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Is the future of auto insurance at risk from fewer accidents?

18 September, 2019

Only a most dedicated futurist would stick their neck out to make predictions. While auto insurance is changing all the time, is it at risk because of fewer accidents? The answer is we do not know if there will be fewer accidents. And even if there were, insurers will be well placed to mitigate any risks to their profits.

Autonomous vehicles and risk

If you believe the hype, autonomous vehicles (AVs) will create safer roads and very few crashes. If widely adopted, says Insurance & Risk Professionalthey could have a major effect on the insurance industry. However, much of what is being said about AVs is just ambitious speculation.

Studies show human error causes 90% of all crashes, which suggests traditional cars are 10% responsible. By taking humans out of vehicles, AVs must take on the astronomical risk of being 100% responsible for all crashes. Will insurers or auto manufacturers be willing to take on that level of responsibility for these vehicles?

Some manufacturers have said they would. Mercedes Benz and Volvo claim manufacturers should be responsible for injuries or damage caused by faults in driverless vehicles. However, this would be a product liability claim, not a claim for personal injury.

Compulsory third party insurance is required to register vehicles in Australia. Like Personal Injury in the US, it covers vehicle owners and drivers who are legally liable for personal injury caused to any person in the event of a crash. But it is based on a driver being in control of the vehicle. There needs to be a fundamental change in legislation all over the world to accommodate vehicles without a driver.

It is still too early to say whether AVs are safer than human drivers. In fact, there could initially be more serious injuries because of catastrophic failures of AV systems. Insurers could see more claims for serious and minor injuries from people who would otherwise have died. Meanwhile, system failure or cyber-risk could contribute to the long-term trend in psychological injuries.

One day, premiums could fall generally for highly automated vehicles, if they are relatively safer than human operated ones. But insurers need solid actuarial evidence before they can consider adjusting risk rating factors.

Advanced driver assistance

One early indication of auto risk comes from insurer experience with advanced driver assistance systems (ADAS). While ADAS has the potential to reduce motor accidents by up to 25%, insurers say they do not have sufficient data to validate these promises. They lack detailed information on models with these features, safety standards are inconsistent, drivers use them in unpredictable ways, and repair costs are considerably higher than for vehicles without them.

So no insurer has been offering discounts for ADAS. This is why Swiss Re is currently developing a global ADAS risk score and a way for carmakers to supply data, so it can then recommend discounts to auto insurers. 

While this is a good start for ADAS, it is very long way from a vehicle that fully drives itself. It will be years before insurers have the kind of detailed, consistent and credible information they need about the risks of AVs causing accidents. So it is unlikely the insurance industry would consider itself at risk from fewer accidents anytime soon.

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