Ben Hoster considers the implications of electric autonomous vehicles for motor insurance, and the role insurers will play in popularising this new mode of transport
Autonomous vehicles have long been a cornerstone for the future of mobility. Advancements in enabling technologies such as 5G, LiDAR and human-machine interface systems have spurred autonomous vehicle research efforts, bringing this transportation vision closer to reality. However, safety concerns following recent accidents have stopped manufacturers and other stakeholders from pressing ahead more aggressively. On the other hand, bolstered by decarbonisation and sustainability imperatives, electric vehicles (EVs) have continued to gain widespread acceptance. In 2021, electric car sales increased two-fold, and EVs now represent almost 9% of the global car market.
The electrification of autonomous vehicles can play an important role in helping manufacturers to design commercially viable business models that are safe, robust, and sustainable (Figure 1). Electric autonomous vehicles (E-AVs) can help manufacturers to generate short-term revenues by providing semi-autonomous features such as advanced driver assistance systems, aspects of which include lane keeping assistance. Data collected from these systems – sensor inputs, camera feeds and electronic control unit decisions – will help to improve deep learning algorithms, facilitating a safe and scalable migration to full urban autonomy.
The data collected from E-AVs will also increase the accuracy of risk assessments, making it more viable to insure them. Insurers and risk management professionals will play a key role in making this happen. But this isn’t all; they can also help build public confidence and foster trust.
Key considerations for actuaries
As automotives shift from driver-controlled to autonomous, the insurance industry will need to adapt its policies. The combined use of various technologies complicates the automotive supply chain and subrogation processes. Multiple forms of coverage – product liability, motor liability, cyber liability, errors and omissions (E&O) and so on – will begin to overlap, requiring more holistic insurance arrangements.
This complexity also brings new risks that could detract from the potential of E-AVs. Numerous stakeholders across the automotive value chain – such as original equipment manufacturers (OEMs), component suppliers, and freight, ride-hailing or fleet operators – will need to adopt appropriate risk mitigation strategies. Risk assessment and management professionals can help in this matter, but they will need to factor in several considerations that accompany E-AV usage: the need for comprehensive product liability coverage, appropriate responsibility allocation, the mitigation of cyber risk, data leverage to build better policies, and the adaptation of business models to suit evolving ownership styles.
- Curate comprehensive product liability coverage
The determination of contractual liability for bodily injury and property damage (BIPD) will become trickier as autonomous technologies gain wider adoption and use. Product liability coverage will be needed for sensors, algorithms and other subcomponents that are used by OEMs. Vehicle manufacturers will also need help from brokers and insurers to carefully structure contracts with suppliers and set the scope for warranties.
While product recall liability insurance will remain essential for hardware components, technology E&O insurance will also be necessary to cover software-related issues that can be remotely resolved and do not require physical recalls. Technology E&O insurance is often overlooked but will likely be an important safeguard against design flaws or malfunction-related claims for E-AVs.
- Ensure appropriate responsibility allocation
In recent accidents, drivers have been held liable when advanced driver assistance-equipped vehicles were in ‘autopilot’ mode. In such cases, traditional motor liability has continued to apply – owners must buy vehicle liability insurance and have been responsible for ensuring the working condition of their vehicles.
However, the adoption of autonomous features has led to a ‘shifting liability’ towards vehicle manufacturers, suppliers and technology providers, which assume increased liability risk as drivers become less liable for road safety. In situations where it can be proven that vehicles were maintained properly and the driver was unable to gain control of the vehicle, the OEM’s product liability exposure may increase when technological failures occur.
Recent legislative developments have reinforced this trend of shifting liability. For example, the UK passed the Automated and Electric Vehicles Act in 2018. Under this act, the vehicle manufacturer is held liable in cases where BIPD has occurred due to a collision with a ‘high or full automation’ vehicle. Drivers would then have the right to recovery against the insurer as a passenger rather than a driver.
- Mitigate cyber risk
As E-AVs are gradually deployed, fleet operators must also be wary of the increased cyber risk. Cyber policies with business interruption coverage will play a vital role in protecting operators and carriers against losses caused by cyber event-induced fleet disruption. OEMs will also increasingly want to ensure that cyber risks are appropriately covered in BIPD policies.
Data breach risks will also be a challenge. E-AVs and autonomous vehicles will be exposed to threats such as interference with communication equipment, distributed denial of service attacks, and sensor jamming. Cyber insurance across the whole value chain will be necessary to address the increased liability to third parties. Brokers and insurers will also need to provide affirmative coverage for these risks. They will have to ensure appropriate privacy measures are in place to protect the insured parties’ personal information.
- Leverage data to build better policies
It will take some time to issue policies at scale, as the risks must be quantified so that insurance can be priced appropriately. The accumulation of large amounts of data will be necessary to construct fair liability policies. Initially, insurers should look to assess autonomous technologies in freight transport and delivery. Fleet carrier hub-to-hub transport modes are more predictable and carry less risk.
- Adapt business models to the evolving ownership styles
E-AVs will influence vehicle ownership, with knock-on impacts on insurance structures. In the near term, E-AVs and associated hardware or software are likely to be expensive and may drive consumers towards leasing or shared mobility options. In this scenario, insurance models would have to move towards a B2B setup rather than having policies oriented towards an individual ownership model. Additionally, the reduction of personal motor insurance options would also impact traditional insurance solutions that aim to retain customers by bundling motor and home policies.
The road ahead
Actuaries need to keep pace with the development of autonomous safety features. This can also help insured parties understand the safety benefits of autonomous vehicles and E-AVs. This will be important when long-term insurance sales are impacted due to enhanced safety features that will reduce accident frequency, and thus premium value.
With governments starting to introduce measures that reflect the combined potential of EVs and autonomous vehicles, the telematics insurance industry can expect to grow significantly during the next decade – market research already estimates that the industry will be valued at almost US$14bn by 2030. However, the successful deployment of E-AVs is still largely predicated upon public acceptance.
At present, 60% of consumers have privacy concerns about remote vehicle monitoring, and most are unaware of E-AVs’ benefits. While manufacturers will be primarily responsible for securing public trust, insurers and risk management professionals will also have a critical role in shaping public perception. The insurance industry’s rigorous risk assessment methods and strict safety standards will build public confidence, improve profitability and pave the way for a future in which mobility is driverless and electrified.
Ben Hoster is a director of transformative technologies at Marsh McClennan
