When cars drive themselves, what’s the impact on insurance?

Shaun Crawford

Shaun Crawford,

Global Insurance Leader, EY

www.ey.com

As driverless cars move from drawing boards to city streets, many industries will disrupted. But perhaps the most complex challenges will be faced by the insurance industry

Autonomous vehicles (AV) have the potential be a hugely disruptive innovation. Their advocates claim they will be safer, cheaper and more convenient than anything that’s on the road now. They will create new leisure options for travelers, improve productivity for commuters and make road rage a thing of the past. In the process they could trigger a wave of disruption across the automotive industry, haulage and logistics, transport services (like taxis), urban planning and the labor market in general.

But legal, regulatory and insurance issues surround their widespread deployment, and many of these could take years to fully address. The insurance industry has to be at the forefront of wrestling with these practical and theoretical considerations.

New liability challenges

How much risk can be transferred from the individual driver to the manufacturer – and who counts as the “driver”? It’s likely that most AVs will include both manual and computer control – which could lead to two types of insurance.

Insurers will need to determine whether the human behind the wheel or the computer behind the dashboard was in control in an accident, similar to the way black boxes record the actions of pilots in planes. Manufacturers must work more closely with insurers – especially around data sharing – and may become insurers themselves to simplify the process.

Future legislation could force manufacturers to insure fleets of cars, rather than individuals. Shifting from personal motor to product liability insurance introduces risks related to system failures. Standard policy wordings do not cover such issues, so these potential risks may have to be insured elsewhere. 

New risks could affect the bottom line for insurers and premiums may be reduced because of the likelihood of less accidents. Longer term, autonomous vehicles should make driving safer – resulting in the need for less insurance.
But for now, there are more elements to consider and insurers need to prepare.

Shaun Crawford, EY Global Insurance Leader

Broader insurance issues

New risks will require changes to traditional insurance industry business models. Some of the other implications include:

  • In most countries, personal vehicle insurance is compulsory, keeping premiums artificially low. In an AV world, personal insurance may become voluntary – similar to mobile phones, bicycles or laptops. This could lead to pricing adjustments for individuals who insure their vehicles.   
  • If vehicle crashes decline when AVs are in automated driving mode, premiums may rise for individuals driving in manual mode. This might price some individuals out of the market, particularly those less able to afford them.
  • Cyber risk offers the potential for malicious hacking of systems through which driverless cars receive instructions. Disrupting internet connectivity could wreak havoc or leakage of private user information. AV service providers and manufacturers must deliver robust cybersecurity processes to reassure customers.  
  • Driverless cars are far more complex and repair costs could increase significantly. Who is liable for losses if an AV is serviced incorrectly, or not properly maintained by its user?

As with any new technology that sees mass adoption, the true implications of driverless vehicles may not be immediately apparent.

Businesses must keep on top of shifting regulations while managing their insurance liability risks. For insurers, the challenge lies in making the most of vast volumes of data generated by this new technology. This means improving data analytics to strengthen pricing and underwriting, and recognizing that existing customer claims databases are less relevant.

“Just as technology has enabled other industries to redefine themselves, the insurance industry will need to create a business model that will help in the transition as more automated features – and ultimately fully autonomous vehicles – are on the road,” says Kristin Schondorf, EY Global Automotive & Transportation Mobility Leader. “There will be exciting new opportunities for those companies that recognize and create these new business opportunities.”