Michael Scrudato

The auto insurance business, now more than a century old, was built around the premise that in an accident, the driver of at least one of the vehicles involved would be at fault. That’s still the case even with today’s cars that are equipped with partially self-driving technology, says Michael Scrudato, senior vice president and strategic innovation leader at Munich RE America. But with the advent of self-driving vehicles, that assumption may not be true forever.

Scrudato has been avidly following the advance of autonomous vehicle technology and creating ways for the old business of insurance to adapt to the new technological realities. The stakes are enormous for insurance companies. After all, if technology eliminates car crashes, what is the point of getting car insurance?

Scrudato recently visited a senior citizen community in Florida called the Villages where residents will soon be able to catch a ride on a low speed self-driving shuttle instead of driving their own cars.

Similar shuttles are being given trial runs in Las Vegas and other cities around the world. Scrudato has ridden them.

“It’s amazing how quickly it becomes a normal experience,” he says.

But what may be normal for riders may be a challenge for insurers like Munich RE, which has many of the major insurance companies as its clients.

Scrudato will discuss driverless cars and the insurance impacts of the technology at a meeting of the Princeton Chamber of Commerce on Thursday, June 7, from 11:30 a.m. to 1:30 p.m. at the Princeton Marriott at 100 College Road East. Tickets are $75, $50 for members. For more information, visit www.princetonchamber.org.

Among technology experts, predictions for how far self-driving car technology will go vary wildly. Skeptics can point to two recent fatal crashes — one of a Tesla that crashed while in autopilot mode, killing its driver, and another by an experimental self-driving Uber car that killed a pedestrian — as proof that the technology has a long way to go before it is ready for widespread use, or that self-driving cars are unsafe and over-hyped.

Optimists believe that autonomous vehicles still have the potential to be better drivers than humans once the technology is perfected, and that accidents could be virtually eliminated some day.

Scrudato takes a middle ground. “Our hypothesis is that there will always be crashes, but hopefully a lot less of them,” he says.

Scrudato says the recent crashes have not changed the long-term outlook for the technology. “They have shown the importance of understanding how this technology will work in conjunction with human drivers either in autonomous vehicles with a safety driver, or how an autonomous vehicle is going to operate around other vehicles.”

Even if self-driving technology were perfected tomorrow, most people don’t buy cars very often — even in the best-case scenario in which everyone wanted to buy an autonomous car, self-driving vehicles would share the road with regular cars for decades.

Sooner or later, the insurance industry will have to evolve. “Business models will evolve, products will evolve with them,” he says. “When exactly, or how, is difficult to say right now because there are too many unknown factors. But we have to be prepared to proactively evolve with technology and business models.”

Consulting firm Deloitte recently published a paper outlining the challenges that this “disruptive” technology poses for the insurance business:

“Breakthroughs in self-driving cars are likely only the beginning: Vehicular travel from point A to point B is changing in ways that could create an entirely new ecosystem of personal mobility. Advanced technology to improve safety and enable increasingly autonomous vehicles (AVs) is threatening to disrupt several industries, not least of which is insurance.

With sensor-loaded cars poised to reduce accidents by 90 percent, and ride-sharing/ride-hailing trends pointing toward decreased vehicle ownership, auto insurers could be challenged to compensate for the apparent inevitability of falling premium rates and perhaps a substantial volume of business. As a result, insurers should consider developing transformational strategies to remain relevant and create value for consumers, yet still be profitable in this emerging environment.

This transition will likely be multifaceted, as a complex mobility ecosystem develops. Deloitte’s the Future of Mobility posited four future states of mobility — personally owned driver-driven vehicles, shared driver-driven vehicles, personally owned autonomous vehicles, and shared autonomous vehicles that are expected to evolve unevenly and are likely to coexist simultaneously for some time to come.

The unevenness of the transition could be fueled by several factors, including the success of new technologies (including, but not limited to, fully autonomous vehicles), as well as regulatory uncertainty and consumer attitudes about relinquishing the driver’s seat. Our research indicates that the pace of these trends may vary among age groups and geographies, but compelling economic and societal benefits suggest that the future will increasingly be defined by shared self-driving vehicles.

The stakes in this challenge could be enormous for auto insurers, which generate the highest share of premiums in the overall property-casualty market. In 2015 auto insurance yielded $200 billion in premiums globally, about a third of all premiums written by the property and casualty industry. On the loss side, collisions are expected to fall precipitously with the increase of safety technology being embedded in vehicles. Meanwhile, the incremental rise in autonomous driving and ride sharing promises to reduce accidents and car ownership, respectively, which may also potentially impact the price, terms, conditions, and premium volume for personal and commercial auto coverage.”

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