With the pending arrival of autonomous vehicles, are the insurance industry's days numbered?
It would seem that way. Self-driving cars have the potential to save lives and save consumers money in premiums – and experts say the industry must change drastically and be creative with its products to survive.
"Anything that makes cars safer is very pro-social and bad for the auto insurance industry," Warren Buffett told CNBC in May. His company, Berkshire Hathaway, owns insurance giant Geico. "If there are no accidents, there is no need for insurance."
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He predicts there will be a big reduction of rates and a lot less insurance to write.
"I believe like every insurer, we're having those conversations," says John Bordignon, of State Farm. "We're in the 'wait-and-see approach', we're still in early days. We have to see where technology is going … and how liability is going to change."
Mark Francis, manager of driver and vehicle licensing for the Insurance Corporation of B.C., says rates are starting to come down for owners of vehicles with semi-autonomous features such as lane-keep assist and adaptive cruise control.
"As features increase, there is going to be downward pressure on companies to track loss data accurately," he says. "They are going to have to drop to stay competitive."
While the industry is concerned about sharp drops in revenue, few companies are getting out in front of the issue, Francis says.
"Adopting this 'wait-and-see approach' is not good for business and it won't serve the industry well," he says. "The industry is going to have to be more adaptive."
Volvo, Ford and other companies have already said they will accept 'full liability' in the future when a car crashes in autonomous mode. They believe the technology will be that good.
"There may be less accidents, but the accidents that do occur are going to be quite interesting (from a legal standpoint)," says Jason Katz, a personal injury lawyer with Singer Kwinter in Toronto.
He says it will be a while before manufacturers are fighting each other in court, but if a passenger is injured, he or she can collect more from a car maker than another driver.
"There is a lot more money for these seriously injured people," says Katz.
The need for new laws
"The law right now is pretty much silent on the issue," says Mark Virgin, a personal injury lawyer with Stevens Virgin in B.C. "Autonomous vehicles in Canada, they are not being spoken to in any of the legislation. It is the area we are most behind."
Virgin says technology is way ahead of regulation and there will be a number of struggles for regulators: Does an AV operator need a license? Can it be used while impaired? Can kids drive alone?
"I don't think it will eliminate the personal injury field, but it will drastically reduce the number of claims, assuming that technology advances as (auto makers) claim," Virgin says.
The law firm Borden Ladner Gervais issued a report in August stating even if a car is in semi-autonomous mode, the driver is liable. So, while you can let go of the wheel for short periods of highway driving, you aren't off the legal hook if something happens.
"For fully autonomous vehicles," the report says, "it would seem that legislative amendments would be required to clarify whether the owner would be vicariously liable and under what circumstances."
The 2016 federal budget provided $7.3-million over two years to develop a regulatory framework for emerging technology such as autonomous vehicles. The Senate standing committee on Transport and Communications will also study implications and challenges, including impacts on privacy, energy, land use and employment.
"The technology is rapidly evolving and we're not ready for it in the public space," says Senator Michael MacDonald. "I don't think it is something the government of Canada can avoid being active in … But rules, regulations take a long time."
The committee is expected to present its findings in spring of 2017.
In the United States, eight states have enacted autonomous vehicle legislation. Ontario is the only province actively seeking companies/organizations to take part in a pilot project to and test AVs.
"A pilot phase allows the ministry to establish rules, monitor industry developments and evaluate the safety of AVs prior to them becoming widely available to the public," wrote the Ontario Ministry of Transportation in an e-mail. Ontario Transportation minister Steven Del Duca says there have been expressions of interest, but admits so far no entity has formally enrolled in the program.
"They are good moves, but not enough," says Barrie Kirk, executive director of the Canadian Automated Vehicles Centre of Excellence. "Ontario is leading Canada, they are out in front in terms of funding for AVs, but at the same time, when I look at G7 countries, Canada is not only dead-last in terms of preparedness, but way behind the other six countries."
The tipping point
The term 'self-driving car' has many meanings – everything from cars with self-driving features such as a Tesla with Autopilot to vehicles with no steering wheel.
"There is this scary barrier, as the systems get better, but not as good as humans, our ability to monitor them drops off dramatically," says Steve Waslander, director of the Waterloo Autonomous Vehicle Laboratory. "If Tesla gets any better they are going to have to take it off the road because it could be very dangerous."
Waslander says the technology for assisted driving on the highway is as good as it can possibly get without endangering lives. Drivers are still responsible and can't be lulled into a false sense of security.
The biggest indication true autonomous vehicles have arrived won't be any sort of technological breakthrough, it will be when drivers no longer pay insurance.
This is the sixth article in a seven-part multimedia series on self-driving cars that examines the past, the current technology and what the future may hold.