Driverless Cars Threaten to Crash Insurers’ Earnings
wsj.com
wsj.com
That's going to decline significantly once driverless cars are scrupulously following the rules of the road. And any tickets that get written will be going against a giant corporation like Google, with detailed information about what the car was doing at the time of the supposed infraction, a lot more financial ability to fight the ticket, and a lot more incentive to protect their reputation.
Such as keeping your car in a minimum condition. Or having legacy system support. It needs to get patches to update to newer network types.
Completely unattended driving (enter destination and taking a nap) is still up for debate. Requiring a machine to be watched seems like a pretty easy-to-pass regulation.
Current traffic laws are written for human drivers. If there are robotic drivers on the road other traffic laws will be passed for those.
Requiring a human to watch implies a means for the human to intervene and take over. Having a human second-guess the machine will increase accidents. And having the controls available for the human to do so will increase complexity and decrease reliability.
Driverless cars will probably not be magic pods that whisk you around. It's still a vehicle that needs to navigate terrain. And roads are not perfect everywhere.
Yes. I regularly fly in planes, which I have no control over, and which spend most of their time on autopilot. I also regularly deal with machines that do their jobs far better than I could, and I feel no desire to take over and do those jobs worse. Why should that answer change when the stakes get higher and the cost of a mistake goes up?
(That doesn't mean I want to beta-test an experimental driverless car; it does mean I'm eager for a non-experimental one.)
> But people will still want to intervene when it doing something dumb like driving into a pond, or gets stuck on a median and cannot figure out how to get off.
A vehicle that did any of those things would be considered broken in a deadly way. The solution isn't to hand people broken vehicles that they sometimes need to take over from; the solution is to not call a car driverless until it handles those situations (generally by not getting into such situations in the first place).
> Driverless cars will probably not be magic pods that whisk you around.
Yet.
Those planes with their auto-pilot system still have a means for the pilots to intervene. That's not quite the same as being in a vehicle for which no human has the possibility of intervening. (It's also a bit disingenuous to imply that it is.)
Some accidents also occur specifically when pilots ignore/override the automatic systems; I'd be interested to see statistics on that, too, but I haven't found any.
"What's it doing now?" is a common question in the industry, and the subject of this excellent American Airlines training seminar video: https://www.youtube.com/watch?v=pN41LvuSz10&t=21m41s
(The whole video is good, but that's the specific automation confusion question.)
Aircraft operate in essentially empty space, and barring major mechanical failure the pilots typically have tens of seconds up to many minutes to act to avoid disaster. In a car you often have less than a second to react, and certainly never more than 4-5.
Aircraft hardware and software is tested, retested, tested again, and certified. Auto hardware and software is pushed out the door with reckless disregard for reliability.
There is really no comparison.
Yes, it would almost definitely be safer than a lot of drivers I've been in the car with, if not all of them. And it's be far less nerve-wracking than with some drivers.
Do you ever ride in taxis? Or as a passenger in any car? How is that situation any different?
edit: source that I haven't read, but there are numerous sources from a simple web-search: http://www.illinoisherald.com/articles/2014/q4/chicago-red-l...
They also save pedestrian and motorist lives.
Also, as the other commenter said, the laws will adapt. The purpose of traffic laws is to maintain $X level of revenue, so if revenue starts to drop, local governments will increase the number and complexity of traffic laws until revenue is back to the expected level.
Even if local governments tried to increase the complexity of traffic laws, the fleet owners would increase spending on fighting tickets; this would result in an arms race which would be costly for the local government. It's much easier to extract rent from the little guys.
The worry I have is of increased enforcement of local non-traffic laws to make up revenue.
If the car is already driving, why should a a passenger know which rule the car was following at the time an officer said a moving violation occurred.
The concierge could access the car's driving records on the fly and provide specific reference to traffic laws at that specific jurisdiction. The officer and the concierge could hash out the entire interaction roadside and it could recorded.
Meanwhile, the passenger/"driver" would be sitting there mouth shut, hands on wheel, and hopefully not attracting any attention beyond the moving violation.
creating a competitive advantage for least ticketed cars.
why wouldnt google just constantly update the software to comply with all applicable laws at all times? or Ford or Tesla
certainly Uber would have an interest in software that would follow all applicable laws, given the impression your robot driver getting pulled over would give to a passenger.
We're already to the point where if your commute is less than 8 miles or so, using Uber daily is cheaper than the cost of ownership on a $30k vehicle. Just imagine what self-driving cars will do to that equation.
The true line right now (where car ownership becomes more expensive than Uber) based on my experience is probably closer to an 8-mile commute and a $15k car. That line gets much lower when you add in things like financing, overpriced insurance, and leasing, which do affect a majority of the population.
I should actually do a writeup about this. I have access to all my numbers on it but I've only ever done rough estimates (which were clear enough that choosing Uber/Lyft was obvious). Now I'm curious to see exactly how the costs compared.
Which brings up the question: why the hell would anyone buy a $30k vehicle for 16 miles of commuting?! You can get a perfectly reliable car that's even reasonably safe and comfortable for regional road trips @ well under $10k, without even looking for sales or deals.
