cost of the self driving module.

For the buyer this should remove most need of insurance. Even if there is some
"manual mode" the obvious provider would also be the self driving operator.
They could track driving behaviour and adjust the rates, or offer some
limitations for accident prevention.

So the insurance itself is still there, but it will be less important and
shift to the self driving operators. Even if you own a car, you would pay some
fee for the self driving module for updates and liability in one package.

I worked for insurance companies. Car insurance is a huge business, but not a
very profitable or even sold at a loss. It is often used to get new customers
to offer them other more lucrative products. That going away is still a huge
shift and those companies are very old and slow.

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maerF0x0
With premiums plummeting then laws about liability can rise.

For example in California by law you only need $30k coverage. In Alberta it's
$200k (most have $1 Million). This is really surprising given in California an
ambulance can cost that much, whereas healthcare is nearly free in alberta
($250 ambulance iirc).

~~~
gambiting
30k mandatory coverage? Is that a joke? EU has nearly free healthcare
everywhere so car insurance almost never pays for any immediate treatment in
accidents, and the legally required minimum is 5 million euro in 3rd party
liability. On my own insurance I pay about £450 a year and my 3rd party
liability is 20 million euro(and I didn't even select that as an option, it's
just what it is).

~~~
vegardx
Just speculating, but could it be since there's very limited ability to file
for personal bankruptcy in most European countries?

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gambiting
Even if that was the case(I don't believe it is - there's nothing difficult
about filling for bankrupcy it's just that the consequences can be rather
severe - you can't run a company or get any kind of loan for years and years
afterwards), why would car insurance companies go above and beyond what is
required by them? My insurance is with Aviva, and I know as a fact that they
are only required by law to offer 5 million euro coverage. Yet my policy
clearly states 20 million euro 3rd party coverage. Why? I didn't ask for it at
any point, and it still seems far beyond anything that I could ever cause in
an accident. And it's certainly not like they advertise this fact anywhere, so
it couldn't even be a marketing tactic(hey come with us, we offer more
coverage than any other company!). It's just their bog standard policy as far
as I can tell.

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jaimex2
They will also kill government revenue raising from speed cameras. A billion
dollar figure here in Australia.

~~~
eximius
Not unless there is legislation preventing cars from being told to drive above
the limit.

I set my adaptive cruise control over the limit so I catch up to the car in
front of me, for example.

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delinka
Your adaptive cruise doesn't "know" what the speed limit is. Self-driving cars
have this information, whether from a database or by reading a sign. It
remains to be seen how much enforcement the software will perform.

~~~
eximius
My car does. Whether that's connected to the cruise control system is an open
question.

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ams6110
Unlikely. Car owners will still need liability insurance, lenders will require
comprehensive, collision, and uninsured motorist coverage to protect their
collateral. These coverages should in theory get less expensive if claims
drop, but profit margin on the policies doesn't necessarily change.

~~~
riskneutral
> Car owners will still need liability insurance

Legal liability will shift to the manufacturers, therefore individuals will
not require insurance. Insurance policies will be purchased by the
manufacturers and will cover the entire fleet under one policy.

> coverages should in theory get less expensive if claims drop

This is certainly the largest factor, as insured losses are expected to drop
by 90%. A secondary factor will be that car manufacturers will be able to
negotiate wholesale “group policies” on large fleets and get a better rate. Or
they could self-insure and cut out the insurance industry completely.

> but profit margin on policies doesn’t necessarily change

I have already noted the profit margin pressure arising due to wholesale fleet
insurance / self-insurance. But the more important point is that profit margin
is not the only relevant measure for an industry. The total amount of revenue
is equally important. If profit margins stay the same but revenues decrease,
then there is a reduction in net income. Note that prices are expected to fall
90%, which directly impacts revenue.

~~~
dragonwriter
> Legal liability will shift to the manufacturers

No, it probably won't. Owners will probably remain liable in the first
instance, for maintaining th vehicle in a safe operating condition;
manufacturers (and the whole chain of commerce) will be liable, as they are
now, for defects that exist at the time of sale, and will be (as they are now)
attractive deep-pockets defendants.

