We’re used to complaining about regulation. Sure, post 2008 we understand the need for it but it’s generally considered to be simply one of those unwelcome costs of doing business. I just wonder whether insurers shouldn’t look at regulation from a slightly different perspective, and see it as in some sense the handmaiden of innovation—and a useful ally in the battle to obtain competitive differentiation. It can act as a shark net as well, if only a partial one.
To explain what I mean, let’s look at the example of the automobile, the source of a great deal of premium income. I would argue that the original “horseless carriage” would not have achieved its success so rapidly—totally disrupting the transport industry—if mandatory insurance hadn’t become the norm in many geographies, not the least of them being the United States. Without the ability to mitigate the very real risks inherent in motorized transport (especially as higher speeds became possible and traffic on the roads increased), it’s arguable that the notion of “one man, one car” would never have taken such hold.
One could argue that insurance acts as an extension of regulators by helping to satisfy many of their concerns.
One potential disruptor for the automotive industry is the advent of the driverless car. The idea is occupying more than its fair share of media space, and Google, with its very deep pockets and knack for spotting new technologies, is at the forefront of the drive to make these vehicles an everyday reality. Read more about Google’s driverless car project.
Obviously, to get these vehicles approved for general use on roads is going to require massive injections of R&D money, not to mention education of the driving public, given that many don’t trust the concept, as a recent Harris poll shows.
At the end, though, it will be regulators in some form or another who will make the final decision as to whether to allow driverless cars freedom of the roads. There are complex issues here to balance, but safety is paramount. And even if it is able to be demonstrated that driverless cars will reduce accidents, they will nonetheless happen. The question of liability in such an instance will be extremely tricky. (In fact, 59 percent of respondents in the poll mentioned above were worried about liability issues.)
Without the intervention of regulators or, in many cases, their extensions, the insurers, this disruptive technology will not become safe enough to be commercial.
Isn’t this an opportunity for auto insurers to establish themselves at the center of the process to bring the driverless car and other disruptive technology to fruition? Their immediate role would be related to defining the standards to understand the liability and risk issues, which speak to their core competencies. But they could carve out a much wider role as well, as I will argue in my next blog.