Until true driverless (no driver in vehicle, no insurance policy needed) happens, ownership will always be cheaper than daily taxi rides.
I did it because I wanted an electric car, and specifically a 2014 or later and there were very few 2014s for sale and those that were for sale were overpriced, IMO (in some cases, more than the net price of a new one).
Our other car is indeed a sub-$10K 2005 CR-V with 180+K miles on it.
Getting rid of drivers is a high priority for that industry. Human drivers are expensive and they can only drive 70 hours a week. [1]
Oh, and Uber is dying to get rid of all its drivers too. [2]
1. https://www.transportation.gov/briefing-room/new-hours-servi...
2. http://sanfrancisco.cbslocal.com/2015/01/27/how-ubers-autono...
Now, let's talk about this again when someone makes a decent R2 unit.
There are numerous tasks shipboard which aren't readily automated, and once you have one person aboard, you tend to need more (cooks, maintenance, multiple shifts, mechanics, etc.).
The reduction in employment in shipping since the 1950s, particularly relative to cargo handled, is already immense, much of that from containerisation though.
First of all, the article states that premiums will go down -- a reasonable, but not proven thesis. We don't know what will happen to insurance volume or prices, both of which go into calculating total premiums.
Secondly, the article doesn't really describe to readers how insurers make money -- almost no auto insurers make money directly on premiums. They make money on the float they get from premiums. Competition prevents most from making money on premiums directly, with some exceptions (GEICO, with the low cost sales model comes to mind). A reasonable assumption is that float will go down (again not proven), but we're also in an extremely low-interest-rate world right now -- something that's tough on insurers anyway.
But almost neither of these points matter.
Auto insurance is a required by most states (some states allow you to have a bond instead of insurance). It's mandated. These laws have to be repealed, and likely will remain intact for years while the transition to driverless cars happens. Similarly, liability and insurance will be required for malfunctions, tampering, and bugs.
IMO, P&C insurance, and specifically auto insurance's, imminent death has been greatly exaggerated.
Sure, some parts of the industry (Lloyds reinsurance syndicates underwriting the portion of the manufacturers' liability they're not willing to self-insure, which is probably the idiosyncratic risk of a negligence claim over software updates) still exist, but all those B2C players are fighting for a much smaller share of the pie which continues to decline as more people switch to exclusively driverless cars and they don't really get stolen any more.
[1]I think this is a very big if in the foreseeable future, but it seems to be assumed by the article.
[2]there's still a market for insurance against vandalism, fires not caused by the car itself and [to a much more limited than before extent] theft, but that's probably not compulsory in most jurisdictions and so a much tougher sell for the insurance companies.
[3] they could even build in the annual policy renewal fee for the design life of the vehicle into the purchase price if they really wanted to. I'm also assuming here that there's no legal impediment to individuals' motor liabilities being underwritten by a division of the vehicle's manufacturers in most jurisdictions.
just like universal unbreakable glass might hurt glaziers.
just like getting people to commit less crimes might hurt for profit prisons.
just like people not getting attacked might hurt self-defense courses.
I realize this is perfect-world absolutist thinking but industries that exist because of something wrong in the world shouldn't have a right to exist when that wrong is removed.
Naw, they just lobby for new reasons to lock people up.
In fact, profitability would probably go up on these policies initially since the safety benefit would be immediate, but the implied risk in the policies would only come down over time as the safety works it's way into statistics.
(Apologies if I'm not using correct terms. Not an actuary.)
From the insurance company's perspective, they need enough of a capital reserve to mitigate the risk of a sudden shock in payouts. Spreading across larger geographic areas mitigates that risk somewhat, as does spreading through multiple businesses. Auto insurance is probably a particularly nice gig since it's relatively unaffected by things like natural disasters and would have a relatively smooth cashflow.
So, less capital from auto insurance means more capital has to come from somewhere else - more borrowing, if nothing else. That probably translates into either reduced profitability, or higher premiums on other kinds of insurance.
I'm not an actuary by any means, but that's my guess.
Interestingly, that is not true for insurance companies[0], at least at the federal level. They are exempt from a lot of federal law.
>The McCarran–Ferguson Act, 15 U.S.C. §§ 1011-1015, also known as Public Law 15,[1] is a United States federal law that exempts the business of insurance from most federal regulation, including federal antitrust laws to a limited extent.
[0]https://en.wikipedia.org/wiki/McCarran%E2%80%93Ferguson_Act
I'm curious if we could see a future where the car manufacturers provide insurance for their product, and you would buy a combined hardware/software/updates/insurance subscription package from a manufacturer. It seems like the inevitable conclusion of all the debate around who's ultimately responsible for the actions a self-driving car takes.
I have a hard time reconciling these two sentences. In the first, you sound like a passionate advocate of the free market. In the second, you act as though you have never heard of such a thing.
N.b. Personally, I am much happier knowing that (almost) all the people potentially plowing into me on the highway carry insurance.
>N.b. Personally, I am much happier knowing that (almost) all the people potentially plowing into me on the highway carry insurance.
