Barry Sheehan of the the University of Limerick delivered an intriguing presentation at IBIS Ireland 2017 on the future of autonomous vehicles and the impact it will have on insurers and the process of underwriting.
He began by pointing out that there are 40 000 fatalities on European roads each year, and 1.5 million injuries. He said that as a result innovation today was about making cars safer, citing technologies such as advanced driver assist systems (ADAS) and autonomous emergency braking (AEB), whereas in the past manufacturers used to focus on making cars faster and better looking.
Achieving that safety goal, manufacturers are taking the function of driving away from the driver. “That’s a good thing,” added Sheehan, pointing to the fact that more than 90% of accidents are caused by humans. However, he said that even if autonomous driving reduces collisions by 90%, motorists shouldn’t expect policies to reduce by 90% as the cost of repairs will significantly increase due to the technology built into cars. But that technology, available now and coming tomorrow, will have a huge impact on motor insurance – and motor insurers. The University of Limerick is researching future underwriting models that take that into account, examining how underwriting will change as the factors influencing risk evolve.
Among those factors, Sheehan highlighted split risk exposures. He said that liability will shift between the driver and the software during a single journey. That means that insurers can no longer just look at traditional factors such as the age of the driver, location, type and age of car. Instead, they need to consider new threats such as cyber risk, software issues and sensor failures.
He said that the UK approach is to legislate that insurance policies must provide cover for collisions when the driver is liable and when the software is liable, and that he expected other authorities to follow suit.
Other factors insurers need to consider in underwriting are emerging risks. “Can the computers fail?” Sheehan asked. “Yes.” He also raised an interesting point about the general maintenance of the car suffering as a result of autonomous technologies creating a detachment between the driver and the car. He said that insurers need to consider that, as responsibility shifts from the human to the vehicle, the driver might not take as much care in the vehicle as before. Product recalls, Sheehan continued, is also a growing factor. Recalls have increased every year since 2008 and that is likely to continue. “Recalls have the same impact as a catastrophe,” he said, adding that the future is not a certain landscape. “There are known unknowns and unknown unknowns, things we don’t know about yet. Greater collaboration between insurers and manufacturers is key to the widescale deployment of this type of technology. And insurers need to use the data to be more proactive than reactive.”