As the technology behind autonomous cars inches forward — and future possibilities evolve into probabilities, which ultimately become reality — so too does the dilemma facing auto insurers: They aren’t ready.
Not today anyway, and that’s not to say they are not preparing. Insurers appear optimistic that they can adapt, and of the major challenges a driverless future presents, two issues have risen to the top: How companies can derive revenue, and the shift in liability.
Traditional insurance covers four different parts in a policy: collision and comprehensive, liability, personal injury protection, and uninsured or underinsured motorist protection, Jim Lynch, an actuary with the Insurance Information Institute, told Mobility Buzz. Collision and comprehensive insurance makes up the majority of the insurance industry’s revenue. For instance, in 2015 direct premiums written totaled $119 billion in the United States, with $80 billion of that derived from collision and comprehensive insurance.
With the autonomous world still developing, it’s unclear how insurance companies will make up that revenue, especially since most insurance premiums are adjusted based on what is known about a driver. A teenager, for example, is more likely to have a higher premium than someone who has been driving for 20 years and has a clean driving record.
The good news though, is insurance companies have plenty of time to figure it out, Lynch said. There will be fewer accidents — about 90% less — with autonomous vehicles, he said. The kicker, however, is you have to have fully autonomous vehicles on the road first, and that’s not something that will happen right away.
Representatives from Allstate, Esurance (a subsidiary of Allstate), and Farmers Insurance all told Mobility Buzz that insurance companies will stick around, the need for comprehensive insurance will ensure that: A tree could fall, inclement weather could damage a car, the so called “Acts of God” in the insurance industry will still occur.
The second issue, liability, is also important, and equally unclear. For instance, if two autonomous vehicles get into an accident, which party is responsible? Is the owner, the car manufacturer, or the parts supplier? There is unfortunately little to no precedent for resolving either of these issues.
“When everything does go to full autonomy, the risk changes, but most people have a personal policy related to human error,” Mariel Devesa, head of product innovation at Farmers, told Mobility Buzz. “So when you go to autonomous, the liability shifts from personal to a commercial liability.”
For example, as seen with the Takata airbag scandal — which resulted in the largest automotive recall in history — it’s not always easy to figure out liability. Car manufactures have a worldwide supply chain, which means dozens of automakers, including Honda, Toyota, Ford, and Chrysler, used Takata airbags.
However, Takata has its own suppliers, which the company subsequently tightened quality control over, as a result of the defective airbags.
“If the liability shifts to the manufacture, the manufacturer is going to start looking at suppliers,” Lynch said. “You can see how this all mushrooms out.” When it comes to the legal system in the United States, there are two primary ways laws are developed, which is through legislation and case law. Legislation is often the more proactive form of creating laws, but cannot address all the variables in existence before they are known, meaning there are potential loopholes.
Farmers Insurance, along with many other insurance companies, are consistently lobbying for legislation to address the liability issues that autonomous vehicles will cause in order to get ahead of the legal curve, Devesa said. But how exactly that legislation will turn out, is unknown.
Case law, meanwhile, is a result of a combination of legal precedent and an event already taking place that ultimately leads to a court case. This is a problem, Lynch said, because if two autonomous vehicles collided, neither manufacturer is going to want to settle.
Overall, insurance and the law are large and nuanced beasts, making it difficult to predict in what direction they will head and when. The only thing that appears certain is that autonomous vehicles will dramatically alter the landscape of the industry. Luckily, Insurers still have some time to work out the kinks.
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