SoylentNews is people
SoylentNews
from the don't-tell-them-about-motorcycles dept.
Like record companies at the dawn of online music file sharing, Allstate, Geico, State Farm, and others are grappling with innovations that could put a huge dent in their revenue. As carmakers automate more aspects of driving, accidents will likely plunge and car owners will need less coverage. Premiums consumers pay could drop as much as 60 percent in 15 years as self-driving cars hit the roads, says Donald Light, head of the North America property and casualty practice for Celent, a research firm. His message for insurers: "You have to be prepared to see that part of your business shrink, probably considerably."
Auto insurance has long been a lucrative business. The industry collected about $195 billion in premiums last year from U.S. drivers. New customers are the source of so much profit that Geico alone spends more than $1 billion a year on ads to pitch its policies with a talking lizard and other characters. Yet even Warren Buffett, whose company, Berkshire Hathaway, owns Geico, is talking about the long-term risks to the business model. "If you could come up with anything involved in driving that cut accidents by 30 percent, 40 percent, 50 percent, that would be wonderful," he said at a conference in March. "But we would not be holding a party at our insurance company."
The loss of revenue for the insurance industry gives me a sad.
(Score: 2) by Aichon on Friday July 31 2015, @06:11PM
Their revenues will be shrinking because their costs will be shrinking, due to there being less claims on driverless cars. It doesn't change the amount of profit they're making in the slightest.
Quick example: suppose driverless cars will cut the cost for claims they pay out in half. Of the, say, $70 I pay per month, let's say that $50 goes towards paying out claims, while $20 is pocketed as profit. If their costs dropped in half, they could charge me $50/mo., could pocket $25 in profit for an extra $60/year, and I would still be a very happy customer since I'd be saving $240 annually.
Just because their revenues may shrink, it doesn't necessarily mean they'll be making any less money in profit. This is a definite win for consumers, since insurance costs will drop like crazy, and it'll be a big win for any early movers on the insurance side, since those lower rates will look extremely attractive to potential new customers considering a switch to a new insurer. Latecomers stand to lose big.