Autonomous cars

July 2017

Five crucial questions facing the automotive insurance industry

Driverless, or autonomous, cars are set to change the face of auto mobility forever. Ford, for one, plan to roll out a fleet of autonomous cars without a steering wheel or pedals in the year 2021, to demonstrate how people soon won’t need to play any role in driving fully self-driving cars. For the automotive insurance industry, the slow move into complete driver irresponsibility will mean a transformation in how the industry functions and a total shift in approaches towards insurance in general. Here are five burning questions about autonomous technology, insurance and the latest industry observations:
1. Will roads be safer?
In a recent statement on driverless automobiles, Volvo president and CEO Håkan Samuelsson says, “Our vision is that by 2020 no one should be killed or injured in a new Volvo car.” A great vision but certainly a challenging one, as according to a report by Gov UK, in 2013 there were over 1700 fatalities and 180,000 other injuries resulting from motor accidents – an estimated 90 per cent of these arose from human error. The current assumption is that when autonomous cars eventually rule the roads, there will be far fewer accidents as any chance of human error will be eliminated. In regard to insurance, by relieving any human responsibility from the picture, this reduction in risk could cause third-party damage insurance to disappear. Forbes estimates that premiums could be reduced by as much as 75 per cent as a result.
2. Will claim sums increase?
According to the Insurance Post, one driverless car costs an estimated £170,000, therefore the cost to repair and replace parts after a crash will inevitably be high. In addition, if there was a crash due to the automated systems, an extensive analysis of the software and hardware would be essential to determine the reasons why. Although the equipment should become cheaper with advances in technology, these costs and the expensive equipment and software may inflate premiums, compensating for the reduction of accidents, and increase the demand for comprehensive policies.
3. Will there be a reduction in fraudulent claims?
The increased quantity and availability of data could be beneficial in accurately assessing the risk of policyholders and reducing fraudulent claims. Nick Beecroft, manager of emerging risks and research at Lloyd’s says, “Autonomous vehicles should mean that insurers will be able to get a more comprehensive and detailed picture of risk .” Claimants will no longer be able to exaggerate and lie about the cause of an accident, reducing the amount insurers pay out on fraudulent claims and eliminating ‘crash-for - cash’ scams.
4. Will personal lines motor insurance remain relevant?
When cars become automated, risk may be transferred from the individual driver to the manufacturer, depending on future legislations. In future, accidents will be principally caused by the malfunctioning of systems, forcing manufacturers to insure whole fleets of cars instead of the driver insuring themselves. This shift from personal lines motor insurance to product liability insurance could introduce big aggregation risk caused by a system failure, which affects multiple vehicles at once. In the event of damage or theft, this could eventually fall under household contents policies requiring motor insurance companies to find other revenue streams to widen tight profit margins. However, motor insurance companies will not be able to totally disregard personal lines insurance; human risk may not be eliminated entirely if accidents are not caused by the malfunctioning systems. Autonomous cars will be able to be manually overridden and if an accident occurred, then the liability would fall back to the driver .
5. Will autonomous vehicles really take off so soon?
Despite all the predictions from the industry (it is estimated to take 20 years to replace all cars on the roads), the effects of autonomous driving on the roads and on the automotive insurance industry will not come into place unless driverless cars are taken to with excitement by the public. Unless all cars are driverless, there will still be problems with human error collisions, whether it is between two ‘normal’ cars or one of each. These situations may be very difficult for insurers to deal with and determine who is responsible and liable. Moreover, according to a recent survey by the AA, over half of respondents were not confident in the technology and were not keen on giving up driving. Unless driverless cars are made compulsory, there will be people who are against change and will want to retain control of their vehicles. These drivers will require third-party insurance to cover their risk and will likely prevent the move away from personal motor insurance.