Insuring semi-autonomous vehicles
Insurers will have to reexamine how to handle claims where they must determine who is at fault — the car or the driver.
Rising sales of semi-autonomous vehicles like Tesla are challenging insurers to rethink how traditional insurance packages can accommodate accident claims where fault — driver versus auto technology — is much tougher to assess.
“We are at an inflection point in the evolution of transportation, which requires tailor-made risk solutions,” said Julie Brown, general manager, Mobilitas Insurance, a provider of insurance coverage for in-development self-driving vehicles by Cruise.
Indeed, the only thing that is certain when it comes to devising a way to accommodate semi-AVs in the insurance marketplace — which rely on advanced technology that often makes it difficult to determine who is at fault in a crash — is that there’s a great deal of uncertainty.
“Statutes, regulations and case law in this area will need to undergo significant development over the next several decades,” says Tony Cotto, director of auto and underwriting policy, National Association of Mutual Insurance Companies.
In fact, major government agencies like NHTSA and DOT currently have no hard-and-fast rules when it comes to semi-AVs, and they’re noodling in earnest for the answers, according to Janet Ruiz, CPCU, AIM, director, strategic communications, Insurance Information Institute.
One solution, according to Nathan Houdek, commissioner, Wisconsin Office of the Commissioner of Insurance, would be for traditional insurance companies to head off questions over accidents involving semi-AVs long before they land on the desk of a claims adjuster.
“Making a distinction between whether the vehicle or driver was at fault is an inappropriate factor for an insurance company to use when determining whether to pay or deny a claim,” Houdek says. “If an insurer wants to consider how certain technology might affect coverage, that should occur during the underwriting and rating process — not claims handling…Such a practice would result in consumers being vulnerable to coverage gaps — which would also likely be contrary to Wisconsin’s auto liability laws.”
Unfortunately for traditional auto insurers, all the hedging over how best to insure semi-AVs — and ultimately how to insure fully autonomous vehicles — has triggered some of the makers of semi-AVs to consider offering their own insurance as a way to settle customer qualms.
Telsa, for example — one of the leading manufacturers of semi-AV vehicles — is already in the auto insurance business.
“We currently offer Tesla insurance in five states in the U.S.” — Texas, Illinois, Ohio, Arizona and California, said Zach Kirkhorn, chief financial officer, during a Tesla Q4, 2021 earnings call.
Establishing a bigger footprint has been slow going for the auto-maker, given that Tesla needs to cut a deal on insurance with government officials on a state-by-state basis, according to Kirkhorn.
“But our internal goal here, by the end of the year, is to be in enough locations that 80% of our customers within the U.S. could choose to sign up for Tesla insurance if they wanted to,” Kirkhorn said.
Insuring autonomous vehicles
Not surprisingly, moves like Tesla’s — which some see as foreshadowing an insurance marketplace where traditional auto insurance becomes a thing of the past, and all auto insurance is handled by auto-makers — have triggered Travelers to release a major position paper on the insurance of semi-AV and fully A.V. vehicles.
Dubbed “Insuring Autonomy: How auto insurance will lead through changing risks,” the paper takes great pains to torpedo any idea of turning auto insurance over to vehicle manufacturers.
The paper’s key assertions:
*Alternative risk insurance, such as manufacturer-provided product liability insurance, could force consumers and victims to pursue complex and lengthy lawsuits to secure compensation when they’re involved in a crash or other accident. The sheer number of lawsuits arising from such an insurance model would bog down court systems for years.
*Manufacturers, unlike traditional auto insurers, lack the specialists to handle the endless torrent of accident cases that are the everyday reality of the auto insurance business.
*A dual vehicle insurance system — one provided by manufacturers and another offered by traditional auto insurers — will muddy the market. In practice, such a system will create endless questions in claims processing regarding who is covered, for what and under which regulatory and legal framework.
*Vehicle owners could be forced to sue manufacturers for years before securing compensation for a crash or accident. Traditionally, auto insurers compensate crash victims for personal injuries and property damage and then, if appropriate, go after manufacturers to recover those payments if a vehicle defect caused the loss. However, with manufacturer-provided product liability insurance, some victims might be forced to sue the manufacturer themselves.
