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What Does Driverless Cars Mean To Insurance Companies?

The first accident in Singapore involving an autonomous vehicle occurred earlier this week. The autonomous vehicle belongs to nuTonomy, a technology start-up that started testing of a driverless taxi service in the one-north area in August.

Such news may not be a surprise for some of you who are following the exploits of US electric car manufacturer Tesla Motors. The company’s self-driving vehicles have been involved with accidents.

These incidences show that the technology behind self-driving vehicles is not perfect yet. But, they do not negate the potential for driverless vehicles to become much safer than vehicles driven by humans. Research by the US government has showed that driverless cars could reduce the number of car crashes by 80% by 2035.

A study by insurance group Swiss Re and technology firm Here predicted that by 2020, nearly 70% of vehicles sold worldwide would have connections to the internet and to each other, thereby improving safety dramatically. In a 2015 report, KPMG shared its view that the accident frequency for vehicles would drop by 80% by 2040.

Lower fatalities and injuries on the road would be a benefit to mankind. But what about insurance companies that provide car insurance? A recent Wall Street Journal article had ominous words:

“Car insurers last year hauled in [US]$200 billion of premiums, about a third of all premiums collected by the property-casualty industry. But as much as 80% of the intake could evaporate in coming decades, say some consultants, assuming crucial breakthroughs in driverless technology make driving safer and propel big changes in car ownership.”

One company in Singapore’s stock market that provides car-related insurance would be Great Eastern Holding Limited (SGX: G07).

Insurers would also have to think of how their insurance policies for cars need to change.

In the United Kingdom, insurer Adrian Flux had recently come up with the first personal driverless-car policy that is catered for drivers who have purchased cars with autopilot features such as self-parking. The government there is also introducing laws that will determine when car manufacturers rather than drivers are responsible for accidents.

Another major risk that insurers might have to think about in their design of insurance policies for driverless cars would be the risk of the car being hacked.

Changes are afoot in the world of transportation and it would be interesting to see how it all pans out.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat doesn't own shares in any companies mentioned.