Tag Archives: Self-Driving Cars

What a driverless future means for auto insurance

The American public is skeptical about giving up control of their cars’ steering wheels. Despite the enthusiasm with which autonomous vehicles (AV) are being developed by auto manufacturers and technology companies, recent polls, including this one, showed that few drivers are interested in giving up control of their cars despite the potential safety and time-saving benefits.

And although there’s a long way to go (about 25 to 30 years) before the AV future takes hold, it’s not too early for auto insurers to think about how self-driving cars will affect them.

Haden Kirkpatrick, Head of Innovation & Strategy at Esurance, likens the advent of driverless cars to the beginning of the era of the horseless carriage in the 1890s. Since the first auto policy was sold in 1898, car insurance has evolved from simple handwritten contracts to the high-tech global industry that it is today.

And just as the transition to “horseless” spurred great changes in the early 20th century, the transition to “driverless” will likely mean big changes once again. This time, instead of creating the need for more personal coverage, the move to AV is set to drive the need for more commercial insurance as car manufacturers will assume much of the risk for this new tech.

Kirkpatrick says that it’s too soon to determine where exactly insurers strategy should go. “Where is the vehicle category going to end up? We don’t know yet, 10 to 25 years is a long way down the road.”

What we do know is that technology companies and auto manufacturers (OEMs) are capturing reams of data all the time, and that data can be used for actuarial models. Insurers also will need to form partnerships with the winners in the AV space.

“Insurers are having conversations (with OEMs) to solve problems and pain points. Data is central – a lot of benefits are to be gained with partnerships.”

Where does AV commercial liability responsibility lie?

The terms liability and responsibility begin to break down when there are multiple parties involved, said Kirkpatrick. “When fault is divided between consumer, manufacturer, [and the] software maker, – in the short term there is a mixed environment.” Managing the “ratio of responsibility” will be one of insurers’ biggest tasks.

So, when does the consumer exit the ratio of responsibility?  “One scenario is when the steering wheel is gone, the consumer’s responsibility could be gone,” said Kirkpatrick.

What about the semi-autonomous cars that are on the road now?

The cost benefit of driver-assist features such as adaptive cruise control is not translating into lower insurance costs. “As frequency declines, severity increases, [because of] higher parts and labor costs.” However, preventing the average fender bender involving adaptive cruise control will provide a good baseline to understand the bigger challenges and will help bridge gap in 10 to 15 years.

 

Automated Vehicle Symposium: Recap

The Automated Vehicle Symposium took place in San Francisco July 9-12.  I.I.I.’s Brent Carris files this report.

Gaining consumer trust is essential to the success of automated vehicle (AV) deployment. It was a point stressed continuously throughout the conference.

U.S. Department of Transportation (DOT) Secretary, Elaine Chao, along with many others, noted that 94 percent of auto accidents occur due to human error. AV control can drastically reduce human error-caused accidents but reaching the “0” level of accidents will be a long work in progress. Joint data sharing by public and private institutions is imperative in the transition to an AV world.

During Secretary Chao’s keynote address, she emphasized the six principles that govern DOT policy for AV technology regulation:

  • Safety is top priority
  • Policies will be flexible and tech-neutral
  • Regulations will be performance based
  • The DOT will collaborate with states and localities
  • The Department will provide stakeholders with assistance to facilitate the safe integration of AV systems into the transportation system, and;
  • The Department recognizes that autonomous vehicles will have to operate side-by-side with traditional vehicles, in both urban and rural areas

Chao briefly discussed insurance, saying “Insurance frameworks are adaptable to the AV world.” Timely data sharing by auto manufacturers and other AV data collectors with insurance companies will be necessary to facilitate proper insurance coverage. Data could be used to establish: Liability in the event of an accident; accurate underwriting and pricing of insurance policies; risk mitigation and control measures. Insurance companies will have to take a proactive approach to ensure timely data sharing and develop consumer perceptions on safety, liability, and coverage for AVs.

In a white paper issued to coincide with the event, the Travelers Institute outlined its views on how autonomous vehicles will change the personal and commercial auto insurance markets.

The DOT announced the third iteration of its Automated Vehicles policy document is slated for release by the end of 2018. The Automated Driving System 2.0: A Vision for Safety was downloaded over 125,000 times since its release in 2017. The 3.0 version will focus on AV development across all modes of transportation – passenger vehicles, trucks, rail, and maritime.

Another important topic was preparing U.S. workers and employers for the automated vehicle future. Lessons from past transitions show that while initial job displacement may occur, full employment eventually returns.

A Securing America’s Future Energy (SAFE) study estimated that the advent of AVs are projected to increase the unemployment rate to a small degree in the 2030s and to a somewhat larger degree in the late 2040s, with a peak, temporary addition to unemployment rates of 0.06–0.13 percentage points. However, an estimated $800 billion will eventually be gained in annual societal benefits due to accident reduction (economic impact and quality of life improvements), congestion mitigation, reduced oil consumption and from the value of time gained from AV. Many speakers stressed that planning for an AV future should start now.

 

 

Residual Auto Market, Meet Self-Driving Cars

Everyone wants to talk about autonomous vehicles, and for proof  I.I.I. chief actuary Jim Lynch  offers the AIPSO Residual Market Forum, at which  he spoke in mid-April.

