How the driverless car revolution will affect the insurance market of the future
April 11, 2018
Simon Walker, Chief Executive Officer, shares his views on the autonomous revolution with Insurance POST.
If and when autonomous cars become mainstream, will there still be a need for insurance?
It is currently the case that every vehicle owner using public roads is required to hold a valid insurance policy to cover any liability which the owner incurs in an accident. This has indeed been the case in the UK since the Road Traffic Act 1930.
In the UK, the Automated and Electric Vehicles Bill was introduced to the House of Commons on 18th October 2017. The Bill proposes to extend compulsory motor insurance to include the use of autonomous vehicles. A single insurer model is maintained, where the insurer in the first instance covers liability whether an incident happens when the vehicle is under the control of the human driver or in fully autonomous mode.
We are therefore likely to see the emergence of instances where compensation is sought from the insurer in the first stage, but then also where the insurer in turn seeks recovery from the vehicle manufacturer, if the vehicle was in autonomous mode at the time of the incident. Taking that a step further, it is then highly likely that the manufacturer will seek compensation from whichever software provider wrote the code which was the root cause of the incident.
In addition, even when autonomous vehicles are ‘mainstream’, the actual penetration into the market is likely to take 15 years, resulting in a continual, though diminishing, pool of non-autonomous vehicles continuing to carry the full risks of the current fleet of vehicles in the UK. In addition, autonomous vehicles are first likely to be adopted across public transport, and due to the cost, will take some time to filter into wider use.
Finally, the recent Tesla and Uber events are likely to result in greater and more frequent system-driven reversion of control of the vehicle back to the human driver, with the consequent further deferment of ‘full Level 5’ autonomy. Insurance will continue to be required for the ‘human’ part of the voyage. It will therefore be more effective to continue to have a single point of insurance management – the private auto insurance policy.
In summary, insurance will therefore still be required but it is likely to change fundamentally, both in terms of the way premiums are set and in the way in which liability is established. We believe that in relation to premiums, rates will be weighted more to the risk profile of the vehicle than the risk profile of the driver, which is the reverse of what we see today. Motor insurance will need to move to a position whereby the profile used from a pricing perspective moves from being manufacturer and model, to the individual vehicle, given the likely range of options and version of software being present in the car. This will be similar from the move in property underwriting from postcodes to individual properties.
What types of insurance will rise as a result?
In the future, insurers may look to recover losses from manufacturers who, in turn, will look to their software providers for recompense. It is therefore likely that we will see a large increase in the product liability insurance market as manufacturers and software providers look to protect themselves against unforeseen events. It should be recognised that fundamental issues could see huge claims as entire fleets require repair, probably remotely via digital means. As a result of this, we would anticipate growth in certain wholesale markets. It is also likely that cyber insurance specific to the hacking threats which will loom large in the minds of risk managers employed by manufacturers will boom, and that new wholesale markets, possibly in the form of new cyber catastrophe bonds, will emerge in due course.
Have views in the insurance industry changed on driverless cars following the first pedestrian death?
It would be naïve to believe that the recent tragic Uber incident will entirely halt the development of driverless vehicles. The competition both between manufacturers and between countries to be first will only serve to make it likely that this incident prompts a pause as opposed to a cessation of efforts in this regard. We still believe that driverless vehicles will become a reality at some point, though no two experts seem to agree on when that will happen.
Despite not knowing with clarity exactly when society will feel prepared to allow such technology on public roads, the insurance industry should continue to prepare for that future. If we fail to prepare, we should prepare to fail, as the old adage tells us!