ISO Emerging Issues Perspective
As vehicle capabilities change, insurance will likely need to adapt accordingly
By now most motorists probably have heard reports that driver error is the cause of more than 90% of accidents. Advanced driver assistance systems (ADAS) are expected to enhance vehicle safety through technology and automation—and could soon change that percentage.
ADAS features may include adaptive cruise control, automated braking, and warnings or alerts to help keep drivers within the correct lane or reveal blind spots. But what exactly is known about these advanced technologies, and will vehicles that use them prove to be safer than cars controlled by a human driver? What might this mean for insurance as vehicles evolve from having human operators to being self-driven and fully automated? How will advanced technologies affect underwriting and the way coverage is provided in the event of an auto accident?
Increased use of technological equipment, coding, and data may create
exposures for auto insurers that weren’t traditionally contemplated.
Let’s begin with what’s known to date. Electronic stability control (ESC) systems were introduced approximately 20 years ago and are generally required by the National Highway Traffic Safety Administration (NHTSA) to be installed in all applicable light-duty trucks and passenger vehicles manufactured on or after September 1, 2011, under Federal Motor Vehicle Safety Standard (FMVSS) No. 126. According to NHTSA, an increasing number of lives are saved every year when vehicles are equipped with ESC. NHTSA reported that ESC saved 2,202 lives from 2008 to 2010.
Autonomous braking
Forward collision avoidance systems may vary among auto manufacturers in their features and effects. The Highway Loss Data Institute (HLDI) shared findings from its examination of forward collision systems offered on Acura, Mercedes-Benz, and Volvo vehicles in July 2012. HLDI reported that property damage liability frequencies for Acura and Mercedes models were 14% lower when the vehicles were equipped with forward collision warning with autonomous braking. And for some vehicles—namely Mercedes and Volvo, which also offered versions of forward collision warning without autonomous braking—the effects weren’t as significant, although they did appear to lower crash rates. Lane departure warnings, however, generally did not bring improvements in safety, according to the study.
Although ESC has been available on some vehicles for two decades (and although FMVSS No. 126 required in part that all applicable passenger vehicles be manufactured with ESC over the last five years), according to vehicle data reported to Verisk Insurance Solutions, less than 80% of vehicles on the road in 2015 had ESC. How long will it take for other advanced safety features to become the norm on vehicles and ultimately affect insurance rates? Even a gradual transition to vehicles with advanced driver assistance systems can create challenges for insurers and the automotive industry as they seek to understand the overall safety effects of this technology.
Coverage changes
What will the road ahead look like with respect to the determination of liability and insurance coverage? Some vehicle manufacturers have stated publicly that they generally will assume liability for accidents caused by their vehicles operated in fully autonomous mode. Coverage currently provided should adapt and keep pace with the evolution of vehicles and any potential shift in liability. Existing state insurance laws, including but not limited to those related to vehicle ownership, need to be reviewed in the context of autonomous vehicles, as drivers look for changes in coverage. New exposures that may be specific to ADAS technologies need to be evaluated relative to coverage provisions generally available in current auto policies.
With more advanced safety technologies in vehicles and increased automation and data points, different exposures may need to be considered under auto policies that don’t explicitly address technology and/or cyber exposures. An increased use of automated equipment, coding, and data may create exposures for auto insurers that weren’t traditionally contemplated. A heightened potential may exist for hacking, including the intention to steal a vehicle, although recovery of stolen vehicles could improve with vehicle location services—unless, of course, a hacker is able to outsmart these services.
As technology advances, drivers may plug mobile devices and computers into a vehicle more frequently, with the potential to share data with the vehicle and ultimately create an increased exposure for personally identifiable information (and possibly an enhanced business exposure). Whereas it may have been common historically for insurers to offer physical damage coverage at additional cost for a vehicle’s aftermarket electronic and customized equipment, coverage for such equipment with ADAS features likely will need to be reevaluated.
Sophisticated equipment may increase vehicle prices and the cost of repairs. But if the equipment contains aftermarket features to automate and enhance vehicle safety, will a potential reduction in frequency prompt insurers to look at this equipment differently?
Analyzing the effects of aftermarket equipment that isn’t part of the original manufactured vehicle can create significant challenges.
Drivers and insurers alike have seen an evolution of vehicles since Carl Benz applied for a patent on January 29, 1886, for his “vehicle powered by a gas engine.” More than a century later, Toyota unveiled the Prius as a mass-produced hybrid vehicle powered by electricity and gasoline. Likewise, safety equipment has evolved from seatbelts to airbags to ESC and onward to advanced collision avoidance features, such as pedestrian detection and automatic braking.
What will the next century bring? As the capabilities of vehicles change, insurance likely will need to adapt accordingly.
The author
Sandee Perfetto is director of personal auto product development at Verisk Insurance Solutions, a Verisk Analytics (Nasdaq:VRSK) business. To learn more about insuring autonomous vehicles, contact her at sandee.perfetto@verisk.com
