Robots will transform motor insurance,but risk appetite might determine how fast

New technologies have the capacity to change the world and make everyday life a little easier. However, there are times when public opinion lags behind the latest developments, such as placing one’s trust in a driverless car.

For many, the concept of getting into a car that has no visible driver is an alien one; for others it’s the inevitable culmination of years of technological advancement. One thing is certain—driverless cars will have a profound impact on the motor/auto insurance market.

In Intelligent Insurer’s latest poll of online readers, we asked what they thought about driverless cars. We started off with a basic question to test overall enthusiasm for the very concept: “Would you be willing or unwilling to ride in a driverless car, or would you wait until the technology advances?”

Some 46 percent said they would be willing; almost 54 percent said that they would not.

We asked respondents to explain their answers and they covered a wide range of angles, from the enthusiastic to the caveat-intensive.

Loyd Esler, managing director at Marsh, said that driverless cars could be comfortable, in that they would be safer than drivers juggling phones, food and children in their cars while driving.

Elizabeth Kramer, executive technical director, casualty at Zurich NA, was more cautious, saying that she would be willing to ride in driverless car under certain conditions—on private roads, public roads up to certain speeds, and with appropriate vehicle safety. However, she added, she would be less likely to travel in an open air vehicle, at higher speeds and in higher congestion.

Robin Walsh, head of UK & International at Hiscox, said: “I am relatively confident that these will not be released to the general market until all testing has been completed to the satisfaction of the regulatory authorities.”

A mixed bag

Some of the comments from readers were given anonymously. One respondent was willing to ride in a driverless vehicle as long as there was the ability to take over the controls at a moment’s notice. Another said that any travel would need to be on certain roads only, such as motorways.

Some answers were positive but extremely cautious. One would be willing to travel in the car if it were off the road and on a track where no other objects could impact. And another was pragmatic: “The only thing scarier than a driverless car is a car driven by a human.”

A common thread linked all the unwilling people—a reluctance to believe that the technology has been perfected yet, and they would rather wait until it is.

Peter Foley, managing partner at Lilcha, agreed that technology is evolving rapidly but pointed out that many advancements are still pending. He also expressed concern over the potentialfor hacking into the system.

Thomas O’Connell, senior vice president at HUB International Midwest, said the technology has not yet been thoroughly tested, while Tim Driskill, CEO of Insurica, made a similar point, saying he did not believe the bugs are worked out yet.

There was also reluctance to cede control from the driver to the artificial intelligence (AI) that drives these cars. Victor Ireri, claims officer at First Reinsurance Brokers, said: “I believe my motor skills are better than those of an AI, and there are situations that call for human intervention insofar as self-driving is concerned.”

Robert Arvanitis, CEO of Risk Finance Advisors, brought up a slightly different point. “I am unwilling until we sort out the notions of ‘hierarchy of life’—the issue of what the AI driving a car prioritises in terms of human life in the event of a crash,” he said.

“Only I will ever be in control of sacrifice for others. More important, it’s unlikely we’ll ever see human and AI on the road together. An AI will need to be far more sophisticated to play ‘bluff-and-signal’ with humans.”

Many of the anonymous comments from those who were unwilling centred on that same distrust of the technology. One reader said more years of testing are needed to programme more driving scenarios into the AI. Another pointed out a more practical objection, saying that the existing infrastructure (roads, signalling, etc) is not compatible with driverless cars, which are a totally new concept in travelling.

A fundamental change

We also wanted to know what the impact of driverless cars would be on the motor insurance market. We asked: “Will the advent of driverless cars transform motor insurance and affect prices?” The results were Yes: 94 percent; No: 6 percent.

Zurich’s Kramer gave a detailed comment. “This will take longer than most consultants are predicting, and the period with humans and driverless vehicles sharing roads will come with separate risks, but where we can have higher penetration of self-driving vehicles, this will transform how people use and pay for mobility,” she said.

“Short term insurance will be on a more individual basis, depending on the car and the driver. More expensive cars will increase costs because of the exposure in covering them—the cost/exposure calculation that every insurer makes. Longer term, it could shift liability to manufacturers or those controlling vehicles (transportation network companies, municipalities, subscription services).”

First Reinsurance Brokers’ Ireri said that driverless cars could send motor insurance prices either upwards or downwards, until the market has more exact statistics from self-driving cars. At present it lacks information about how safe they are at driving and if they are involved in any accidents.

The anonymous comments were all in the ‘Yes’ column, with some being quite negative, such as the reader who wondered whether we will need motor insurance anymore if people are less able to drive a car and take over if the car goes out of control. “It’s more a product liability concern in the future,” said the respondent.

Another pointed out that the combination of driverless and driver-operated vehicles might bring problems that today are not fully understood. The respondent added: “I can envision driverless vehicles being ‘too good’ on roads (complete stops at stop signs, keeping to speed limits exactly regardless of road conditions, basically driving so safely they become a road impediment of sorts).”

The potential for complications was stressed by others. One reader said that assuming all cars are driverless, the liability will be transferred to the manufacturer/operator of the network. They pointed out that current pricing reflects, inter alia, perceived riskiness of a driver and the probability of that driver crashing.

“This will be replaced by an assessment of the car/system. More complicated will be the likely many decades when driven and driverless vehicles coexist.”

The time factor was also mentioned. Driverless cars are new technology and given the reluctance to trust them just yet, it was stressed that over time this reluctance will decrease as car owners become more familiar with the technology.

One respondent stated: “Prices may increase at first as the technology develops, and the interplay between auto liability and product liability will be interesting.

“If safety features/experience improvement bears out over time, auto liability prices will decrease but it will take time. Product liability prices for manufacturers may increase in the short term as well.”