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Autonomous Vehicles and the Insurance Industry

Self-driving. Autopilot. Lane assist. Self-braking. Semi-autonomous. Highly autonomous. Fully autonomous. These terms are all used to describe the automation of driving. As this technology becomes more sophisticated, it will likely lead to some major changes in the way we insure vehicles. Many people are beginning to speculate that it could even eliminate the need to obtain coverage for liability to third parties. It won’t be long before autonomous vehicles are everywhere on our roadways, so we have to wonder – could there be some truth to this growing suspicion?

Reducing Human Error
The National Highway Traffic Safety Administration (NHTSA) estimates that human errors are responsible for 94% of traffic fatalities.1 Elon Musk, Chief Executive Officer of Tesla, stated at a conference in Oslo that the chances of having an accident were 50% lower when autopilot was engaged. However, much of the insurance speculation occurred before the May 7, 2016 accident that marked the first American fatality of the autonomous vehicle era. The accident involved a 40-year-old Tesla owner who was using autopilot when his car’s cameras failed to distinguish the white side of a turning tractor-trailer from a brightly lit sky. Consequently, the autopilot failed to activate the brakes. The driver did not take control of the car and engage the brakes either. The Tesla vehicle is equipped with radar sensors, but they are set to ignore objects that look like overhead road signs to avoid false braking. Tesla has not claimed that their technology is “driverless,” and they warn drivers to keep their hands on the wheel to maintain control, but drivers can still push the limits of technology and rely too heavily on their vehicles.

Many of these cars have technology similar to an airplane’s black box, which allows accident investigators to have a better understanding of what was happening at the time of an accident. This can also provide valuable information for car manufacturers as they modify and enhance systems in the coming months and years. The NHTSA and the Insurance Institute for Highway Safety have put forth a plan to include automatic braking systems as a standard feature on all new cars sold in the United States by 2022. It is estimated that fully autonomous vehicles could be on the roads in many states within the next five years. There is no doubt that driverless cars are the way of the future, and as this technology advances, accidents and insurance payouts will likely decline.

How Will Insurance Respond?
Since the introduction of lane and brake assist technology, little has changed in the way we insure automobile liability or physical damage coverage. However, as we move forward with highly autonomous and fully autonomous technology, we should expect to see individual liability claims decrease and product liability claims to the manufacturers of the technology increase. If an accident were to occur because a fully autonomous vehicle veered into oncoming traffic, the technology that was driving the vehicle would likely be to blame. The expectation is that a claim for injuries or damage to a third party would come to the driver as the owner of the vehicle, and would then pass on to the manufacturer. This scenario would probably force many injured parties into court proceedings with big car manufacturers over product liability cases that could potentially drag on for years. Insurance companies would likely rate and price car insurance based on the manufacturer’s safety record instead of a driver’s personal driving record. Does this seem far-fetched? Perhaps. But it is important to keep in mind that it takes time for insurance to catch up with emerging trends and to collect enough actuarial information to develop rates for new exposures.

There is some speculation that auto insurance carriers will start to offer policies that have combined liability and product liability features. This type of policy would allow the auto insurance company to underwrite for specific technology and for expedited claim processing to injured third parties as they would not have to wait for product liability lawsuits against car manufacturers to work their way through the courts for smaller claims.

An additional concern will be the cyber exposures associated with these vehicles. As with all technology-related products, criminals will look for weaknesses to commit crimes. Vehicle hacking will probably become a real threat, and autonomous vehicles will provide an opportunity for criminals to wreak havoc on our roadways. Insurance companies will have to determine how to address this exposure as autonomous vehicles become more commonplace.

Traveling Toward the Future
This new travel trend is coming, and it’s coming fast! At the present time, insurance products do not exist to properly respond to autonomous vehicles exposure. In fact, many insurance carriers have replied with “no comment” when asked how they will address these issues in the future. We predict that legislation will force insurance carriers to respond to this emerging trend sooner rather than later. Our  team will continue to follow this topic closely and keep you updated as more details unfold.

1 Lyles, Derrell. “Traffic Fatalities Fall in 2014, But Early Estimates Show 2015 Trending Higher.” November 24, 2015. Accessed on August 8, 2016 at  http://www.nhtsa.gov/About+NHTSA/Press+Releases/2015/2014-traffic-deaths-drop-but-2015-trending-higher

This article originally appeared in the 2016 | ISSUE THREE of the SilverLink magazine under the title “Driverless Autos Shaking Up the Insurance Industry.” To receive a complimentary subscription to the SilverLink magazine, sign up here.

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