- Where Insurance & Technology Meet

What’s the Lifespan of Insuring Telematically?

Ten Years.

Ten years could be the life span of telematics-enabled, usage-based insurance (UBI), and maybe auto insurance itself, according to one expert on autonomous vehicles, speaking at the  Insurance Telematics Canada 2014 conference in Toronto yesterday.

Several members of the audience were vocally skeptical, but the Oracle of Omaha was quoted, adding some credibility.  Regardless, the debate continues.  We’d be interested in your thoughts.

I’m not an insurance expert, but….

Barrie Kirk is the executive director of the Canadian Automated Vehicles Centre of Excellence (CAVCOE),  Kirk is an engineer by profession and  has extensive experience in the communications and vehicular technologies.  Over the past few years, his focus has been on connected vehicles, autonomous vehicles, automotive infotainment, traveler information services, real-time traffic information, and vehicle use surveys.

Having lunch with him was a crash course in the rapid evolution and commercialization of the previously unthinkable.  His feeling is that self driving cars will be commercially available soon, will result in re-mapping transit plans by 2020, and could have significant impact on automotive insurance requirements by 2024.

(Kirk’s remarks were interrupted several times by audience members who called out “We’ve heard this Jetson story before,” and “These will never work in Canadian winters.”)

But, as Kirk pointed out to the conference audience, he  is not an insurance expert.  He is just looking at the emerging scope of autonomous (driverless) vehicles.   He used Warren Buffet’s comments at the recent Berkshire-Hathaway annual meeting for support.

The Oracle says …

As reported by Chip Cutter on LinkedIn, Buffet said that if self-driving cars “prove successful and reduce accidents dramatically, it will be very good for society and very bad for auto insurers.”

However, Buffet and his long-time partner Charlie Munger are not concerned about this trend at this point.  With respect to self driving cars, Munger cautions:  “I have a feeling that self-driving cars that have a huge impact on the market might take a while.”

Buffet’s prediction was that his automobile insurance asset, Geico, would be doing well for the next 30 years.  And after that?  “I’ll go peacefully without knowing,” he said.

So everything’s good?

Well, maybe … But Kirk is not alone in his thinking.

In 2012, Donald Light, Director of Celent’s Americas P&C Insurance Practice, published a “provocative but plausible scenario in which federal and local government in the US encourage the use of three currently available technologies (telematics, collision avoidance, automated traffic law enforcement) and one emerging technology (robot cars).” It was entitled: The End of Auto Insurance: What Happens When There Are (Almost) No Accidents.  Need we say more?

Our colleague, Catherine Kargas, vice-president MARCON, has written extensively on autonomous vehicles, demographic trends, and stresses on transportation infrastructure, and the combined impacts of these on automobile insurance n Canada. Kargas’ conclusions, and time frames, track those projected by Kirk. (See, e.g., The Evolution of Automobile Insurance).

(Coincidentally, at her presentation at the Insurance 2023 Forum Kargas was greeted with responses from the audience that were similar to the ones that Kirk received.)

The pressure on the insurance business model …

Back in March 2013, Chunka Mui, writing in Forbes, noted that the impact of self-driving and autonomous vehicles will put significant pressure on premiums, and will force tough decisions by insurers on the appropriate business model:

Whether today’s market-leading insurers survive the collision with driverless cars, and perhaps even thrive, will depend on how they manage the transition to an inevitably disruptive future. Certainly, there is a lot of peril. But there are immense opportunities, as well.

Late last year, we posted on comments made by Bill Berkley, chairman and CEO of W.R. Berkley Corporation at a Berkley Canada event. Bill’s view was that the implementation of self-driving vehicle and other risk reduction technologies would continue make the auto insurance product less profitable than other lines. This further supported his companies’ long-term emphasis on specialty lines, rather than general automobile, property, and liability.

Your turn …

So, there is no consensus that autonomous vehicles will destroy automobile insurance nor remove the significance of UBI models. However  insurance analysts, practitioners and investors are seriously looking at the scenarios, and selecting long term strategies.

What do you think?  Drive your point home by making a comment below.