Driverless cars - the death of the motor insurance industry?
In July 2016 the UK government produced a consultation paper which discusses the possible impacts that autonomous technology could have on UK insurance.
There is no doubt that driverless technology has the potential to be revolutionary, but to what extent will traditional motor insurance change, and how will regulation need to evolve to meet the new demands?
Near-to-market technology
Experts estimate that the first fully automated vehicles could be on the streets by the mid-2020s. This ’eyes off, hands off’ technology, where the driver has no responsibility for the movement of the vehicle, will dramatically change not just motor insurance, but the whole motor industry. What was previously the wild imaginings of science fiction is now a mere decade away.
"New risks are emerging with this technology such as accidents caused by defective vehicles or by hackers, and in these cases, both the driver and injured third parties will claim directly against the driver’s insurer."
In the meantime, ’eyes on, hands off’ advanced driver assistance systems (ADAS), such as remote control parking and automated motorway driving, will be on the streets in two to four years, and so are of immediate concern for insurers. When using these ’eyes on, hands off’ technologies, the driver must be ready to take over should the technology fail, so the machines aren’t fully taking over our streets just yet. For example, after a non-fatal crash in July involving Tesla’s ’auto-pilot’ feature, Tesla blamed the crash on the driver’s inattention.
Regulation
Current UK motor insurance legislation requires all drivers to purchase third party liability insurance to compensate victims in any collision, regardless of who is at fault. In a world of fully autonomous vehicles, the UK government anticipates that the liability in the event of a collision would be placed on the manufacturer instead of the driver. In the meantime, while only ADAS technologies are available, instead of reinventing the rulebook, the UK government recommends extending current insurance regulations to include driverless vehicles in a natural way.
The UK government has proposed the following three main changes to the existing regulations:
- owners of automated vehicles will be obliged to purchase insurance to cover the manufacturers’ product liability
- this insurance must cover injuries to the ‘not at fault’ automated vehicle driver as well as passengers and third parties
- a system must also be developed to classify an automated vehicle so that manufacturers, insurers and consumers know which vehicles this particular insurance requirement applies to
Claims
An increased use of ADAS will, over time, greatly reduce the number of claims. The UK government report states that over 90% of motor collisions are caused by human error, and driverless cars will eventually eradicate this risk.
While a mixture of conventional vehicles and vehicles with ADAS are on the roads, however, the insurance industry will still be processing claims, and will need to evolve to cope.
The government is recommending that policyholder attitudes towards claiming should be no different when a driverless vehicle is involved; insurers should continue to ensure claims are processed as quickly and with as much clarity as before. No particular insurance model is being mandated, but it is anticipated that manufacturers will make arrangements with insurers to develop insurance products that share the economic risk, in order to promote sales of driverless vehicles.
As for liability, the government is not proposing any significant change to rules in road accidents. A fault based approach combined with existing product liability law and existing common law on negligence should largely be sufficient to continue to cope with claims.
New risks are emerging with this technology such as accidents caused by defective vehicles or by hackers, and in these cases, both the driver and injured third parties will claim directly against the driver’s insurer. Following this, the insurer can pursue the party at fault to recover the costs.
So, the spirit of the existing law is being preserved with these recommendations, and it should be clear what insurers must do to adapt.
Conclusion
Until fully automated vehicles are tried and tested, motor insurance will remain much the same, and the impact of ADAS on insurance will be minimal. The long-term prospects for motor insurance, however, look very different. When fully automated vehicles are on our streets, motor insurance as it has existed for decades will gradually become obsolete, replaced entirely by product liability insurance.
It also poses other interesting questions: is it still worth developing telematics products now if everyone will own a driverless car in the near future? And could this life-saving technology be the death of motor insurance as we know it?
Holly Deakin contributed to the writing of this blog.
