How driverless cars could collide with auto insurers

Evidence is mounting that the driverless car will become a roadworthy reality by the 2020s. While one often-claimed benefit of taking the wheel away from humans is that it will make driving much safer, what might that do to auto insurers' annual premiums, currently $209 billion? It could reduce them to a fraction of that and save drivers who opt to give the wheel to a computer a similar amount.

What automaker Volvo calls "death-proof cars" could also drive many of the nearly 600,000 insurance agents and other workers in the property-casualty industry into unemployment or early retirement, suggested Donald Light, director of North America Property/Casualty Practice with Celent, a research and consulting firm.

The National Highway Traffic Safety Administration (NHTSA), a federal agency whose goal is to reduce car crashes and the injuries and deaths they cause, has just advanced the driverless car initiative with a letter to Google (GOOGL), redefining the term "driver" to include the computer that has control of a car.

NHTSA's extensive response to Google, which is now experimenting with autonomous vehicles on the road, indicated that the tech giant still has a long way to go to make driverless cars commercially viable. The agency rejected Google's claims that its car met federal auto safety standards, including a requirement for hand and foot brakes.

But NHTSA's action may be just the first mile of a long trip. Driverless cars have won the support of President Obama, who wants almost $400 million per year in funding to get them on the road. That goal was echoed by Transportation Secretary Anthony Foxx, who has said he'll fast-track the process and possibly even waive regulations to do it.

"This is a big step forward," said Celent's Light. "They are clarifying regulations while companies are still in the development stage. This will set a model for state regulations." States control most driving rules, and car insurance is under the jurisdiction of state regulators.

But car insurers remain skeptical that driverless cars will phase out their industry anytime soon.

"While the number of crashes will be greatly reduced, there is still a risk to driveless cars," said spokesperson Loretta Worters of the Insurance Information Institute, which represents the industry.

Among those risks are property liability claims if the on-board computer fails, or if drivers blame the equipment for an accident rather than their own behavior, she said.

According to State Farm spokesperson Rachael Risinger, the country's largest auto insurer understands that its "business of managing risks will adjust and adapt to this changing landscape. As connected and automated vehicle technology reduces or eliminates some risks that drivers face today, new risks are likely to emerge."

For example, while coverage for damage due to a crash, as opposed to fire, flood or theft, is likely to become cheaper, the higher cost to replace driverless car equipment, such as the rooftop infrared sensors that generally come with the vehicle, will raise costs when these cars are banged up.

Also yet to be resolved is how to modernize the current pothole-ridden highway infrastructure to accommodate driverless cars, particularly in crowded cities. "Where a car is driven, such as dedicated lanes for automated driving, also has implications," Worters said.

It's likely, Light admits, that it will be a long time before all drivers ever give up the wheel, particularly given the expected high cost of automated vehicles and the American "car culture."

Perhaps the best evidence of the need for insurance is Google's own experience. Its automated cars have been in nine crashes already, according to the California Department of Motor Vehicles. Google claims that most were rear-enders caused by the other drivers.

But it doesn't mean nobody filed a claim.