90% of road accidents are attributable to driver mistakes. Yet, as Dr Mark Rosekind – Chief Security Innovation Officer at autonomous technology start-up Zoox, and Administrator of the US National Highway Traffic Safety Administration under President Obama – recently commented, “self-driving cars will not speed, or get drunk, or get drowsy, or make bad decisions”.
With the introduction of autonomous vehicles, the elimination of human error could see road accidents decrease significantly. So, what does this mean for insurers?
Impact on the insurance industry
In the face of such technological advances, the auto-insurance industry must prepare for the changing landscape of road safety. Forbes estimates that car insurance premiums in the United States will reduce by as much as 75%. But despite the many think-pieces lamenting the end of car insurance, things are not quite that straightforward.
Firstly, there is a misconception that autonomous vehicles will entirely remove human input from the driving process. Despite the hype, most of the so-called ‘self-driving’ cars on the brink of entering the market require some level of driver direction.
The focus on ‘self-driving’ may lead consumers to overly rely on a vehicle that is not as autonomous as an advertising campaign has led them to believe. This, in conjunction with the many non-autonomous vehicles which will share the streets for many years to come, has the potential to result in a period of increased motor accidents.
Secondly, while individual insurance premiums for personal injury and third party damage insurance are likely to decrease in time, the self-driving car’s reliance on technology introduces its own area of risk. Cybersecurity will become a primary concern in auto-insurance.
For example, in July 2015, security researchers hacked and remotely took control of a Jeep driving down a highway in the US. The incident resulted in 1.4 million Chrysler vehicles being recalled, and exposed a dangerous vulnerability posed by the incorporation of software in vehicles. Accenture Consulting estimates that by 2025, this new cybersecurity category will generate US$12 billion in car insurance in the United States.
Similarly, as the market drives technological competition and advances, product liability insurance for new vehicles and software will rise. Many of the developers of autonomous technology, such as Tesla and Volvo, have already committed to taking on that liability and incorporating insurance into the price of autonomous vehicles. And there is good reason for them to do that, as by far the safer assumption is that they will be exposed to product liability claims should incidents occur involving their vehicles.
With many self-driving cars requiring a degree of human interaction, the question remains: If an accident does happen in a self-driving car, who is liable – manufacturers of the self-driving car, or the consumer who contributed to the driving process?
As policymakers continue to consider these issues, insurers will need to continue to keep abreast of the changing landscape of the transport system. A hands-on approach by insurers will ensure they are well placed to tackle the changing risk environment as drivers look to take their hands off the wheel.