Hey, what gives? Where are my automated vehicle discounts?!

It’s only a matter of time. At some point, many believe, insurance premiums will come down as vehicles use technology that leads to better, safer driving and lower costs. It’s a pleasant story, but one that has yet to come true.

While mass adoption is likely years away, a number of technologies that improve driver safety are already gaining ground. Partially automated features like forward collision warning and autonomous emergency braking systems are proving effective in reducing front-to-rear crash rates.

Data from the IIHS study on the effectiveness of forward collision warning and autonomous emergency braking systems in reducing front-to-rear crash rates illustrate this trend. Forward collision warning (FCW) systems reduced front-to-rear crash rates by 27% and front-to-rear injury crash rates by 20%.

Related: Will autonomous vehicles drive into a safer future?

Low-speed autonomous emergency braking (ABS) reduced front-to-rear crash rates 43% and front-to-rear injury crash rates 45%. Better yet, both FCW and ABS reduced front-to-rear-crash rates 50% and front-to-rear injury crash rates 56%.

In fact, according to IIHS estimates, having all U.S. vehicles equipped with FCW with ABS would have meant approximately 1 million fewer crashes and more than 400,000 fewer injuries in 2014.

Unfortunately, these impressive technologies may ultimately plateau in their effectiveness for one simple reason: human error.

Indeed, industry experts remain uncertain about how features designed to reduce the number of accidents will ultimately impact drivers’ behavior. The concern is that these technologies may actually have the inverse effect: consumers become less responsive to traffic conditions, leading to a higher frequency of accidents.

What’s considered automated – and how widespread is it?

Currently, the NHTSA defines various levels of automation in six different categories:

As automated features have become more common, many new vehicles now contain capabilities in the first or second category, such as auto lane departure warning or auto brake assist.

Consider the data on Factory Installed Electronic/ADAS Equipment on U.S. Cars and Light Trucks, ’16 Model Year” article, from WardsAuto:

• Rear Camera 86%
• Rear Parking Sensors 35%
• 360° Camera System 6%
• Blind Spot Detection 30%
• Lane Departure Warning 20%
• Adaptive Cruise Control 11%
• Collision Warning 17%

Increasing customer expectations

As vehicle manufacturers highlight driver assist technologies as brand differentiators, consumers are increasingly aware of these capabilities and their expected benefits to safety.

According to a recent JD Power survey, 30% of consumers are likely to consider a “partially automated” vehicle when car shopping. When asked about motivation, 26% cited fewer accidents, 24% suggested reduced stress from driving, and 15% noted an expectation for lower insurance premiums for themselves. Also note that nearly 70% of consumers expect carriers to make premium adjustments as these safety features become more common all around.

Perhaps most importantly, 40% of consumers stated a willingness to switch carriers for discounts related to automated vehicles. Yet at the moment, among big insurers, only Hartford Insurance Group and Liberty Mutual Insurance Cos. offer discounts for automatic braking.

Challenges

The pace of technical innovation in automobile safety and automation has sped up significantly in the last 10 years — and more so in the last couple of years. However, this has not translated into significant benefits in reduced premiums due to a number of reasons.

First, while individual technologies appear effective in decreasing accident rates, the holistic impact on human drivers is not known. Like in every other consumer product, the bridge between the user and the machine itself — known as the human machine interface — is the most important factor that drives effectiveness, and is also the most difficult to master.

For instance, many drivers are known to switch off lane departure warning indicators if they find them annoying. Drivers can also use mobile devices or occupy their time by eating, playing music, or something similar. And, in general, driving behavior has a tendency to change over time.

Related: Expect a shift in the auto insurance litigation landscape

Next, the net impact of lower frequency but higher severity accidents is not known. Partially automated features may reduce the frequency of accidents, but when one occurs, the severity of impact often causes damage in places like windshields and bumpers that contain expensive sensors. Replacing these components is expensive to begin with, before any additional labor costs for testing and calibration become a factor.

In fact, according to a study in Mitchell Q4 2017 industry trends report, “Adoption of technology on newly redesigned vehicles is having a pronounced impact on their repair costs. Adding parking assist sensors, wave radar systems, front-end and rear-end cameras, as well as more elaborate front lamp systems is adding, on a simple average, 23% to the repair cost compared to the prior generation.”

Finally, insurers currently lack the data necessary to support lower rates. Considering the penetration of these technologies in new vehicles, one would expect that such information would be plentiful. However, there are two reasons for that not being true.

One, actuaries need long-term data to be able to analyze the impact. Second, and more importantly, insurers are not able to identify these technologies in vehicles they insure because manufacturers do not pass this information in a systemic format like VIN figures, which currently act as the primary source of vehicle information.

Moving forward

Creating an environment in which premiums go down will require a group effort from all stakeholders, both public and private. Guidance from NHTSA on better sharing of new safety features in a standardized format is essential. Auto manufacturers, for their part, must standardized vehicle data for new safety features with the industry and work on improving the driver interface for better adoption.

Meanwhile, regulators must give conditional approval of discount proposals that may require adjustment as they collect more data. Last but certainly not least, insurers themselves must adapt to new data by modifying pricing levels.

Bottom line

Insurance payments can be a big consideration when consumers are making financial decisions — up to a third of an average car payment, which explains their price sensitivity. Hence, customers are constantly looking for discounts. Insurers tell customers these technologies improve safety, and their expectations are that these will translate into fewer accidents and thus lower premiums.

If insurance companies do not make any changes, the impression that they are making money at the expense of customers will grow. The incumbents have to respond soon — or else some new player will.

Related: Driverless cars may cut traffic jams, not insurance premiums

About the authors

Tom Super (thomas.super@jdpa.com) is Director of J.D. Power’s P&C Insurance Practice and is based in Chicago, IL. Murali Chidurala, formerly a Product Executive at National Lloyds and Farmers Insurance, is a consultant to insurtech startups, and is based in San Jose, CA.