10/26/2016
What If Uber and  Zipcar Had a Baby?

What If Uber and Zipcar Had a Baby?

The future of streaming transportation services.

By Donna J. Popow , Marty Frappolli

From the invention of the phonograph to long-playing records, eight-track tapes, compact discs, and MP3s, we’ve experienced music by owning it. We bought it, organized it, and chose what to play. While a playlist on an iPod was more convenient than flipping over a vinyl LP, you still needed to invest time into managing your personal music experience.

In recent years, however, many of us have shifted to streaming our music. We use Spotify, Pandora, and Google Music, typically paying a monthly fee to listen to any music we choose. We’re still paying, but we’re freed from the issues of ownership while expanding our options. We do the same thing with movies. Most of us no longer buy DVDs; we simply stream movies from cable television, Amazon Prime, Hulu, or Netflix.

Ownerless Cars and Streaming Transportation

From the earliest days of the horseless carriage, we’ve owned our cars just as we owned the horses they replaced. We buy or lease them and fuel, maintain, and insure them. More and more, we’re hearing about cars that don’t require drivers, which is a big enough change, but what about when cars also don’t require owners? The headlines are about driverless cars, but the prospect of ownerless cars is perhaps the bigger game changer. As these trends converge, we may find a streaming-like model to be a compelling option.

Until recently, we had only taxis as an option when we wanted on-demand point-to-point transportation other than our own vehicles. Newer options include services like Uber and Lyft where you summon transportation by smartphone, you watch its progress on a screen, the fare is pre-negotiated, and the transactions are cashless. There is a dispute currently about whether the driver is an employee and should be subject to workers’ compensation laws, but when you fast-forward to self-driving Uber service, the equation shifts, cost drops, workers’ comp issues go away, and the convenience factor grows.

If you live in a major city like New York, you probably have access to car-sharing services. In this model, you hire a car from a private firm like Zipcar or a city-owned operation like the fleet of BlueIndy cars in Indianapolis. If Uber is the modern version of a taxi, then Zipcar and BlueIndy are a twist on car rentals. Members pay a small monthly fee and are charged hourly for the use of a vehicle. You pick up the car at a designated spot, drive it yourself, and return it to a designated spot. In Indianapolis, the BlueIndy cars are 100 percent electric, and their parking spots have charging stations curbside.

Like Uber and Lyft, the Zipcar model is ownerless in the sense that these are fleet vehicles; the person needing transport does not bear any of the burden of ownership. Also, much like Uber and Lyft, the model changes dramatically when the Zipcar or BlueIndy vehicle doesn’t need a driver. It can come to you and return to its parking spot or go to the next customer. Once we have fully autonomous vehicle services, all these companies will be pretty much the same—transportation at your fingertips.

Think again about the ownership model. You buy or lease a car, you insure it, you maintain it, you fuel it, and you garage it. If you could have a vehicle pull up to your home faster than you can back your own vehicle out of the driveway and if it could drop you off at the front door of your destination, wouldn’t that chauffeur-style service be attractive? What if it cost only a fraction of car ownership and were more convenient? That is the shift we’ll see, just as in music and movies. The streaming value will be compelling, and we’ll transition out of the ownership model. This will happen in the cities first and then radiate outward, but it’s coming in our lifetime.

The Ripple Effect

What are the downstream effects of this change in how we move from place to place? If cars are both driverless and shared, some experts estimate that the total number of vehicles on the road will be reduced by as much as 90 percent. Right away, that impacts carmakers and car dealers. It creates exciting times for upstarts like Tesla and the Google Car, but can the big carmakers adapt to this low-volume environment?

Today, 80 percent of car repair shops are independent operations. But when autonomous cars are fleet vehicles, individuals are freed of maintenance and repair issues. They won’t need the dealer or the local mechanic. Cars will self-diagnose and drive themselves to a central maintenance facility, where most of the repairs will be performed robotically. Like most of these changes, this will happen sooner in dense urban and suburban locations.

With the dramatic reduction in the number of cars comes a reduced need for parking spots. Right now, cars are idle more than 90 percent of the time. Under a streaming model, cars will be in continuous operation, but there will be far fewer of them. Think of all the space that is devoted to parking at your home, on the street, and in parking garages. Much of this space can be repurposed, creating opportunities for some while destroying other existing business models.

Deeper Pockets and Uncertainty

With fewer cars, one might assume that there will be fewer accidents, and autonomous cars promise to be much safer. What does that do for auto insurance, where the primary purpose is to provide protection against human error? Future thinkers like Elon Musk, CEO of Tesla, believe that human operators eventually will be outlawed because they will be considered too dangerous. As you remove operator error from the hazards of motoring, you reduce the number of accidents and shift liability from the driver to the manufacturer—every defendant has deep pockets in that scenario.

