The market for safety technology in cars is massive and growing, projected to reach $170 billion by 2025. There is a good reason for that. Governments everywhere want to cut deaths and injuries on their roads.
This is why the EU mandated that new cars, from May 2022 and existing models, from May 2024, must come equipped with 30 safety technologies.
What impact does this have on insurers? Swiss Re says premiums could drop $20 billion by 2020 in the 14 major car markets. Will safety technologies change the face of their industry?
What is meant by safety technologies?
By safety technologies, we mean, for example, automatic emergency braking (AEB), advanced driver distraction warning, emergency lane keeping,intelligent speed assistance (ISA), reversing detection system, and event data recorders. Sometimes these are called advanced driver assistance systems (ADAS). Adding these safety systems is not necessarily expensive for automakers, and can add $500 to $1,000 per vehicle. But the cost for insurers is very different because they still don’t know the risk.
The risk of ADAS systems
In fact, US insurers have claimed they still have insufficient data on ADAS systems to be able to decide whether they are safe or not. Without clear data about their safety, they cannot include them in their risk profiles.
There are several reasons why data are lacking. For example, manufacturers don’t like providing detailed information on the cars they sell with these features.
Typically, names and standards among different brands of the same feature, vary considerably. On top of that, drivers do not necessarily use these features in the correct way. In fact, they may even become more dangerous drivers because of their tendency to trust safety features.
How Car Safety Tech Impacts Insurance Industry
The US AAA Foundation for Traffic Safety found many drivers have no idea what these technologies do and were taking unnecessary risks with them. Meanwhile, insurers could be decidedly unwilling to foot the bill for crashes that occur from misunderstanding or ignorance of safety technologies. To this end, Swiss Re has teamed up with BMW to develop an ADAS risk score algorithm. The idea behind it is that car manufacturers can share information with insurers to improve
road safety and offer more tailored car insurance. So far this can only work for BMW drivers, but Swiss Re thinks other carmakers will want to take part.
The risk of more expensive repairs
As vehicles become more complicated, and mechanics need more specialised skills to fix them, the cost of repairing vehicles must inevitably go up. Already insurers are well aware of the cost of repairing vehicles with advanced safety systems. The AAA found even the cost of a minor collision could double because sensors are damaged. For example, a $300 bumper costs $1,500 when it has a sensor sitting on it. Another common feature on vehicles, headlights, has now become highly complex. LED daytime running lights can cost more than $1,000 to replace.
Even a $40,000 Jeep can set you back $15,000 to replace the headlights alone. Meanwhile, damage to AEB can cost $3,000. Insurers know many collisions do not happen at speed and nose-to-tail collisions at traffic
lights are the most common. Yet a radar sensor, placed on the front of a car, can do nothing to stop these collisions and it costs $2-3,000 to replace them.
What can insurers do to mitigate these risks?
Improve risk management. The use of event data recorders, or telematics, is going to go some way to showing insurers how drivers use these technologies. This will happen using sophisticated sensors to track
what is going on inside and outside the car. Insurers can then analyse the data to show them how to better fit insurance to the driver. It also means they can verify what happened during an accident, without taking a long time trying to find out.
It is likely governments will pass new regulations to shift some of the accountability from drivers to the carmakers or network providers. This would be a move from personal injury insurance to product liability insurance. When autonomous vehicles finally come to our roads, presumably safer than other vehicles, that will certainly change the face of insurance.
Until then, fewer and less severe accidents may over time offset the ballooning costs of repair. One commentator even claimed lower premiums could lead to temporary liquidity problems in the insurance sector within 10 years. We suspect insurers will already be investigating their options before that happens.
Owning a car you use only 5% of the time doesn’t seem particularly logical but many of us show no sign of giving up owning one: https://t.co/hD1KA9rWpr
— greenslips.com.au (@greenslipme) September 19, 2019
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