AIPSO manages most of the automobile residual market, where highest risk drivers get insurance. Each state has a separate plan for handling risky drivers and AIPSO services most of them in one way or another, acting as the linchpin in the $1.4 billion market, about 0.7% of all U.S. auto insurance written in 2013, according to Auto Insurance Report.

Though small, the residual market is important, but it’s not an area that would naturally lend itself to discussing the self-driving car. If cars could drive themselves, of course, there wouldn’t be much of a residual market.

Even so, I was one of three speakers at the forum’s panel exploring industry trends, and at AIPSO’s request, all three of us touched on autonomous cars.

Though he spoke last, Peter Drogan, chief actuary at AMICA Mutual Insurance, probably did the best job of laying out the future technology and some of its challenges. Particularly spooky was a 60 Minutes clip in which a hacker took over a car Lesley Stahl drove over a parking lot test course. She wasn’t driving fast, but she couldn’t stop after the hacker took over the brakes of her car.

Karen Furtado, a partner at Strategy Meets Action, a consultancy that helps insurers plan for the future, laid out the case for disruption. Autonomous vehicles will not only make vehicles safer, they will change driving habits. Fewer cars will be on the road, and more people will share them, summoning self-driving vehicles through ride-sharing apps, all of which could potentially shrink the $180 billion auto insurance market.

I’ve made my thoughts clear before, both in this blog and elsewhere: the technology will change driving forever, but it takes about three decades for auto technology to become common on roadways, giving insurers a lot of time to adjust. And some coverages, like comprehensive, will not be affected, as they protect cars when they aren’t in accidents.

A PowerPoint of my presentation is posted here.

Traffic Ahead

I.I.I. chief actuary Jim Lynch looks into the future of self-driving cars:

I wrote about autonomous vehicles and insurance for the March/April edition of Contingencies magazine.

I argue that while the safety improvements will reduce the number of automobile accidents, any predictions of the end of automobile insurance look overblown today.

The first cars to drive themselves will only do so for a few minutes at a time — far from the curbside-to-curbside Dream Vehicle that gets most of the media attention. Any new auto technology takes two or three decades to cascade from a pricey option on luxury vehicles to standard equipment found on every used Chevy.

The slow rollout means claim frequency — the number of claims per hundred vehicles — is likely to decline over the next few decades at about the same rate as it has over the past five decades, giving insurers plenty of time to adapt, just as they have since the first policy was issued in Dayton, Ohio, in the 1890s.

Here is an excerpt:

The property/casualty industry will react as it has for decades, as regulation and innovation have made auto, products and the workplace safer. The impact will be carefully measured by actuaries, who will adjust rates as the innovations prove out. Insurers will find new coverages that customers will want.

The Dream Vehicle will change auto insurance, sure, but it won’t destroy it.”

The I.I.I. has an Issues Update on Self-Driving Cars and Insurance.

Self-Driving Cars – With or Without You?

We’re reading that self-driving cars are no longer a thing of the future, but it’s in the subhead of this  Time article: how long will it be before your car no longer needs you? where the heart of the story lies.

Jason H. Harper writes of how he earned one of the first new driverless motor licenses  — technically known as an “autonomous vehicle testing” permit  — from the California DMV.

He then describes his chauffeured ride by a prototype Audi from Silicon Valley to Las Vegas for last week’s Consumer Electronics Show:

The car uses an array of sensors, radars and a front-facing camera to negotiate traffic. At this point, the system works only on the freeway and cannot handle construction zones or areas with poor lane markings. When the car reaches a construction zone or the end of a highway, a voice orders you to take the wheel back.”

Before taking the 550-mile road trip, Harper had to get special instruction on how not to drive, per California regulations:

The training included basics like turning the system on and off and learning the circumstances in which it could be used. The rest was about handling emergencies, such as making lane changes to avoid crashing.”

Harper says the training was far more difficult and involved than a regular driving test. However, average buyers will not need such training.

Why?

Because rollout of this technology is gradual. Audi’s program for example would allow the car to self-drive in stop-and-go highway traffic, but when traffic clears the driver takes the wheel again.

It’s at the very end of the article that a voice from academia reminds us that  this  approach may be no bad thing  as  both technology and driver acceptance need time to mature.

Dr. Jeffrey Miller, an associate professor at the University of Southern California, tells Time that in his opinion licenses and drivers will never be obsolete because “the driver will always have to take over in case of a failure.”

It’s an interesting point. From the insurance perspective, too, while self-driving cars are definitely on the way, the  implications for insurers are evolving. In its issue update Self-Driving Cars and Insurance, the I.I.I. notes:

Except that the number of crashes will be greatly reduced, the insurance aspects of this gradual transformation are at present unclear. However, as crash avoidance technology gradually becomes standard equipment, insurers will be able to better determine the extent to which these various components reduce the frequency and cost of accidents.”

And:

They will also be able to determine whether the accidents that do occur lead to a higher percentage of product liability claims, as claimants blame the manufacturer or suppliers for what went wrong rather than their own behavior.”

More on auto insurance here.