The autonomous car 2015: Mapping the road ahead for the re/insurance industry

It is no longer a question of "if" or "when." Whether we are fully prepared for them or not, autonomous cars are here.

Almost all major carmakers are currently road testing first-generation prototypes, while Google already has semi- and fully autonomous cars on the roads in California.

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As the first models begin to appear on major roadways by 2017, it will present many new challenges to the way we do business and the way we view and manage risk, retail insurance and liability. At the same time, it will also present new opportunities for those re/insurers who can adapt their business models to diversify their offerings and attract new market niches.

A range of experts, including car manufacturers, technology, safety and legal specialists all weighed in on these challenges and opportunities at Swiss Re's The autonomous car 2015: Risks and opportunities for the re/insurance industry held in Armonk, NY on 24 September 2015.

At the conference, presenters offered these key takeaways on how autonomous cars will affect car safety and technology, regulation, insurance, and other areas:

1. Autonomous cars will promote safety

More than 1.2M people died in car accidents last year, and another 10M were seriously injured, according to NHTSA estimates. The major cause of most of these accidents is human error. The safety features that manufacturers have installed in many new cars, including braking systems, parking assists and rear view cameras have helped reduce the number of accidents considerably, but don't fully address bad driving behavior. By reducing the influence of humans and eliminating aggressive, drowsy or intoxicated driving, KPMG predicts autonomous cars will reduce traffic accidents by 80% by 2040.

Certainly, as autonomous cars roll out and mix with traditional vehicles on roadways, there will be accidents. Yet, these cars will be equipped with three-dimensional light radar, sophisticated computer systems, and a "black box" that will provide detailed documentation of accidents. Over time, experts predict that software designers will tweak the technology to address the exact case of accidents, potentially eliminating the pattern that caused it in the first place.

 

2. The sharing economy will drive autonomous car adoption

 Autonomous cars are part of the car sharing and electric vehicle ecosystem, a global market segment that is increasing by 30% annually. Our increased reliance on car sharing services such as Uber and Lyft will also drive adoption of autonomous cars, as communities quickly move to match demand for efficient car sharing systems with ample supply. The increased dependence on car sharing will forge different versions of autonomous cars, including traditional, family-size, shared, and pooled/ shared cars. Over time, this ecosystem will also include robocars that can pick up and deliver people to destinations and deliver goods and services directly to homes and businesses.

The increased reliance on sharing/ renting vehicles will create more efficiencies by promoting social mobility and convenience. It will also change the notion of car ownership and demographics. For example, specific market niches that may have been previously restricted from driving such as the elderly or the disabled may be eligible to drive autonomous cars, potentially opening up new market segments for insurers.

3. They are better for the climate and can reduce energy reliance

  Autonomous electric cars can help reduce our reliance on oil and fuel, and substantially reduce carbon dioxide emissions released by traditional cars.

4. Consumers will begin to embrace technology

Although recent news headlines involving Volkswagen's manipulation of emissions systems has affected the public trust in car software, experts predict that consumers will slowly begin to view autonomous car software the same way they view software updates on their mobile devices. Taking Moore's law into consideration, autonomous car technology will improve every two years, to the point where consumers will look forward to and embrace new technology updates, just as they do with their smartphones. 

5. Regulation and the law will adapt, slowly

Clearly, autonomous car adoption will move quicker than most state and federal legislatures will be able to adapt. Challenging state legislatures to relax traffic laws and modify safety codes to encourage adoption of autonomous cars will involve joint efforts by both public and private entities. Much of the legal uncertainty surrounding autonomous cars will be addressed as product liability and litigation cases evolve, and as manufacturers build a public safety use and data strategy for product life cycles.

6. Cyber risk will increase

 Cyber hacks to car automation software are likely to occur and may increase computer intrusion liability cases. Telematics and other supporting data will be vital to assessing and predicting vulnerability to cyber-attacks when underwriting accident probabilities.

Legal environment: How autonomous cars will affect liability and tort cases

Experts identified these key trends for re/insurers:

  • The cost of accidents will rise. Car safety will improve substantially with autonomous cars. Yet, as the number of accidents decreases tenfold, each accident may cost ten times more to analyze due to the incremental costs involved in examining car data and documentation to assess the context of the accident. 
  • Personal liability will shift to product liability. Lawyers will need to examine each car's black box to determine the cause of accidents. In situations where the software in the car is found to be at fault, lawyers are likely to subpoena every person involved in the car safety and manufacturing chain, including safety and risk engineers and product managers

  • Deep pocket liability may increase for defendants. Depending on the nature of the case, plaintiffs involved in the initial autonomous car accident cases may be eager to score early wins and set legal precedents that make news headlines; many of these cases may involve punitive and criminal liability damages.

  • Car manufacturers will manage and pool risk. Rather than relying on actuaries, companies such as Google will rely on their own engineers and safety experts to conduct testing and analyze risk. There will be strong incentives for Google as well as car manufacturers to self-insure risks.

  • The nature of retail insurance will change. Insurers will need to think more broadly about their product offerings, including offering pay-per-journey insurance or providing cover to manufacturers for technical defects or car pool owners rather than individual drivers.

Conlcusion

Autonomous vehicles represent a major innovation for the auto industry and are destined to have major implications on our society. Although it is uncertain how legal or regulatory issues will play out, we do know that our role as re/insurers will change considerably. Many of these changes may forge new opportunities, and those who can adapt by targeting new market segments and diversifying their product offerings may stand to benefit from these opportunities.

Summary by Carol Carangelo, Communications Specialist, Swiss Re

This article is based on The autonomous car 2015: Risks and opportunities for the re/insurance industry which took place at Swiss Re's Americas headquarters in Armonk, NY on 24 September 2015.