‘The self-driving road to lower returns’

The development of self-driving cars is a good example of how, and why, the future may be a less profitable place for investors.

Volvo Cars, one of scads of technology and automotive firms working along the same lines, last week announced plans to test autonomous cars in London in 2017, touting how driverless technology will be a huge advance in safety.

It is this safety angle, rather than the wonder of the technology, which preoccupies legendary investor Warren Buffett, whose Berkshire Hathaway Inc. owns insurer GEICO.

“Anything that makes cars safer is very pro-social, and it’sbad for the auto insurance industry,” he told CNBC Television on Monday, citing the potential for fewer traffic accidents.

“Cars have been made way, way safer, but now when you start making the driver safer, that would be a big, big jump, and that will happen some day, and when it happens there will be a lot less auto insurance written.”

Indeed, and quite possibly that insurance will be written at lower profit margins, given the reduced risk a GEICO or other company might bear. There is also the possibility that whatever car companies come to successfully compete in self-driving cars choose to self-insure their products, effectively cutting the insurance industry out of the deal entirely.

It is just these kinds of cascading consequences which should make the rapid pace of technological change as much a source of anxiety as of greed for equity investors, many of whom may find their apple-carts upset. Self-driving cars, should they arrive, massively cut down on the number of automobiles needed.