Each year, auto insurance companies in the US make billions by “betting” that a certain event will not happen. These companies offer to cover their policyholders’ expenses in case the insured is involved in an accident.
For example, when you own a car, you can purchase cheap car insurance to protect you in the event your car is damaged in a car accident. Depending on the type of coverage you have, your auto insurance will also protect you from lawsuits if you are involved in an accident with another driver and that driver suffers bodily harm from the accident itself.
If something happens while you are driving and the incident is covered by your insurance policy, the company pays for it and virtually “loses” the bet. If nothing happens, however, your insurance company spends nothing. They “win” since they’ve collected your premium, yet haven’t had to spend any of it.
This business model seems like a very strong and stable one for auto insurance companies. States issue drivers’ licenses strictly. Police officers man the highways for unruly drivers. No one wants to be involved in accidents, so drivers do their best to drive safely. Car owners protect themselves from unnecessary expenses by purchasing auto insurance. At the end of the day, what this means is that insurance companies win more bets than they lose, which is lucrative and extremely profitable.
An industry on the ropes?
But what happens when accidents become too seldom and rare? To take it one step further, what if car manufacturers develop technologies that virtually guarantee minimal accidents? Take, for example, self-driving cars. Some experts predict they will take over the roadways by 2035. If this does indeed occur, the tables will then turned.
Will people actually still need to buy auto insurance?
From a high level perspective, the situation is simple: less accidents means less worries, which in turn means less urgency and less need to purchase auto insurance as we currently know it. As an insurance buyer, that’s all well and good. But what about the insurance companies themselves? After all, we are talking about a multi-billion dollar industry here in America alone. Do they stand a chance in the future?
Shaking things up
While it’s true that the demand for traditional auto insurance will most likely decrease as self-driving cars become more mainstream, insurance companies will simply turn their attention to another type of coverage: manufacturer’s insurance. It’s a concept that’s still in its infancy but one that we can expect to hear more and more about as the years march by. Basically, what this means is that insurance companies will start covering car manufacturers for a car owners liability claim.
At the end of the day, let’s face it: no car is perfectly safe, let alone self-driving cars. In the event that an accident occurs due to a self-driving cars’ operational or mechanical issue, a car owner will most likely sue the car manufacturer and demand payment. This is where manufacturer’s insurance will come into play, since this type of policy will protect the manufacturer from the claim itself.
2035 might still be 2 decades away, but car insurance companies must begin innovating now, or risk facing their very own Java or winamp moment – a time when they become totally irrelevant. Sure, auto insurance companies are OK for the immediate forseeable future, but changes are on the horizon and adaptability will be key moving forward.
As cars evolve and become more high tech, the auto insurance industry in general will also need to evolve to meet the new demands that self-driving cars present including fast car insurance.