Insurers Not Ready to Discount Premiums on ADAS

Insurers Not Ready to Discount Premiums on ADAS
by Bernard Murphy on 08-07-2019 at 6:00 am

Think because your new car is loaded with ADAS your insurance company should give you a break on premiums? Think again. The purpose of all those fancy features is to reduce the risk of an accident or damage to your car, either of which could be costly to your insurance company and quite possibly to you also. If you’re paying extra for that car to reduce the likelihood of such claims, why won’t insurance companies reflect that in your premiums?

Auto insurance

For those of us who can afford it, there are other good reasons to pay extra for those car features. From a purely financial point of view, if you make a claim your premiums may well go up. If ADAS buys you a longer period without accidents and therefore increases, that may justify the cost. More importantly, ADAS gives you and your family a higher assurance of safety, which for most of us is worth a whole lot more. So for those of us who can afford it, the added cost is amply justified. I know since I got the full ADAS package on my current car I will never go back to a lower level of support.

Insurance companies already offer safe driver discounts, based on a device plugged into your car’s diagnostic port which tracks things like mileage, braking and acceleration. The discounts they offer drivers under these plans can be substantial – up to 40% of your premium. So why shouldn’t ADAS earn you an even better deal? A recent Reuters article provides some insight.

Bottom line, insurers don’t have enough data yet to accurately price the impact of these safety features on risk. According to the article, auto insurance is a low margin business (though it may not feel that way at times). If the insurer assessment of reduced risk is even a little bit wrong, they lose money. And there are a lot of other factors. Other vehicles may be involved in an accident and maybe not similarly equipped (short of force fields, you can’t stop other vehicles crashing into you). Or perhaps you’re driving so fast and close to another car that collision avoidance systems will be unable to help if that car stops suddenly.

Automakers are apparently not very helpful in sharing detailed features information by model with insurers. The article adds that there’s also a lack of standards, making it more difficult to calibrate such statistics as are available.

One more thing. A lot of accidents are fender-benders, which didn’t necessarily require costly repairs in the pre-ADAS days. But now a damaged fender has to be replaced with a new fender with all those fancy smart sensors, turning what had been maybe a $300 repair into a $1,500 tab.

So the insurers are waiting on more data. Even after the automakers have figured out how to share their data effectively, I am completely confident that insurers will ignore all theoretical information on what various ADAS features ought to be able to deliver and will instead rely on the empirical evidence they see in day-to-day use – the same way good engineers would.