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Will Driverless Cars Disrupt Uber and Insurance?

Ride-hailing services – the poster child being Uber – are recognized as a major disruptors for taxi fleets and other modes of transportation. These actors introduce continuous innovation by embracing internal disruption. However, there are other external initiatives that may disrupt the disruptors. And insurers may be collateral damage. We’d like your thoughts.

Driverless cars … Are you kidding?

Back in 2013, at our inaugural Insurance-Canada.ca Executive Forum, Catherine Kargas from Marcon presented on driverless cars (often called autonomous vehicles, or ‘AVs’), and the impact on insurance.

Catherine did a great job describing the rationale for autonomous vehicles, listing the applications that had the greatest benefits, and identifying the organizations that had begun the work. She put forward a timeline (extending into the 2020s and 2030s), when she was interrupted with a question from an audience member: “Why are you telling us this? It is never going to happen.”

In spite of Catherine’s best efforts, it was clear that a portion of the audience was convinced that AVs would appear on the road about two years after hell froze over. Ultimately, Catherine and the skeptics agreed to disagree.

Then the money hit the table…

Within six months, it was clear that big players were putting serious money on the AV table. And, more significantly, there were a number of industry sectors – automotive, technology, communications, transportation – that were planning to be leaders in bringing applications to market.

One thing is clear. Ride-hailing services are keen to deploy AVs as soon as possible. Uber has openly said that its largest operating cost is the commission for the (human) drivers. For several years now, Uber’s CEO Travis Kalanick has been driving projects to introduce AVs.

Last week, Volvo and Uber announced a project to test autonomous vehicles with live passengers (as well as two real drivers – during the test period – who are prepared to take control of the car) in Pittsburgh, USA.

I wanted to get Catherine’s opinion on a couple of things, first of which, “Why Pittsburgh?”

“Carnegie Mellon University,” Catherine said, reminding me that CMU is in Pittsburgh and has “created its own R&D unit for the development of this technology.” Subsequently, Uber hired a good chunk of the team.

I asked about liability risks. Catherine said that both Uber and Volvo would be putting all efforts on safety, especially as Pittsburgh has weather similar to southern Ontario. And, presumably, both Volvo and Uber have sophisticated risk and insurance management teams who can create bespoke programs. Catherine notes that there is “a lot riding” on this trial because of new competition.

That competition is intense, and global…

In spite of Uber’s aggressive approach, it seems it has already lost first mover status (albeit by only a few weeks). The chequered flag has been taken by NuTonomy, an autonomous vehicle software startup, in Singapore. The test period will run until 2018, at which point it is expected to have a fully self-driving taxi fleet.

There are a number of large investors, including Samsung Ventures, Fontinalis Partners (co-founded by Ford Motor Chairman Bill Ford) and the investment arm of Singapore’s Economic Development Board. The latter is interested in creating a model that can reduce traffic congestion at home and can be marketed elsewhere, potentially competing with Uber.

Singapore’s interest could be a differentiator for marketing to other large cities. In reviewing the NuTonomy program, CIO magazine writes:

The company’s distinct advantage in this venture is its association with the Singapore authorities as it tries out the new technology, which has attracted scrutiny from regulators in many countries.

Singapore is looking at “car-lite” model that complements existing public transport with shared mobility-on-demand services.

And this is where insurance could come in (or go out). If the vehicles were part of municipal transport service providers, the fleet would likely be part of a larger insurance and risk management scheme, displacing retail insurance programs.

So what does this mean?

Insurers have lagged at embracing digital technology and changing products to meet new risk profiles. Some have started to catch up. The transportation example shows that disruption must be a continuous process.

What do you think?

 

Editor’s Note: If you are interested in disruption, mark your calendars for 28 February 2017. The 2017 Insurance-Canada.ca Technology Conference will be focusing on the dynamics of disruption and strategies to survive and thrive.

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