Do you live in the US? Where 1 in 7 drivers are uninsured?
So the claim boils boils down to, people don't know how to shop around for auto insurance? Forgive me for scoffing.
And 1 in 7 is a lot lower than it would be otherwise.
[0]https://en.wikipedia.org/wiki/McCarran%E2%80%93Ferguson_Act
That sounds like it comes from the same people who make any speeding offense on par with DUI and having an at fault accident in most points based systems. One in seven people with a license not having insurance I can see (because they might not have a vehicle) but one in seven vehicle/driver pairs on the road not being insured for that combination seems very high without monkeying around with the statistics.
My girlfriend isn't on my policy because she never drives my truck. Likewise the vast majority of the time I drive her car it's something along the lines of repositioning vehicles in the driveway. If I were to get in an accident in her car chances are there'd be a bunch of fighting with insurance but our insurance (same company, different policies) would probably wind up paying. Would I count as an uninsured motorist in that hypothetical situation? III has a very obvious incentive to portray insurance as something worth having as opposed to a waste of money (which it will be for most people who don't get into a situation involving medical or large amounts of property damage). I think they'd consider me uninsured in that situation.
Reporting rates also have an effect. There's a much higher reporting rate for small accidents with a single uninsured party than for similar accidents in which both parties are insured. If one party is insured it's in that parties interest to maximize documentation unless it's undeniably their fault. If both parties are insured then it's much murkier, damage amount, deductibles, who's at fault, etc, etc. come into play and if the dollar amount is relatively low it's often more faster and cheaper for them to settle the matter without insurance company involvement. Basically, if someone without insurance gets in a parking lot accident the vast majority of people will report it whereas that's not necessarily the case when both parties are insured.
This holds for my outdated one in seven number and the new 12.6% that GP linked.
Where do you live? While most people are legally required to the penalties for not carrying it are so weak where Im at a lot of people do not.
Actually, in California, the government does not. You must have either a certain specified minimum level of insurance or a post a specified minimum surety bond.
This becomes absurd with self-driving cars. There are three types of collisions with human-driven cars:
1. Those caused by driver negligence.
2. Those caused by the owner failing to properly maintain their vehicle.
3. Those caused by a manufacturing defect.
With self-driving cars, the first one is impossible. A car that follows the law to the letter is by definition never at fault in a collision. The second one is still possible, but probably less likely. The car can take itself to the shop without your intervention, and I expect manufacturers would have it refuse to drive itself if you're too far off the maintenance schedule. The third category will now include bugs in the driving software, so the rate of collisions that fall under option 3 is likely to go up a bit.
Option 3 means that the manufacturer is liable, not the owner of the car. Since this encompasses the vast majority of self-driving car collisions, personal liability will no longer be truly necessary like it is today.
You can still be "at fault" even if you followed the law in a collision. Laws - particularly driving laws - are not always black and white.
That has the side effect of requiring the typical person to buy insurance, as they can't afford the alternate means of establishing it.
Do you think that's somehow unreasonable? What standard would you prefer for determining when an activity should require such advance indemnification, and how does "driving a car" fail that?
Edit: Sorry if you just meant to make the bland, neutral point that more casualties -> more insurance revenue -> more insurance profit, but your tone suggested you think it's an unfair subsidy somehow.
[1] It varies, but here's California's form for alternately proving responsibility, which only requires you put up a bond of $35k, which IMHO is ridiculously low considering how much you could fairly be held liable for. I guess the logic is that "if you don't mind setting aside that much money, you must have enough seize-able assets in case you harm someone"? https://www.dmv.ca.gov/portal/wcm/connect/3a81272a-0834-43b6...
The average insurance company only pays out about 50% of its income as loss (heavily dependent on sector, but for auto it's about right). For auto, they all use more or less the same ISO policy docs. They mostly all use the same call centers. Their adjustors are usually shared. Honestly, the only thing that really changes is the marketing.
Which is why 30%+ of every dollar you pay them goes to marketing. For auto, they are in this weird local maxima where 40% is loss, 30% is marketing, and 30% is profit. They expect to keep a customer for about 2-3 years, and then have to repeat the whole process. It is really sad.
If so, why is it bad for it to disappear again?
Can't read the full article, since wsj have a competently implemented "To Read the Full Story, Subscribe or Sign In" shield.
Off the top of my head I can think of insurance products and the futures market.
But if you can find citations that will be very helpful for me!
A good quote I found: insurance transfers risks that already existed; gambling creates risk for entertainment.
Think "why am I more comfortable with gambling because my state mandates I pay it" and think about what circumstances led to that, and then think about what prompted you to care at all.
You're probably thinking about racketeering, but unless you actually believe your home insurer will set fire to your house if you don't buy fire insurance, the comparison probably isn't apt.
There have been a handful of religious communities, like the Mennonites, that don't believe in commercial insurance, but they instead have a community that will step in and help when something happens to one of its members. So it's still a form of insurance, they just don't use money.
What you may have refered to is a particular ruling that insurance contracts are not commercial contracts, but that has been overturned.