The idea of cars on the road driving themselves is fast getting to be a reality. Going forward, in the coming decade, our roads will be flooded with self-driving cars. Companies like Alphabet, Tesla, Apple, and Audi, and a host of auto brands and tech companies are investing heavily in autonomous vehicles. These vehicles are improving every day using machine learning, artificial intelligence, and innovative technologies.
Auto insurance is one sector that is thriving, generating billions of dollars in revenue. These driverless vehicles could present either a huge opportunity or challenge for the insurance sector.
Research has shown that the safety features of autonomous vehicles will reduce collisions, traffic congestion, emissions, and improve mobility. But will that translate into cheaper auto insurance premiums? Will there be a need for insurance as we currently know it? Is the insurance industry for this new change?
Future Mobility Goals –And the impact on insurance?
The complex relationship between technological advances, insurance and risk management, customer adoption, and regulatory changes in the auto sector is difficult to fathom at this time.
In recent years, technological advances in cars have made them safer and have reduced the number of driver error related collisions. Autonomous Vehicles add new complexity to this paradigm. Not only will they be safer. Traditional auto insurance is primarily purchased using a 24-hour model. Meaning, the vehicle, and the driver are protected all day, whether the vehicle is operational or not.
In the United States, 94% of crashes are due to human error, such as speeding, alcohol, distraction or drowsiness. DoT researchers estimate that fully autonomous vehicles, also called self-driving cars, could reduce traffic fatalities by up to 94 percent by eliminating those accidents that are due to human error.
What Does an Autonomous Vehicle on the Road Mean to Auto Insurers?
Autonomous Vehicles add new complexity to the 24/7 model of insurance. When a vehicle is engaged in autonomous mode, the question that arises – is it the manufacturer or the owner that accepts liability for any collisions.
How do you insure a driverless car?
Who bears the responsibility when the car crashes?
What will be the future of personal auto insurance?
Is there a fault in the car itself when it crashes?
Will the insurance cover be applicable to the passenger when riding in a self-driving car?
When and how will the auto insurance industry transform itself?
But, experts are already weighing in the pros and cons because predictions are that individual auto premiums could decline significantly with a corresponding decline in frequencies of crashes. However, severities of claims could rise due to the following factors:
Cyber Security– With technology being used more and more in an autonomous vehicle, it is important that the vehicle is insured against cyber theft, ransomware, hacking, and the misuse of information related to the vehicle. This can be even more important for companies that will use a fleet of automated vehicles.
Automakers Accountability – The sensors and chips that are used on the motherboard of the autonomous vehicle are expensive. Failure of any of these parts due to bugs in the software, or any other mechanical defect can be a huge liability for the company. Autonomous vehicle manufacturers and technology companies will have to take more responsibility and need more coverage, rather than individuals. Manufacturers of autonomous vehicles like Mercedes, Volvo, and Google already accept accountability in case of a faulty system that leads to a crash. Tesla is extending insurance to the purchaser as well.
Component Costs: Many highly complex sensors and those working with traditional driving could impact the cost of repair and/or replacement.
Safety Framework – As we anticipate that autonomous vehicles will result in fewer automobile collisions over time, we will need to identify who is responsible for the collision. It is possible that the problem lies not with the driver, but the automobile manufacturer or technology/software. Therefore, will the automobile manufacturer or technology/software provider share the liability with the driver? Thus, amendments for vehicle liability and insurance will need to add these risks associated with Autonomous Vehicles.
Autonomous Vehicle Insurance – Data is the Key
The insurance industry depends heavily on data. However, if this data is lying throughout the enterprise in disconnected information silos, there will be no single source of reliable information.
To calculate the exact premium and the safety of the autonomous vehicle, one needs to analyze an adequate amount of historical data to compare it to human-driven vehicles.Access to the data collected by vehicles can help to determine the circumstances leading to a crash.
Many insurers have introduced and work with telematics devices to gain data from their clients. While this could still continue in the Autonomous Vehicle world because the actual vehicle itself will be collecting data, around the clock. The challenge for insurers will be to get at the data.
Will they partner with insurers or sign agreements to obtain these? Will the manufacturers seek to monetize this rich data meaning costs and pass it on to insurers?
The Changing Regulations for Autonomous Vehicles
The Autonomous Vehicle revolution raises big questions for insurers around data, liability, and future revenues. With driverless car trials ongoing in a number of markets, policymakers are already preparing for the new landscape.
The primary focus of autonomous vehicle regulation in global jurisdiction is on safety. Although in the U.S. and Australia there is policy discussion on insurance, autonomous vehicle insurance regulation is still not defined globally.
According to a study done by the Canadian Automobile Association (CAA), distracted driving causes four million crashes every year in North America. It is one of the leading causes of fatalities. Followed by, impairing substances, speeding, and fatigue. Transport Canada reports that fatigue was a factor in up to 20 percent of all fatal collisions. According to them, over a period of time, as connected and autonomous vehicles become increasingly common, human error will reduce and road safety will increase. As a result insurance premiums may decline.
The U.S. National Highway Traffic Safety Administration (NHTSA) released new federal guidelines for Automated Vehicles, “Automated Driving Systems 2.0”. The document provides guidance to industry, to allocate liability to vehicle owners, operators, passengers, manufacturers and other entities when a collision occurs. The guidelines are in place, but state legislatures have done little to revise existing auto insurance laws for the potential insurance implications of autonomous vehicles. Nevada was the first state to authorize the operation of autonomous vehicles in 2011. Since then, 21 other states—Alabama, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Illinois, Indiana, Louisiana, Michigan, New York, North Carolina, North Dakota, Pennsylvania, South Carolina, Tennessee, Texas, Utah, Virginia and Vermont—andWashington D.C. have passed legislation related to autonomous vehicles.Governors inArizona,Delaware, Hawaii, Idaho, Maine, Massachusetts, Minnesota, Ohio, Washington, and Wisconsinhave issued executive orders related to autonomous vehicles.
In the United Kingdom, work is underway to ensure a regulatory framework is in place when automated vehicles hit roads. Last year, lawmakers approved the Automated and Electric Vehicles (AEV) Act, bringing greater clarity on insurance policies and liability for road accidents involving driverless vehicles.
In contrast to a report by Morgan Stanley in 2016 estimated the auto insurance business could contract by as much as 80 percent by 2040. But a few fatal accidents involving autonomous vehicles has made it clear that auto insurance coverage will not disappear but may evolve.
Autonomous Vehicle Insurance – A Changing Market
We have a long way to go before fully autonomous cars take over. Changes to insurance coverage and liability by a level of automation will continue to be a challenge. The amendments need to be in place with both regulators and regulations in place for the new paradigm in insurance to transition into.
States need to review their existing laws and regulations and plug the gaps when transitioning from human-driven vehicles to automated vehicles. This needs to be clearly defined, to minimize the number of civil and other court cases, following any changes in regulation. The question is no longer whether auto insurance will change, but when and how will it change. There is also the large overarching question, whether or not manufacturers will apply to regulators for insurer licenses, bypassing traditional insurers. We’ll have to wait and watch.
Intellizence – The Right Partner to Monitor Market Signals in this Ever-evolving Autonomous Vehicle Space
Intellizence is an award-winning AI-powered market intelligence platform, that helps you to discover sales and risk signals in companies as well as stay informed about, emerging industry trends and regulatory changes in the autonomous vehicles space.
Intellizence is an award-winning AI-powered business signal intelligence platform, that helps you to discover sales and risk signals in target companies as well as stay informed about emerging industry trends and regulatory changes.
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