But, _for that reason_ , they will probably get very good at playing off
failures (since drivers aren't in the picture to blame) as maintenance
failures rather manufacturing defects.

~~~
gamblor956
_But, for that reason, they will probably get very good at playing off
failures (since drivers aren 't in the picture to blame) as maintenance
failures rather manufacturing defects._

Manufacturers already do that now...Ford was doing that back in the Pinto
days.

The change to self-driving cars will make maintenance (and maintenance
records) more important for drivers for liability purposes, but will also make
it more difficult for the manufacturers to avoid liability.

~~~
markdown
I was recently wondering why new cars don't come with factory fitted dashcams.
Perhaps a law should mandate their inclusion, along with other data logging
mechanisms.

~~~
dstroot
Tesla does. Stick a usb stick in my model 3 and it uses the storage to record
off the cameras. They just added a mode to record video when the car is
“threatened” while parked.

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quxbar
I assume I'll have to buy insurance to go into 'manual' mode for a few minutes
at a time, the price fluctuating according to the time, where I'm driving, and
a possible breathalyzer-style test ;)

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mikeash
House insurance still exists, despite the fact that the rate of collisions
caused by human error is zero. I’m sure premiums would change considerably,
but “kill”?

~~~
riskneutral
Home insurance is considerably less expensive than auto insurance today. If
auto insurance prices fell to the level of home insurance, then it does
effectively kill the industry as we know it. It’s not a very good comparison
anyway, as home insurance covers a variety of perils which are often caused by
human error (e.g. fire), as well as natural perils that are not really
applicable to auto insurance (e.g. flooding due to plumbing issues, or roof
damage due to wind storms).

~~~
astura
Umm... premiums depend entirely on who you are, where you live, and what
you're insuring... I pay more than twice as much for home owners insurance
($125/month) than I do for car insurance ($60/month).

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randyrand
Cars will still crash. We have 2 options - build the cost of insurance into
the price of the car, or let owners buy it themselves.

IMO Id rather have the ability to buy my own insurance and have various
choices of coverage. Nothing needs to change.

~~~
smogcutter
How am I liable for an accident caused by my self driving car, though?

~~~
dragonwriter
> How am I liable for an accident caused by my self driving car, though?

Because you failed to maintain the vehicle in a safely operable condition.
Now, if s manufacturers defect contributed to that failure, the manufacturer
may also be liable, but that doesn't mean you aren't liable, and the
manufacturer is going to claim and try to prove that that isn't the case.

~~~
rwmj
In practice that sounds impossible. Am I supposed to audit the code? I
probably don't even get to _see_ the code, and even if I did we don't have any
even theoretical way to audit the neural network parts.

~~~
bsagdiyev
But you can audit tires, physical damage to sensors, cameras, etc so if an
accident were to be caused by failure to brake caused by rain and bald tires,
that is entirely your fault. ABS will only take you so far.

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lr4444lr
The self-driving car manufacturers and downstream vendors themselves will need
tremendous coverage when any accident can suddenly pin at least partial
liability on them. That cost in turn will be passed down to consumers.

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arcaster
I completely disagree - seems like pricing insurance for self driving vehicles
competitively would be a great way to ensure more people transition to self
driving vehicles rather than conventional vehicles.

~~~
dstainer
I agree with you. Self driving cars will become the norm the minute it's
cheaper to insure the automated car instead of the human being

~~~
maerF0x0
nit: Once the price difference is greater than the marginal cost of self
driving equipment

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olivermarks
Yet another 'might' article....

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gumby
This article has it backwards: payouts will drop, so premiums will drop (less
drastically if they can get away with it). In fact once autonomous vehicles
really get working it will likely become very difficult to get permission to
drive a vehicle instead of having it drive itself.

The insurance companies were instrumental in the development of things like
fire codes, bank safes and the like; they _hate_ paying out claims because
their business model is to hang onto the premiums and invest them.

~~~
cascom
Yup - driving your car will go the way of the diving board in a pool (not
illegal, but outrageously expensive to insure)