*Driver peace of mind when it comes to auto insurance will be lost, given all the uncertainties that a dual insurance system will engender in the marketplace.
Is a traditional insurance model the best option?
Interestingly, more than a few industry insiders agree with Travelers that the insuring of autos is best left to traditional insurers. Such businesses have been at the task for decades, they say, and they have had decades to work out the kinks in what is an especially demanding challenge.
“It’s difficult to understand how minimum liability insurance coverage in Wisconsin would not continue to be the responsibility of auto owners and drivers — as opposed to automobile manufacturers,” said Timothy Cornelius, attorney, Wisconsin Office of the Commissioner of Insurance. “Insurers have a proven track record of providing liability coverage for vehicles and will be well-positioned to continue that role with the introduction of semi-autonomous vehicles.”
Tony Cotto, director of auto and underwriting policy, National Association of Mutual Insurance Companies, agreed, “Some auto manufacturers may eventually satisfy the regulatory requirements to start their own insurance company.”
But “they will face extremely difficult challenges in efforts to displace the skills and sophistication of insurers that have spent more than a century helping consumers offset the financial risks of owning and driving a car,” Cotto said.
Karima M. Woods, commissioner, District of Columbia Department of Insurance, Securities and Banking, added, “The auto insurance industry has and continues to produce experts with varying levels of knowledge of industry practices rooted in the historical and present-day understanding of insurance law, insurance accounting, underwriting, economics, claims handling, actuarial science, data collection and an understanding of how these disciplines work together to fit systematically in a competitive, regulatory and consumer-driven marketplace…Manufacturers shifting from the distribution of vehicles to operating an insurance company may be a long way away before they can fully and realistically compete against incumbent insurers.”
Moreover, Lori K. Wing-Heier, director, Alaska Division of Insurance, worries that in a world where only manufacturer auto insurance policies exist for semi-AV vehicles, consumers could easily be gouged by those automakers.
“I would think that the owner of the semi-autonomous vehicle would want to retain the right to shop for insurance — and not be mandated to only buy from the manufacturer,” Wing-Heier said. “No matter who provides it, there will be a premium.”
For Jeff Rude, commissioner, Wyoming Insurance Department, the way forward is simple. “As long as a driver has control over any function of an automobile, there will be a need for traditional auto insurance,” Rude said. “For traditional auto insurance to be rendered obsolete, all human-controlled vehicles would have to be nonexistent.”
In any event, it appears traditional auto insurers and semi-A.V. manufacturers will continue to jostle for drivers’ insurance business for the foreseeable future.
No matter how they approach the business, both are eager to get their hands on the telematics data broadcast from semi-AVs to help settle claims — data that can offer extreme detail about what was going on with a semi-AV before, during and after an accident — including who was at fault.
Some, like NAMIC’s Cotto, believe access to such data is the de facto right of the industry. “Insurers must have access to any data that informs efforts to repair or replace a vehicle — particularly all data related to any crash involving the vehicle,” Cotto said.
Meanwhile, others in the industry have been less dogmatic, preferring instead to cajole telematics data from consumers by offering generous premium discounts for those who provide such data or by offering drivers free use of telematics systems in exchange for their data, according to D.C.’s Woods.
But as consumers grow warier of offering wholesale access to their data, over the Internet or otherwise, it appears that insurer access to telematics data from semi-AVs may be less of a slam-dunk than hoped.
Texas, for example, leaves the decision about who has access to telematics data to the vehicle owner, according to Ben Gonzalez, Media Relations, Texas Department of Insurance.
Other states, like Wisconsin, have decided insurer access to telematics data is far from a done deal.
“The Wisconsin Office of the Commissioner of Insurance participates in several committees and working groups at the National Association of Insurance Commissioners that are evaluating issues related to the industry’s use of accelerated underwriting, big data and AI/ML and data privacy protections,” says Wisconsin’s Houdek.
Adds Jon Pike, commissioner, Utah Insurance Department, “Insurers should not have access to individual data unless the driver/owner gives permission to disclose the data.”
In a phrase: It appears that for the time being at least, when it comes to insuring semi-AVs, things appear destined to become curiouser and curiouser.
Joe Dysart (joe@breakingnewsintech.com) is an internet speaker and business consultant based in Manhattan.
Related: