By Matthew Simmons, CIC
Georgetown Insurance Service, Inc.
Silver Spring, MD
Driverless or self-driving cars might sound like something out of a science fiction novel. But the technology has already become a reality. In fact, research and computer modeling conducted by Accenture and the Stevens Institute of Technology projected that by the year 2035 nearly 23 million fully-autonomous vehicles will be travelling U.S. highways, out of the roughly 250 million total cars and trucks registered in the country. But how do you go about insuring a car that drives itself?
Safety Risks
With 94 percent of vehicle accidents being attributed to human error, driverless cars will have a significant impact on this figure. According to an article in Insurance Journal, self-driving technology company Waymo reported that its total fleet of vehicles reached 5 million self-driven miles, fatality free, while operating in autopilot mode. Automotive innovator, Tesla, has begun implementing the technology and has reported two driver fatalities among its vehicles while in autopilot mode. In a 2016 incident, the National Transportation Safety Board (NTSB) ruled that the accident was still largely blamed on human error. But Tesla later acknowledged on its 6/30/2016 blog “A Tragic Loss,” that the autopilot mode hadn’t detected the truck that drove perpendicular across the highway and “that autopilot nor the driver noticed the white side of the tractor trailer against a brightly lit sky, so the brake was not applied.” It’s incidents like this that raise important questions about who assumes liability in the event of an accident with a driverless vehicle.
Challenges and Opportunities
When it comes to auto insurance, states usually require liability coverage as a bare minimum. However, driverless cars don’t match up with the traditional insurance business model. The challenge for insurance companies will be accurately assessing risk and determining how insurance premiums are to be generated. Currently, rates are based on age, driving record, prior coverage, the type car you drive, and where you live. But this information is rather irrelevant when you’re talking about a self-driving vehicle.
The degree of control a driver has over a vehicle could also have a large impact on who is liable in the event of an accident – the driver or manufacturer. And to create further challenges, not all self-driving vehicles operate the same – some offer differing levels of automation, making it even more difficult to determine the division of liability. If insurance claims drop significantly by reducing or removing driver error from the accident equation, major changes to the insurance structure would need to happen.
But there are opportunities. It’s estimated that by 2025 auto insurance premiums will drop by $25 million as the popularity of self-driving cars continues to grow. However, a report by Accenture outlines new opportunities for insurers in cyber security, product liability insurances, and infrastructure insurance. In fact, the report shows the cumulative value of possible new revenue streams could reach as much as $81 billion by 2025. To stay ahead of the game, insurance companies should start thinking about new product offerings and forming key relationships with manufacturers and technology providers.
Changing the Laws
The National Highway Transportation Safety Administration (NHTSA) released guidelines for self-driving vehicles that asks states to develop uniform policies for driverless cars. But at the end of 2017, most states had done very little to revise existing auto insurance laws to accommodate these vehicles. While 33 states had started introducing legislation, this is only the beginning. As insurers look to start developing product offerings and programs that satisfy the needs of those who own self-driving vehicles, it’s imperative that state legislators and regulators fix misaligned auto laws and address the potential impact of having these vehicles on the road.
How quickly self-driving cars will be adopted is up in the air, but there’s no doubt they’re making their way to America’s highways. As an industry, auto insurers and claims professionals need to start embracing this technology rather than fearing it. The best thing we can do is stay informed and on top of this ever-changing technology.