Autonomous Vehicles and the Future of Auto Insurance
Laura Maxwell

Autonomous Vehicles and the Future of Auto Insurance

On March 18th a transportation network company’s (TNC) self-driving car hit and killed a woman in Arizona. This crash brings up insurance questions similar to those generated by the December 31, 2013 fatal accident that first brought the issue of ridesharing and insurance into the spotlight. Transportation network companies wanted personal insurers to cover the exposure, but insurance industry trade groups believed commercial insurance should apply from app on to app off. This led insurance trade groups, insurers and TNCs to develop a compromise model bill. Since then, 48 states and the District of Columbia1  have enacted TNC legislation. It also prompted insurers to create new products for TNC drivers.

The Casualty Actuarial Society’s Ratemaking and Product Management (RPM) Seminar opened with a discussion of the future of auto insurance and addressed the March 18th crash. Don Mango of Innovensure Advisory Solutions LLC moderated the panel, with Matthew Moore of the Highway Loss Data Institute, State Farm’s Chris Mullen, Thomas Karol of the National Association of Mutual Insurance Companies, and Root Insurance Company’s Alexander Timm.

The panelists debated the crash’s impact on the public’s acceptance of autonomous vehicles. Root’s panelist was highly optimistic the accident would have very little impact, while State Farm’s panelist felt the emotional reaction to the victim’s death would cause those against self-driving cars to be even more adamantly opposed to them, and many of those on the fence to be swayed toward the skeptical side.

One concern was the lack of standardization across manufacturers. The panelists felt drivers might become reliant upon the safety features of their cars, with software upgrades or driving other vehicles increasing their risk of unsafe driving. The speakers also discussed the sensors that autonomous cars use. A slight crash with no visible damage might dislodge a sensor, which would reduce its accuracy. The sensors’ performance could also be reduced by their uncleanliness.

What type of auto insurance will be needed for future autonomous vehicles? Who will be responsible for an autonomous vehicle accident – the owner, the manufacturer, the software developer? Or if the vehicle is owned by an autonomous TNC, what is the passenger’s responsibility?
  • Owner – The owner is responsible for maintaining the vehicle and lack of maintenance could decrease the effectiveness of its autonomous features.
  • Manufacturer – Is this product liability?
  • Software – Is this product or cyber liability?

Unlike ridesharing insurance issues, there is time to develop solutions to autonomous vehicle insurance questions. Even once autonomous vehicles are no longer in testing mode and are available to the general public, it will take decades for them to dominate the roadways. The average vehicle on today’s road is over 11 years old, and that lifespan is increasing as technology improves. Enhanced technology reduces crashes, and thereby the need to replace your vehicle. Moreover, autonomous technology will start out as an expensive option before becoming a standard feature, prolonging the time before a majority of vehicles have autonomous features. Before then, regulators may need to develop guidance while insurers revise policy forms and consider developing new products. The first step may be for the insurance and automotive industries to develop another compromise model bill.

Laura Maxwell is a Senior Consulting Actuary with Pinnacle Actuarial Resources, Inc. in the San Francisco, California office. She has 30 years of actuarial experience in the property/casualty insurance industry and has provided consulting services since 2003. Laura is a Fellow of the Casualty Actuarial Society and a Member of the American Academy of Actuaries. She currently serves the Casualty Actuarial Society (CAS) as a member of the Examination Committee, Chair of the Webinar Committee and Secretary/Treasurer of the Casualty Actuaries of the Bay Area.

1 Property Casualty Insurers Association of America website as of June 27, 2017
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