Insuring Autonomous Vehicles: Laying the Foundation
By Jared Smollik, Actuarial Director of Personal Auto Product Development
It's no longer a question of whether fully autonomous vehicles (AVs) represent the future of vehicular road travel. Their arrival is imminent and, in many ways, has already begun. However, a myriad of questions—many of which cannot yet be imagined, let alone answered—remain. Nevertheless, we can and should begin evaluating some of the implications with the advent of autonomous vehicles. Doing so from the perspective of their impact on the insurance industry can be particularly revealing and could position attentive insurers for success in addressing related exposures in both the near and long term.
Today's manually operated vehicles (MVs) are already approaching autonomy as collision avoidance systems and other new technologies evolve and become standard in more and more vehicles. While fully autonomous vehicles are not yet available to consumers, we have reached Level 2 on SAE International's AV taxonomy. According to SAE, Level 2 is where the vehicle is still generally regarded as being manually operated; however, under certain conditions the operator has been relieved of responsibility for some control functions and is still expected to perform other aspects of the driving task. For example, there are vehicles that may be driven semi-autonomously on highways by employing automated lane centering and adaptive cruise control, but the operator is still responsible for responding to some events.
There is no shortage of opinions as to when AV technology will reach Levels 3, 4 and 5 of the SAE categories. The primary differences in these three levels are whether the vehicle must transition to manual operation during safety-critical situations and whether the vehicle will request that the driver intervene. Some manufacturers reportedly want to have Level 4 vehicles available to consumers by 2018.
However long this transition takes, we need to begin thinking about how AVs can revolutionize the landscape well before the majority of vehicles on our roads are self-driving. The interaction between the first AVs and existing MVs, which may be vastly different from anything the industry has seen before, is the next major challenge for auto insurers.
Autonomous vehicle software is expected to have far quicker reaction times as compared with a human operator, and won't be distracted or fatigued. These AV properties will likely contribute most to the changes in the auto exposure considerations, but there are other characteristics to keep in mind as well, such as technology and repair costs, likely increased driving speeds, and changing traffic patterns. How these, and other characteristics, will impact rates is a matter for thoughtful consideration, especially since data, one of the main tools for determining pricing, is relatively scarce for autonomous vehicles and otherwise mostly speculative.
The changing exposure with the advent of AVs will also potentially lead to changes in coverage, regulation, and insurability. Who is responsible in an accident when a computer is operating a vehicle? Traditionally, fault can often be attributed to human operator error, but what if the software is operating exactly as intended? Matters of fault and liability are also often dictated by the applicable law, but statutes, regulations and case law currently generally do not contemplate self-driving cars and trucks. How will the legal framework change so that these matters can be reconciled? Will this occur on the federal or state level? And how will insurance adapt to such changes?
Another crucial piece to the autonomous vehicle puzzle is how they will fit into society itself. In 2014, about 260 million vehicles were registered for use on U.S. roads2. Of that number, most were covered by personal auto insurance, indicating that the majority of vehicles are individually owned. However, many believe that AVs will shift this paradigm. Already, we see the sharing and on-demand economy changing our behaviors and expectations as a society. Will people continue to purchase their own vehicles in the same numbers? Will we even need so many cars on the road? Or so many roads? Will changes need to be made regarding how AVs are insured based on who is more likely to own a self-driving car?
During the coming months, we plan to share some of our insights about autonomous vehicles and their potential implications for the property/casualty insurance industry, from coverage and rating considerations related to AVs to their perceived effects on the insurance market. Please be sure to visit the site regularly for additional content.
1SAE International. (2014). Automated Driving: Levels of Driving Automation are Defined in New SAE International Standard J3016 [Press release]. Retrieved from http://www.sae.org/misc/pdfs/automated_driving.pdf
2U.S. Department of Transportation, Federal Highway Administration (2014). Highway Statistics.