The end of car insurance

The more driverless cars roam the streets, the less insurance deals are closed

The road to a world of fully automated cars is close at hand. Google and Tesla are in the driving seat, but plans to build driverless vehicles are being looked at by most car and truck manufacturers.

According to analysis by Autonomous Research, fully autonomous cars will be a commercial reality by 2025, with 80 per cent of cars produced either partially or fully autonomous by 2050.

But what are the implications for motor insurers? Autonomous Research’s analysis reveals that motor insurance is big business for the industry, representing 42 per cent of global premiums. So, if nine out of 10 crashes are down to human error, “taking the human out of the equation will ultimately shrink the market for motor insurance”, said the report. The analysis also says claims frequency will drop from 9 per cent at present to 2.4 per cent by 2060, with the global average motor premium falling from $541 to $334.

However, insurance will continue to play a role. A recent Lloyd’s of London report said some element of risk would be retained by the owner of a driverless car. “Damage or theft can still occur when a car is parked in a driveway, and for the present at least, cars with semi-autonomous capabilities are more expensive than their traditional counterparts,” said the report. “It is possible that this risk could become part of a household contents policy coverage.”

Read more: Driving the changes

Insurers could also assign more liability to manufacturers, especially if a point were reached whereby users were no longer expected to even oversee the autonomous driving of their car. “If such changes were to occur, motor insurance could change substantially to be something more like product liability insurance,” the report continued. “Insurers would need to know less about the users of a car, and more about different models of cars themselves.”

“The technology in automated vehicles has the potential to drastically reduce the number of accidents on our roads but they will still occur” – David Williams, Axa UK

David Williams, Technical Director at Axa UK, added: “The technology in automated vehicles has the potential to drastically reduce the number of accidents on our roads but they will still occur. So as long as people continue to own their vehicles there will still be a third-party element to any insurance policy. Once you move into a fully automated car, which is essentially a mobility service where the only human input is the selection of the destination, then the company operating the vehicle will have an all-encompassing commercial policy.”

He says that as the technology becomes more widespread and there are fewer accidents, less severe injuries and damage then premiums will reduce to reflect that.

“We would also expect to see greater parity across existing segmentations, with premiums falling for younger drivers but also a potential rise in new customers who are currently unable to drive,” Williams states. “If there is an accident involving an automated vehicle there will be an effective strict liability on insurers to pay out in the first instance. We will then look to existing rights of recovery, such as negligence and products liability, should it be the case that it was a software or system error while the car was in automated mode. The data that is collected by these vehicles should make it easier to determine liability. Motor manufacturers must understand the need to share data – such as whether the car was in automated mode or manual and when the last ‘driver’ interaction was.”

AXA is involved in five UK government-backed trials into driverless cars, including Venturer, which is assessing insurance and legal implications. “This has allowed us to consider the implications of the handover period for vehicles that will be capable of driving in manual or automated mode and the emerging risks posed by cyber-security and data collection and protection,” Williams explains.

This article was published in our Business Reporter Online: Future of Insurance.
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