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Writer's pictureMike V.

Bloomberg: Self-Driving Cars Might Kill Auto Insurance as We Know It


Without humans to cause accidents, 90% of risk is removed. Insurers are

scrambling to prepare. Dan Peate, a venture capitalist and entrepreneur in Southern

California, was thinking of buying a Tesla Model X a few years ago—until he called his

insurance company and found out how much his premiums would rise. “They quoted

me $10,000 a year,” Peate recalled.


Peate, 40, previously started a company called Hixme, a provider of group health

insurance. Now, he wanted to launch a firm specializing in insurance for vehicles with

automated-driving modes (and eventually, fully autonomous cars). His experience with

the insurer of his old-fashioned, non-driverless car only confirmed the need. When

underwriters and actuaries price insurance on a new type of risk, Peate said, they charge more because they don’t have enough data. With so few Model Xs on the road, its safety record was, at best, opaque. But Tesla Inc. and other carmakers collect reams of data on their vehicles’ operation to improve automation. Peate said he realized “we can get large amounts of data across entire fleets and be able to underwrite without having to wait for years of data” from accidents after they’ve happened. It also enables an insurer to cut premiums for drivers the more they engage autonomous driving.


On Jan. 30, Peate announced the creation of Avinew, with $5 million in seed

funding led by Crosscut Ventures. Its insurance product will monitor drivers’ use of

autonomous features on cars made by companies including Tesla, Nissan, Ford and

Cadillac, determining discounts based on how the feature is used. Avinew has

agreements with most manufacturers and is working to tie up the rest, Peate said,

allowing it to access driving data once a customer gives it permission. Deloitte, in its

2019 insurance outlook report, saw this coming. “The rise of connectivity … has

generated a massive amount of real-time data and turned the insurer’s relationship with

policyholders from static and transactional to dynamic and interactive.” Avinew said it

expects to be writing policies later this year in select states. “This comes up in every

strategic conversation,” said Michelle Krause, senior managing director in Accenture’s

insurance client service group. The major carriers “are very focused on understanding

the technology behind [automation] and what opportunities are available for them.”

Krause’s group, with research from the Stevens Institute of Technology in New Jersey,

published a report in 2017 forecasting trouble for insurers as automation becomes more widespread.


Premiums could drop by 12.5 percent of the total market by 2035, the

authors found, and while new insurance product lines centered on autonomous vehicles

will offset some of the loss, declining premium revenue will eventually outpace gains. As

automation reaches levels 4 and 5—fully autonomous capability with the option for a

human driver to take over, and fully autonomous with no human involvement,

respectively—insurance is going to change dramatically.


Policies that protect products will become more widespread, while mobility as a

service, Keith said, will mean we’ll want to “insure our safety as a passenger” as well.

Without a driver, there’s no driver to insure. Nationwide thinks the smoothest road

ahead will be one on which insurers and automakers each have a hand on the wheel.

“We’re working to build deeper relationships with car manufacturers,” Scharn said.

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