Recently in a Program on CNBC it was told, “The driver-less cars or autonomous cars will hurt the insurance industry in future”.

Can you guess who said this??

I am not trying to check your knowledge of current affairs. But this is like the God has said about something. Imagine God appears and say that something is going to happen, will there be any doubt or any question about this? Obviously not! There will not be any doubt and argument for that. Such is the similarity with the statement and the person who was talking to the correspondent of CNBC. The person was none other than Warren Buffet, a man who is the synonyms of success, the legendary stock picker, also known as the Oracle of Omaha and his investment decisions made him the most successful investor. When he was talking about his investments in automobile industry, he was happy with advancements in technologies in cars starting from security alarm to driver-less cars. At the same time, he was also a bit apprehensive about the overall impact of all these advancements on motor insurance companies.

This is very natural, change in technology in any field has its own advantages & disadvantages. But, towards any change initially we feel hesitant and discuss too much about the negative aspects of it. I still remember during my childhood when color televisions were about to come, People were discussing so many harmful elements in it. There were discussions like watching color TV will cause cancer of eyes and many more. Today TV screens have evolved so much that nobody would believe that there were televisions who had only two colors which is Black & White in the screen.

When we were kids in those days having an Air Conditioned Car was a sign of alertness, if car AC is factory fitted then it takes the eliteness to another level. But today, we cannot think of a car without AC, its D class.

The technological advancements in Cars have no limits. The technology is improving on an hourly basis, every day, every feature of the car is upgrading. It seems like technology is taking over human thoughts. The features of cars will not surprise you, but they will shock you. Features like keyless entry based on bio-metric technology, high standard anti-theft systems, parking sensors, safety belt with alarm, air bags, etc. are just the entry level features of the new age hi-tech cars. The technology and the future have overtaken our imaginations.

Karl Benz was first to be given the credit of thinking of practical automobile and motorcar in the year 1886. Since then the motor car designs and technologies are improving every day. No one could have thought so much about features of safety, comfort and Luxury those days. Even today we cannot estimate about the new features. Cars are actually coming with more updated features than we think.

Every part of the car has evolved, right from Simple Steering with Smooth Power steering, Tiring Crank start with Electronic Touch start, Revolution in Music systems, Suspensions, Breaking Systems, Electronic fuel injection, Battery operated cars with superchargers, Tailpipe Emissions, or you name any part of the car and it is completely changed. The next level of Cars offers an extremely high level of comfort, luxury and security along with fuel efficiency, these cars are called Smart Cars. These Smart cars are now being taken for a ride by the automotive innovations. We will soon be able to see the cars running on road with super-powerful artificial intelligence like a virtual personal assistant. Due to progress in Artificial Intelligence these cars do not require human drivers and are called Driverless Cars and very soon these cars will be running on the roads these cars would have very high standard of safety features also. Cars equipped with Hologram Consoles will make you feel like travelling in time machines. They are called Sci-fi cars. They are now no more a car, but a place to chill out because they have super luxurious comfort, entertainment, infotainment and safety features like a mobile living space.

These all features have severely increased the overall cost of the car, the purchase cost of these hi-tech cars is so high that it is impossible to think of purchasing these cars for a person living in the average economy country. The maintenance costs are also very high as the Spare parts are very expensive. Even fixing a bumper isn’t the same old job. A very high standard technician is required due to computer backed feature in cars. It’s now no more a job of a mechanic in your vicinity. It takes lots of your time and money.

The prices of the Hi-tech cars will cost everything of yours. It’s like you have no other thing to do in your life other than purchasing a car and earn your wages to maintaining it.

However, there are few things which has not changed and that is the road accident and theft. As per WHO; About 1.3 million people die each year on the world’s roads and between 20 and 50 million sustain non-fatal injuries. Road traffic crashes are a major cause of death among all age groups and the major cause of death among aged 15–29 years. So, accidents continue due to hi speed and powerful engines which provides amazing pick –up.

Theft has been one of the oldest profession on earth and this has also evolved with time. Burglars are now highly skilled, well versed with new edged technology. They are more innovative in terms of developing the tools used in theft than the inventions in security equipment. Here, the theft data is also very important to share. As per the Global Economy.com. The average for 2014 was 901 thefts per 100,000 people. The highest value was in Sweden: 3972 thefts per 100,000 people and the low value was in Burundi: 8 thefts per 100,000 people. In our country, it is around 18 reported in 2014 and it is increasing by 6.89% every year. So, theft is on the rise and number of smart and expert thieves are increasing.

When we talk about the impact of hi tech cars on the insurance industry first, we need to understand what a car insurance offers. Normally, it is understood that the motor insurance the offers benefit of payment of bills for repairing due to accident and compensation for vehicle theft. However, the motor insurance offers a comprehensive umbrella cover for the all the losses due to accident. Apart from these above mentioned benefits a motor insurance offers many other benefits like:

• Temporary replacement of income of insured person due to fatal accident.
• Protection of the passenger of the vehicle for any personal injury sustained because of the accident.
• Provide protection from loss arising due to legal action and any Legal Liability that may arise due to accidental damages to surrounding property or people from the collision/accident of your vehicle.
• Protection of loss to any third party arising due to the insured person.
• Reimburses for engine breakdown losses to water ingression or leakage of lubricants. There are many more like, key replacement, quick Assistance of Road and Electronic Circuit Cover.

Now what are the risks of Hi-tech cars?

Accidents: The Driver less cars are having very high levels of sensors to avoid collisions. They have an excellent control mechanism of braking in case of any obstacles. Can this be 100% ensured that every vehicle running on the road will have the same mechanism, what about those vehicles who will not have that upgraded system. They will hit the vehicle even if it is not moving and standing in the parking. What if a truck loaded with boxes and other stuffs accidentally fall on a high-tech car. There are many circumstances which will cause the damage. What if a tree or a wall falls on a parked car? What if somebody set it on fire? There are many more accidental circumstances which may cause damage to the car. A very well-developed self-defense mechanism can reduce the impact of hazard, but the hazards and damages cannot be overruled any damage will have higher cost as repairing charges. A motor insurance is well known for this feature of compensating this loss.

Repair: Any machine or its part has a self-life, or it ceases to work due to normal wear and tear. A small subnormal performance of any part will lead to a major accident and there will be less. A hi-tech car can only indicate about the problem, but to repair or replacement it has a very high cost which cannot be ignored. To repair or replace the damage part will have very high costs, in this case motor insurance will be of great help.

Theft: With the advent of computer backed strong security system and super sensitive advanced alarm systems the chances of theft are very much reduced. As the cars will have a strong safety lock mechanism, so strong that it cannot be broken, they are backed with highly developed computer Program. But there are hackers who are so expert in hacking that they can easily hack a security system. For them this is a very big opportunity they can manipulate the security system and car theft will happen without any noise and no one will doubt about it.

Natural Calamities: This is one of the major reasons of damage. Situations like flood, storm and even fire from third party cannot be avoided. They cause severe damage to the vehicle and the repairing cost of hi-tech cars will always be very, very high. The inbound technology in cars cannot avoid these hazards. The motor insurance would be of great help in this case.

We are presuming about these circumstances much before than the cars with technology will be on the roads. The scenario may have many more issues wherein motor insurance will have its role.

The motor insurance has not been revived since ages. The headway in technology of cars may have influence on motor insurance. Which will change the paradigm of motor insurance to compensate the car owners for losses. But to say that this will harm the motor insurance industry would be just an apprehended before a change.

Thanks,

Anand Kumar
Insurance Expert