08 January 2016

The Tyranny of Average Cost, part the eighth

Yet another example of The Tyranny: the assumption that auto-cars are safer.
"This technology will be disruptive to the insurance industry," Mr. Albright [principal of actuarial and insurance risk practice at KPMG] said. "There will be winners, and there will be losers. There will be fewer companies than there are today. But the question is, Who will survive?"

Of course, the balance of the reporting alludes to reduced cost and revenue, both being passed on to consumers. When was the last time an oligopoly did that? Will the insurers layoff 60% of their bureaucracies? As is continually reported, and studied by academics for decades, the "high value" FIRE jobs are least susceptible to productivity increase. Nearly pure labor cost.

And, of course to my cynical mind:
"The insurance industry is historically data-driven," [Joe Schneider of KPMG] said. "There's been an actual person behind the wheel of every car for 100 years, and all of a sudden saying the rules are going to be different going forward, that's a very difficult situation to wrap your head around."

Always remember one of Dr. McElhone's dicta: "thou shalt not predict outside the range of the data". Insurance does it all the time, of course. Weather disasters, if nothing else, are determined by today's conditions. Historical data may tell you that there really is global warming, and that coastal cities are at increasing risk, but it can't tell you when the next event will happen, nor where. Moreover, current iteration of auto-cars do have accidents.

And what happens when Joe Sixpack gets pissed that his GoogleZonSoftie mobile stays in the slow lane where it's supposed to be? Or he's behind one of them running at the speed limit on a rural two-lane where no human has ever gone so slow? Pull out, floor it, and head on into a soccer mom in a van with a dozen soccer kiddies? Who's at fault, then?

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