Autonomous vehicles (AVs) are no longer a futuristic concept, but a present day reality. Automobile manufacturers and software companies – Google in particular – have created driverless cars that are being tested on public roads. At some point in the future, although there is debate as to when, driverless cars will be available to the public for use on the roads. Not only will autonomous vehicles change the way people drive, they will also have a significant impact beyond the daily commute. The effects of driverless cars on the insurance industry are far reaching – from technology and underwriting to insurance regulation and liability. The industry will need to understand and look at such issues with a new perspective.
As we look towards a world with self-driving cars, insurers will need to anticipate the effect they will have on underwriting and price as well as the risks they insure. Driverless cars are presumed safer than traditional driver controlled cars, and some data exists to suggest this is true. Google, among one of the first developers of such automobiles, touts more than half a million miles of accident-free driving on public roads.
Is such limited data sufficient for insurers to adjust underwriting practices and premium pricing? And even if accident frequency drops, will claim severity drop as well? For example, the cost to repair a driverless car with all of the embedded technology will be greater than to repair today’s automobiles. Or, consider the potential for a product defect leading to numerous serious accidents. Before moving forward with new products and rating models for AVs and their manufacturers, insurance actuaries, and product developers will need to evaluate the data and forecasts.
Autonomous vehicle technology could profoundly change the insurance industry. Such technology could alter liability schemes and risks insurers assume when insuring vehicles, vehicle and component manufacturers, and other automotive businesses. For example, existing and proposed laws protect automobile manufacturers from liability for accidents involving vehicles converted to autonomous use by someone other than the manufacturer. It is yet to be determined how liability schemes and tort law will address the human "driver’s" responsibility for an accident involving vehicles operated by autonomous technology.
Technology in AVs is not only a transportation issue; it is also a cyber risk issue. Technology used in driverless cars can collect data on the operation of the vehicle and its owner and occupants. This presents the risk of hacking or unauthorized use of this data. Some observers are concerned about the risk of a vehicle being hacked and remotely controlled by the hacker. Where there is risk, the insurance industry is implicated.
State and federal regulation related to AVs will affect the insurance industry as well. Approval of the use of AVs on public roadways will likely lead to efforts to reform automobile insurance statutes and regulations. One can envision regulatory efforts to require premium pricing discounts for vehicles with driverless technology — the insurance industry will need to be prepared to respond and react.
The road toward widespread use of driverless cars will be an interesting journey. Nelson Levine will be monitoring this journey and providing updates on what lies ahead for the insurance industry in future issues of On the Road With Autonomous Vehicles and the Insurance Industry.