Are you ready for autonomous vehicles?
Many different governing bodies will make insuring self-driving vehicles more complex.
The increasing popularity of autonomous vehicles has led to questions about how self-driving vehicles can share the road with traditional cars and trucks. The initial concept focused on cars that had people in them but drove themselves. But the idea has expanded, with delivery companies like Amazon testing “human-free” transportation.
From the insurance industry’s perspective, autonomous vehicles are going to change how municipalities look at insurance coverage. We’ve seen some changes at the regulatory level. Earlier this year, the U.S. government gave the first driverless car a special exemption. Also waived were the Federal Motor Vehicle Safety Standards (FMVSS) that require steering wheels, pedals, side view mirrors and other human controls.
Regulations and autonomous vehicles
The U.S. is in a race with China to produce fully autonomous vehicles and get them onto the roadway. The reality is that China may be first to have autonomous vehicles on the road due to their government structure. One central authority means it will be easier to come to an agreement for all autonomous vehicles than the U.S.
These many different governing bodies make insuring self-driving vehicles more complex. As with our current driving laws, there will be federal and state regulations. Different states will have rules of the road that will vary, including safety concerns, such as lane sharing, and even the time of day the vehicles can be on the road.
According to the National Conference of State Legislatures, 29 states have enacted legislation allowing autonomous vehicles. It varies by location, with some states allowing testing to take place only on private tracks. Others are creating roadways that allow both traditional and autonomous cars to drive together, and some are testing autonomous vehicles on traditional roadways.
Municipalities: Changes in coverage and responsibility
Merging autonomous vehicles with traditional cars and transportation is not an easy task, so writing insurance policies for these testing sites is difficult. Traditional policies that were written for municipalities do not take into account testing facilities and the potential confusion autonomous vehicles present when merged with everyday drivers. These new policies must take into account cybersecurity and the autonomous vehicle exposures as well as connectivity and real-time data.
Typically, historical exposures and loss experience serve as a general guide to structuring a risk management program specific to an industry. Municipalities are no different. Their needs tend to center around property and casualty coverages, with a few key tailored coverage items like public officials and law enforcement liability.
For municipalities, it’s important to look at several key challenges. First, keep the program simple. Most agents strive to keep clients with the fewest number of underwriters or carriers to maximize cost efficiency, reduce administrative needs, and reduce the likelihood of coverage gaps or finger-pointing between carriers.
It’s also important to think about public officials’ liability, cyber liability, third-party bodily injury and property damage.
Policies of the future are also complicated by questions of if insurance policies will be more uniform or if the Federal government will have more regulations forcing the autonomous vehicle makers to accept more of the responsibility for damage or injury. The technology in the cars allows underwriters to have more specific information on the accident, including the driver’s behavior and if, in fact, the vehicle malfunctioned.
The insurance industry must also prepare for a different looking future where not every person has a car. Younger generations are already less likely to own a car, especially if they live in a city. Rideshare and scooters or other unique ways to get from one place to another are popular now, but in the future, people may also share autonomous cars in the same way they sign up for scooters or bikes now.
A study by researchers at the University of Texas showed this will completely change the look of the road, including the fact that one autonomous vehicle can replace the need for 11 conventional vehicles.
The insurance industry must be ready to adjust its way of thinking when it comes to traditional insurance. The autonomous vehicle is going to upend the traditional coverage model, and the industry must be ready. We expect to see a shift to policies focusing on cybersecurity, product liability and infrastructure that will generate billions in new policies. Now is the time for underwriters to research policies and create plans to protect businesses and individuals before the self-driving car becomes commonplace.
Matt Cail (mcail@sspins.com) is a client advisor with Sterling Seacrest Partners.
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