Picture this: you’re sitting back, reading a book, when all of a sudden, you have a front row seat in a car crash scene – literally. Your car, which you’d put into self-drive mode, has just been hit by another vehicle. Or maybe your car hit the other vehicle. The other car’s driver claims you were at fault. You have no idea – you weren’t even looking.
Who is responsible for the crash? You? Your car? The other driver? How should the situation be resolved? This, and many more complex questions about liability and insurance are right at the top of the long list of questions to be addressed by stakeholders in the development of autonomous drive technology.
In May 2016, Swiss Re and HERE published the findings of their joint research study into the impact of autonomous driving on the insurance industry. ‘The future of motor insurance – How in-car connectivity and ADAS are impacting the market’, (Swiss Re/HERE, 2016) found that autonomous drive (AD) technologies could reduce insurance premiums globally by US$20bn by 2020. The research noted that motor insurance is the largest source of premiums globally, generating 42% of all ‘non-life gross premiums’. According to Finaccord, the combined global value of car insurance premiums in 2014 stood at US$671.3bn, with that value representing a CAGR of 5.2% since 2010.
It is hardly an exaggeration to suggest that the automotive insurance industry could be dealt a massive blow by the rise of self-driving car technology and the growing acceptance of business models involving shared vehicles. Not only do self-driving vehicles promise tremendous safety improvements, they also no longer require a human driver to be in control at all times at the wheel. “Basically, everything is predicting fewer road accidents going forward,” David Williams, Technical Director at AXA Insurance, told Megatrends.
Great news for consumers; not so good for the current insurance industry, which will suffer from falling premiums and falling insurance claims.
“The future of mobility looks poised to upend that [traditional] model and change nearly everything about auto insurance: who the customers are, what products they demand, and how to market to them,” write the authors of Deloitte’s paper, ‘Insuring the future of mobility’. They suggest that “insurers may have to rethink their role in the mobility ecosystem and their relationship to drivers, owners, and vehicles.”
“As we move to shared ownership of vehicles, it becomes the operator that has to insure the vehicles as opposed to the users” – Phil Harrold, PwC
Future mobility involves a shift towards shared as well as autonomous vehicles, and both mean big challenges for insurers. “As we move to shared ownership of vehicles, it becomes the operator that has to insure the vehicles as opposed to the users,” suggested Phil Harrold, Partner at PwC. “As we move to different taxi systems, there’s a need for the providers to ensure adequate insurance is in place, otherwise the industry could potentially start to lose confidence. As for automated vehicles, then you really are at the cutting edge of who insures. I suspect there will be a number of lawyers who become very engaged in a number of test cases in the early days, which will then lead to some changes.”
“We look at individual elements of things that are going to be part of the driverless cars of the future, and we already see the impact they can have,” David Williams, AXA Insurance
Insurance providers are well aware of the changes under way, and they have started to respond. AXA Insurance, for instance, has begun to incorporate safety benefits from increasingly autonomous technology into its pricing calculations. “We look at individual elements of things that are going to be part of the driverless cars of the future, and we already see the impact they can have,” observed Williams. According to AXA estimates, automated emergency braking systems reduce the number of collisions by 15% and injuries by 18%. “We are already building those into our pricing models when they are fitted as standard,” he added.
James Carter, Principal Consultant at Vision Mobility and a passionate mobility futurist, suggests that even with safety improvements there will still be a need for some form of insurance. “I think the type of insurance may be split, with areas like security and autonomous driving performance probably falling on the OEMs. Things like maintenance and personal liability-type insurance would probably fall more on the fleet operator,” he predicted. “But insurance companies will have to change their models, that’s for sure.”
Ethics and the liability minefield
Even with autonomous vehicles, things can go wrong and collisions could happen. The big question is, who, from an insurance perspective, will be responsible? Some suggest the vehicle manufacturer, others say the software provider. Then again, if it is some sort of shared fleet, perhaps it will be the service provider, suggested automotive futurist Antonio Ferreira. “It raises numerous questions from a responsibility perspective. I don’t think there’s a clear answer. We have to see how the market develops, and certain rules and regulations have to be put in place,” he told Megatrends.
Beyond the insurance aspect of liability lie the intertwined issues of corporate liability, corporate responsibility and corporate reputation. It is an area approached cautiously by the industry, and in differing ways by the OEMs. In October 2015, Google and Mercedes-Benz told a CBS 60 Minutes investigation, off camera, that they would accept responsibility and liability if their technology was at fault once it becomes commercially available. In May 2016, at an event in London organised jointly by Volvo Car and Thatcham to explore the future of the insurance industry, Volvo Cars’ President and Chief Executive Hakan Samuelsson said: “Liability is crucial. We don’t believe it’s very bold to say that, when the car is in driven in automatic mode, it is a product liability issue. If that system malfunctions, it is our responsibility. If you are not prepared to make this statement, you really have no product to offer. Who wants to buy an auto pilot that you have to supervise? Either you do this, or you shouldn’t be in this business.” Later that same month, the driver of a Tesla Model S was killed when his vehicle – operating in Autopilot mode – crashed into a heavy duty truck, raising questions about liability and bringing the issue into the public domain.
Much of the liability challenge stems from ethical dilemmas in crash situations, such as an incident where a vehicle must decide between hitting a child and protecting the vehicle occupants, or avoiding the child and endangering the occupants. Nobody wants to take on the responsibility for programming such a decision into an autonomous vehicle, yet as Ferreira continued, somebody will ultimately be responsible for doing just that. We know that we have the software and hardware to deliver autonomous cars, he said – what remains open is the question of right and wrong. “How are we going to accomplish that, and how are consumers going to react?”
Were something to go wrong and a child were to be killed by an autonomous vehicle, he noted, there would be a severe negative impact on the public perception of autonomous vehicles. “There needs to be robust legislation and regulation, and in-depth talks with insurers. It’s a step-by-step situation.”
AXA’s Williams concedes that insurers are in a good position to participate in these talks. He sees the OEMs taking on more responsibility in a form of product liability, but with a twist. “The way things seem to be heading, there will be more responsibility falling on the manufacturer under a product liability style scenario, but not in the form that we’re currently writing it,” he predicted. That, in his view, would be “madness”.
“I think the type of insurance may be split, with areas like security and autonomous driving performance probably falling on the OEMs. Things like maintenance and personal liability-type insurance would probably fall more on the fleet operator” – James Carter, Vision Mobility
One of the main concerns regarding claims in the future is how quickly they are settled. “If your car is bumped into or you are injured by another vehicle currently, you want your claim to be resolved quickly and efficiently. You want that same situation to be the case when it’s an autonomous vehicle. Who is going to be best placed to deal with those claims and what will the route be?” asks Williams. Today, if someone is involved in an incident and believes it was the fault of the car and the manufacturer, theoretically they could sue them for a recovery. However, Williams estimates this would take three years and require considerable legal fees.
“I have spoken to government officials who have talked about moving to a first party model so that the claim is dealt with. Then, behind the scenes, we can spend the three years on clever lawyers and all that sort of thing. I see claims being passed around, moved to their final place of responsibility after the person that’s involved in the accident is sorted,” said Williams.
“Certainly, we see motor insurance forming a smaller proportion of our business, just because the roads are going to be safer” – David Williams, AXA Insurance
Overall, improvements in vehicle safety due to advances in active safety technology are expected to dramatically reduce, if not eliminate, most of today’s insurance premiums. For insurance providers, the key to surviving the revolution could be diversification. AXA is already onto this. “We are in a quite good position because we don’t just write motor insurance,” said Williams. “Certainly, we see motor insurance forming a smaller proportion of our business, just because the roads are going to be safer. That said, we also think that what will happen in the future could go a number of different ways.”
To start with, human-driven cars are not expected to disappear any time soon. Once these do start to drop out of the market, it will take some time to replace the entire car parc. “It is not an immediate concern. Also it is not the end of the world and it shouldn’t be the end of the world for our staff either. If you have good trained staff dealing with road accidents, maybe we’ll move them on to travel or home insurance or something like that. As a large composite, we have those opportunities,” he said.
However the insurance situation resolves itself, AXA’s Williams expects to see some thinning of the ranks. “There is too much capacity in the insurance market currently. If some of us were thinned out, that wouldn’t be bad for the consumer,” he suggested.
The companies most at risk are those with portfolios limited to motor insurance. “If that is all they’re writing, and those premiums are plummeting because the roads are safer, then they’re probably going to disappear,” he concluded.
This article appeared in the Q3 2016 issue of Automotive Megatrends Magazine. Follow this link to download the full issue.