Still, some plaintiff’s attorneys are not looking forward to the shift because the current auto liability system is regarded as easy money. From the injured party’s point of view, the defendant with insurance coverage may not have the deepest pockets, but cases can settle relatively quickly. When an auto accident becomes a product liability case, as it would in the new model, the timeline gets much longer.

From a claims perspective, we’ll need fewer appraisers and more product liability lawyers. Subrogation and litigation will go against manufacturers instead of drivers. When cars are fully autonomous, the fault generally will lie with the manufacturer. But what about the transition vehicles, which can operate autonomously some of the time but also require the driver to be ready to take over at any moment? If the system and the driver fail, who is responsible in a claim? And what about the transition period when cars driven by humans and driverless vehicles share the road?

Cities, Suburbs, and Beyond

The change to autonomous vehicles will affect urban planning. While there is pressure today for more rail transit projects, such systems may be obsolete when we have streaming transportation options. Urban planners may be imposing systems and regional designs that have no use when human operators are eliminated and car counts drop. Reduced traffic congestion could be a boon to the revival of inner cities; at the same time, reduced cost and increased convenience of travel might lead to a rapid buildout of the suburbs and beyond. A commute of 100 miles is not so burdensome if you can use that time for work, relaxation, and even sleep.

Take a deeper claims perspective on the cities. If cities become even more densely populated because parking spots are freed up for living space while traffic jams disappear, this will impact catastrophe planning and resource management. Five years ago, we talked about trying to evacuate eight million people from New York City in the event of a Category 3 hurricane. Imagine a more densely populated urban region and how that will affect emergency planning.

Crime and Ethics

What about automobile theft? What is the value of stealing a car you can’t drive? What happens to chop shops when there are no local repair shops that need parts? On the other hand, autonomous cars may provide an opportunity for clever criminals to use them as getaway cars for bank robberies or even for terrorists to use them to facilitate an attack.

We also must consider the ethical implications. The National Highway Transportation and Safety Association has said it will consider a self-driving system to be a driver. So, how will an autonomous car behave? Will it swerve into a wall to avoid a motorcycle since the likelihood of survival is greater for the car occupant? Should the results change if there are children in the car? How should cars be programmed to act in the event of an unavoidable accident? Should it minimize loss of life even if it means sacrificing the occupants, or should it protect occupants at all costs?

Can Insurers React in Time?

What should auto insurers be doing to prepare? Already, some large insurers have issued guidance that their future earnings could be negatively impacted by autonomous vehicles. Just as carmakers must cope with the possibility of fewer cars, so too must insurers. Additionally, driverless cars are expected to generate fewer accidents. While individual accidents should be reduced, will there be an increased potential for a catastrophic incident? Imagine the failure of the satellite network that will be used to guide the navigation of driverless cars.

A Better and Safer Future

There will be some terrific benefits in this new world of driverless and ownerless vehicles. Right now, you need to be legally and physically capable to operate a motor vehicle. But the future car takes any passenger to any destination at any time. If you can give destination instructions, your mobility is uncompromised. Want to have an extra drink with your dinner out? It’s no longer a risk management problem. And seniors won’t lose their independence as they become unable to operate a car.

Without the need for crash-resistance technology, cars can be made lighter and more fuel efficient. Think of all the engineering, weight, and costs that go into a vehicle to make it crashworthy or to compensate for driver error. Oddly, the elevator provides a good analogy. When it was introduced in high-rise buildings, elevators were dangerous, prone to failure, and needed to be operated by humans. Over time, safety systems were added to the point where an elevator operator was not required.

Think about recreational vehicles and the opportunity for luxury travel. Motoring could resemble old-fashioned first-class train travel with dining, recreation, and sleeping options. At bedtime, the family enters the RV, enjoys a snack, goes to bed, and wakes up the next morning refreshed and at Disney World.

We’ve moved on from owning and cataloguing music and movies because streaming is easier, more convenient, and often less costly. We’re going to find a lot of parallels as streaming transportation becomes equally compelling. Then, watch for all the downstream ripples in claims and society at large.



Donna J. Popow, JD, CPCU, AIC, is president of Donna J. Popow LLC, and has more than 25 years of experience in the property and casualty insurance industry. She has been a CLM Fellow since 2007 and can be reached at (215) 630-0829.

Marty Frappolli is senior director of knowledge resources for The Institutes and editor of their new Managing Cyberrisk textbook. He can be reached at frappolli@TheInstitutes.org.

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