How the auto insurance industry will adapt to driverless vehicles

Real-world autonomous vehicles (AV) applications are arriving at our doorstep.

Consider that Aptiv’s self-driving BMWs are eclipsing more than 50,000 rides on the Lyft app in Las Vegas.

What do these developments mean to driving risk and the future of the auto insurance industry/?

The transportation sector is experiencing significant disruption as a shift involving the industry’s entire ecosystem is taking place. Consequently, the auto insurance industry must start planning now to stay ahead of the curve and handle disruptions in the face of the changes autonomous vehicles can bring.

Already in motion

Although changes are happening at a deliberate pace, the auto insurance industry has been preparing for the impact of autonomous vehicles for many years. Major national insurance carriers have been using big data and instant driving analytics to formulate future insurance models inclusive of pricing, coverage and rating.

Carriers also are pushing discounts for customers who elect to have telematics devices installed in their cars, allowing companies to continue to gather valuable data analytics.

However, one primary concern in developing future insurance models is that even as the frequency of accidents could drop, the impact of these accidents increases because of the high costs of AV technology.

Where liability lies

In addition to developing pricing models, national auto insurance carriers are working with federal and state lawmakers to draft legislation that keeps autonomous vehicle accident claims within the auto insurance industry instead of becoming an issue of manufacturer liability. But consensus on how to address liability and compensation as AVs multiply has not been determined.

Unlike auto insurance, alternative risk transfer options like product liability are not structured to be primary, comprehensive solutions. A product liability-type process from manufacturers could force drivers to pursue complex, lengthy lawsuits to seek compensation. Such suits involve intensive and drawn-out investigative and evidentiary hurdles before anyone sees a day in court. Furthermore, the legal and regulatory climate of product liability is unfit for dealing with car accidents. In fact, the volume of claims would be so substantial it would bog down court systems and considerably delay compensation.

The Takata airbag case is one example of product liability limitations. The first issues with the airbags occurred in 2004, and it has taken well over a decade to proceed through the report filing, regulatory investigation, recall, and compensation phases that accompany product defect cases against auto and equipment manufacturers. Some auto companies have settled with consumers, but other manufacturers are still embroiled in litigation.

Notably, the primary risk transfer and compensation mechanism for even more sophisticated modes of transportation, such as trains and airplanes, go beyond product liability and is based upon insurance, which is the same way in which autonomous vehicles could be classified.

Protecting drivers

While autonomous vehicles will improve traffic flow and safety, they also represent a cybersecurity issue. Insurers will have to provide cybersecurity insurance covering all aspects including theft, ransomware, hacking, and the misuse of personal information related to automobiles. Fortunately, the auto insurance industry has always been quick to adapt to new technology and is flexible in providing coverage types.

For instance, Brown & Brown’s Innovation Committee believes blockchain technology will be a key factor for helping to protect companies and individuals on the new virtual infrastructure. Created for cryptocurrency, the technology allows digital information to be distributed but not copied. To that end, blockchain technology will allow for a more centralized network and environment for manufacturers, insurers, and consumers to integrate more securely. The technology is proven to be safe and effective.

Down the road

As autonomous vehicles continue to evolve the transportation ecosystem, it is evident that national insurance carriers must be influential in shaping AV public policy framework. To stay ahead of the curve, insurers will need to work with Congress to incorporate insurance-specific components and specifically address liability standards, data governance, and cybersecurity regulations in developing the future auto insurance landscape.

Rick Moore (rmoore@bbins.com) is national segment leader, personal and small commercial lines, at Brown & Brown, Inc., an insurance brokerage with headquarters in Daytona Beach, Fla. Billy Hobson (bhobson@bbtacoma.com) is president of Brown & Brown Insurance of Washington, Inc.

These opinions are the author’s own.

See also:

• 7 steps forward in the mainstreaming of autonomous vehicles
• Counting the cost of vehicle automation
• Autonomous vehicles will change car insurance — But not as much as you think