Driverless Cars Threaten to Crash Insurers’ Earnings

Re:Driverless Cars Threaten to Crash Insurers’ Earnings by nappy-doo on Tuesday July 26, 2016 @02:01PM (#12167543)

I'd expect the WSJ to know better -- this article (while technically correct) miscategorizes how insurance works.

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 These laws have to be repealed, and likely will remain intact for years while the transition to driverless cars happens.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.

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Re:Driverless Cars Threaten to Crash Insurers’ Earnings by notahacker on Tuesday July 26, 2016 @02:45PM (#12167879)

I don't see insurance dying overnight, but if their cars are solely used in driverless mode[1] then it's in the manufacturers' interest to take on that risk directly: since they're ultimately liable for [virtually] all risks cars are compulsorily insured for[2] it makes sense to cut out the middle men and keep that float to themselves as well as streamlining the claims process. The ability to make mandatory insurance contingent on getting cars serviced expensively at approved dealers is a nice little bonus. So you get the mandatory insurance certificate with the car,[3] and a whole bunch of B2C auto brokers and insurers are left selling policies which are entirely optional and which consumers consider much more unlikely to be claimed on

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.

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