The NMA Foundation presents the Car of the Future weekly feature:
A question that has been asked a great deal lately is who will be the responsible party when a driverless car crashes? If the owner is not driving and indeed did not make any mistakes, should he or she be responsible for what their car does? The rush to autonomy has many questions that might just leave the auto insurance industry scratching its head for answers.
According to Swiss Re, global auto insurance is a $700 billion dollar market that represents 42 percent of global aggregate property and casualty insurance. Extremely competitive, auto insurance companies could actually find themselves squeezed out of the market. Business Insider notes that insurers like Travelers and Mercury General have noted in SEC filings that driverless cars could threaten their business models.
For example, Tesla, Inc. announced this past week the company has begun bundling auto insurance, a maintenance contract and the car price all into one payment for their Asian and Australian customers. In January, the National Highway Traffic Safety Administration (NHTSA) confirmed that Tesla’s first-gen Autopilot feature has reduced Tesla vehicles’ crash rate by 40 percent. Driving a Tesla has less risk and the insurance should reflect that idea.
When driverless cars hit the level 4 and 5 stage of autonomy—automakers will be more liable than ever before as the burden is no longer on the driver to properly control the vehicle. Level two and three of autonomy becomes a bit more complicated when discussing liability and pricing insurance. The current Tesla Autopilot system has level 2 autonomy. The question of who is responsible for a crash becomes a bit more complicated because motorists are driving the vehicle with automated features.
The United Kingdom has already been working on the issue of auto insurance in the car of the future. British government officials say that a single insurance product will be available to cover a driver when a vehicle is being used conventionally, as well as when a car is being used in autopilot mode.
Auto insurance companies will also have to fight automakers over car data ownership. Connected vehicle software, proprietary to the automaker, will now be embedded inside the vehicle. The data included is exactly what insurance companies have historically used to price and mitigate risk effectively. Data sets include speed, distance between vehicles, weather conditions, brake pressure, and driver distractions.
Will insurance companies begin making alliances with automakers so the companies are pooling their resources and protecting themselves?
How would this affect the consumer?
This reliance on software could potentially be a new opportunity for insurers to develop multi-tiered insurance products. Examples include hybrid products combining commercial liability with specific cybersecurity protection and personal auto insurance.
The auto insurance industry will be disrupted by not only the new technology but also the business model of risk that might well be headed into the dust bin of history.
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