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Car automation and the shifting of insurance risk
Insurance will have to evolve as cars become more sophisticated.
18 June 2019
Cars are becoming more complex and reliant on sophisticated software for maintenance, engineering, and the driving experience itself. As automation makes further strides into the auto industry, insurers need to ask an important question—how does the fundamental change to the way we drive impact on how we insure drivers and manufacturers against accidents?
It used to be simple - drivers purchased a car insurance policy to cover themselves and their vehicle with the assumption that the need to drive a car safely, and any risks associated with collisions or other damage was entirely down to them. That’s changing. Cars now use all sorts of automatic sensors and complex algorithms to understand the world around them. The car’s software can then make suggestions, and in some cases, directly control how the car is driven - just think of lane assist, automatic braking, blind-spot monitoring, and collision avoidance systems.
This change, from being a driver who is totally in control of the vehicle, to being assisted by an “autopilot” is likely to shift the risk of using a car away from the driver and toward the manufacturer. How much liability does a car manufacturer like Tesla, Toyota, or Nissan take on if it’s their cars, software, and hardware that are making critical, in-the-moment driving decisions? Today, these technologies are mainly assisting drivers, but tomorrow they could partially or completely replace the human element.
Automated driving is very likely to be much safer than regular driving, with some estimates saying the shift could reduce insurance claims by $22 billion by 2030. If that’s the case, will car drivers stop buying regular car insurance if the liability no longer sits with them, and move to purchasing accident coverage or other insurance policies? How can insurance companies deal with this shift in consumer and manufacturer liability?
That’s a lot of questions, so let’s tease things apart a little and make some educated predictions and recommendations on how autonomous vehicles and car insurance are likely to change.
The move to partially or completely automated cars is inevitable
Experts vary on how soon they believe the majority of cars will be largely or completely automated. Some predict that most of the cars on our roads will be majorly or completely self driving by 2030, while others believe it could be 2050 before we see mass adoption. Whatever the timescale, the changes are coming.
The Move to Partially or Completely Automated Cars is Inevitable
The major blockages to car automation are policy, liability, and consumer acceptance, not technology
Technology won’t hold back automated cars. Instead, it’s policy makers and legal liability that are going to be the major roadblocks. Politicians will need to create new laws to deal with the influx of self-driving vehicles, and governmental agencies will have to introduce strict regulations and compliance requirements. This, plus eventual legal precedent, will help us understand where the liability for accidents lies—completely with the driver, completely with the manufacturer, or somewhere between the two?
A lack of widespread consumer acceptance of automated vehicles may also be a drag on adoption rates, before we see a move en masse to self-driving cars.
Car accident risk and automobile claims payments are likely to reduce
Most automobile collisions are caused by driver error. As hardware, software, sensors, and algorithms become more sophisticated, it’s very likely we’ll see a substantial reduction in accidents, injuries, deaths, and claims payouts. Since the total amount paid out by insurers will go down, drivers may believe they need less cover. You will need to add extra value to policies or reduce premium payments to keep auto insurance policies competitive.
Car manufacturers and third parties will have new insurance needs
Around half of consumers believe that a self-driving car manufacturer bears responsibility in the case of an accident. It’s possible that policy makers will agree with them and introduce liability laws that put automakers front and center when it comes to accidents, injuries, and damage caused by faulty software or hardware. It’s not just the car manufacturers themselves that could be liable—any organization testing or using self-driving cars or developing technology, could be implicated. Businesses like Apple, Waymo, or Uber could also be on the hook. As liability shifts towards manufacturers, insurers can position themselves as an ideal solution.
It will be essential to educate and protect your policyholder base
Finally, car insurers will need to prevent their own policyholders from lapsing. If liability does shift to manufacturers, you should be ready to offer alternative products to a traditional car insurance policy.
We’re still in the very early days of the automated car revolution. Insurers that start their research and development now will be much better positioned as we see more self-driving cars over the next few years. Integrating changes to underwriting and risk management, together with education consumers and working with manufacturers will be central to continuing to write a healthy auto insurance portfolio.
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