Many column inches have been devoted over the past couple of years to discussions of how driverless cars, trucks and taxis are set to revolutionise road transport. Conservative predictions for the rollout of autonomous vehicles on Britain's roads generally range from 5 - 10 years and much of the driverless technology has already been developed. The spectre of autonomous vehicles raises many questions for insurers, some of which we will explore below.
What’s in the pipeline?
Both the incumbent motor industry and new players are vying with each other to develop the first fully autonomous vehicles. Some of the contenders include:
- Tesla – perhaps one of the brands most synonymous with driverless cars, Elon Musk’s motor arm claims that its latest range already has full self-driving capability. However, this is dependent upon a software update which cannot be deployed until regulatory approval has been met in each particular jurisdiction.
- Ford – the company which arguably drove the motor vehicle to the mass consumer market with the Model T Ford, is aiming to launch a commercial autonomous vehicle fleet by 2021, devoting $1 billion to a new driverless car unit Argo
- Baidu – the Chinese technology company is aiming to roll out driverless buses on Chinese roads in 2018
- Volvo – the Swedish car manufacturer is planning a second trial of its driverless cars in London, with an emphasis on safety
- Google - the search engine behemoth has been working on developing driverless cars since 2009. Its subsidiary Waymo plans to release a new ride sharing service within "months" according to reports from late 2017.
Where does the law currently stand?
The introduction of driverless cars on the roads may be delayed due to the bottleneck of legislation and disparity in jurisdictions across different countries and states. But the British government is keen to promote the UK as "one of the global ‘go to’ destinations for the development” of driverless car technology and recently launched MERIDIAN, a 'government-backed and industry-led brand' for the development of connected autonomous vehicle (CAV) technologies testing, as part of its £100 million CAV investment programme. It has already carried out a major consultation into the use of driverless systems in the UK, with a view to regulatory reform and 'creating a compulsory motor insurance framework fit for the arrival of automated vehicles'. This was followed by the introduction of the Vehicle Technology and Aviation Bill 2017 which extended the compulsory motor insurance requirement to include automated vehicle owners.
How will the insurance industry need to adapt?
A commonly quoted statistic is that 90% of car accidents are caused by human error; if the majority of accidents are eradicated, then it would logically follow that car insurance premiums will drastically fall. Although the effect of the Vehicle Technology and Aviation Bill indicates that insurers will not lose their policyholders when they switch to driverless cars, if premiums fall then this could clearly affect the industry as a whole. Axa has already stated that: “Fewer accidents will mean lower premiums." But this does not necessarily mean that there will be less of a role for motor insurers. Instead it may just mean that the focus in insurance claims will shift from driver fault to software failure or hardware malfunction.
Income streams may gradually move from large volumes of policyholders, to a smaller number of significant policies with technology companies and third party hardware manufacturers and software developers. This shift may be compounded by a reduction in personal car ownership, in light of predictions of increased car sharing and fleets of driverless cars available on an Uber-like basis (or by Uber itself), particularly in large cities.
The construction of insurance policies for individuals will no doubt also need to change to take account of cybersecurity threats. Precautions will need to be taken by insurers to avoid driverless cars being hacked and remotely controlled to cause a modern phenomenon of "cash for crash" scams. This scenario has already been taken into account by the government in s4 of the Bill which states: "An insurance policy in respect of an automated vehicle may exclude or limit the insurer’s liability … for damage suffered by an insured person arising from an accident occurring as a direct result of .. a failure to install software updates to the vehicle’s operating system that the insured person is required under the policy to install or to have installed.”
Importance of technology
Driverless cars rely on advanced computing power to understand their surroundings and navigate safely. Huge amounts of data need to be analysed instantly so that autonomous vehicles know when to brake or speed up, avoid obstacles and generally get from A to B. This data can also be stored and used by insurers to cost premiums based on past data which records the likelihood of crashes. Internal and external data sources may need to be combined and analysed to extrapolate useful information. But harnessing the power of big data and extracting its value means that insurers will need to use robust IT infrastructure, often on cloud based servers. A decision on the best execution venue, with sufficient computing power to host a combination of applications, will then be key to maintaining a competitive advantage.