Autonomous Tech Costs Could Reshape Auto Insurance Risks

Insurance is a key topic surrounding who will be liable for the safety and repair of autonomous vehicles but the legal intricacies could be far more complex than many realize.

Today drivers sue each other over accidents; tomorrow court dockets might be overflowing with cases involving carmakers suing other carmakers. “AV is interesting technology because we’re not just going to wake up one day and all the vehicles will be autonomous,” said Jonathan Hewett, global chief marketing officer of Octo Telematics. “We’re entering what we think of as a very long parallel where, for many years, we’re going to have some autonomous vehicles and semi-autonomous vehicles, connected cars, traditional cars, pedestrians, bikes, scooters. You name it, it’s going to be out there. In essence, what’s happening is greater complexity. When you have complexity, it is more data to deliver more insight to understand more about what’s going on.”

That understanding won’t come easily. Hewett said that it will be essential for manufacturers, suppliers and software developers to know where the liability falls. He speculated about the challenges that will follow when one automaker’s AV crashes into another. “Of course, some of these claims could be very substantial and very significant so we can’t just be guessing at why the accident was caused or where the liability should sit,” said Hewett. “We should know, and certainly the analytics capability is there to know fault.”

Insurance of tomorrow

Could autonomous vehicles usher in a world so safe that insurance is no longer needed? Probably not but the industry will have to make many changes if it expects to survive.

Hewett explained: “There’s always going to be risk. The critical risks. Not the fender-bender but when somebody has a serious accident involving a pedestrian or what have you. Insurers are going to need to have greater flexibility in how they underwrite autonomous, semi-autonomous and ADAS features, which is probably the next wave we’re getting to, and how they underwrite a traditional car.”

Driving functionality is not the only factor that will determine how future automobiles are insured, however. Hewett anticipates a massive change in the repair structure as vehicle materials evolve.

“Consider that a traditional vehicle is mostly metal and glass,” he added. “The body shops are built around making those repairs. When we have more use of plastics and advanced materials (particularly LiDAR and camera technology), when a vehicle is damaged in whatever way, all of that stuff needs to be reset and realigned to make sure it works correctly. That is a very different repair model. Given that 80% of the total cost base of an insurer relates to claims costs, while the frequency of accidents might go down, claims costs are probably going to remain around the same in terms of total content.”

Hewett further clarified his estimate, stating that while he believes the frequency of accidents will decrease, autonomous vehicles will cost much more to repair. This will increase the repair fee at the unit level, maintaining (if not increasing) insurance premiums. “I think, maybe, the independents are slightly more challenged,” he said of mom-and-pop repair shops. “I think the repair industry is on a very rapid reinvention journey. There is insufficient capacity going forward. I think it’s really about being cognizant of the changes that are coming and preparing – future-proofing – business for the coming years.”

Data wanted

Hewett said there are three data points insurers and automakers need most: driver behavior, crash detection/prediction and the ability to reconstruct an accident.

“Then we start to get into the ability to interact with drivers in a better way through digital interfaces, typically our smartphones,” he said. “Then the next layer comes into the data coming straight from the CAN bus of the vehicle – things that can inform, preventative maintenance, or diagnostics of the vehicle. Or, based on how somebody drives, inform the price somebody should pay for a warranty. If you’re a tough guy on the brakes, perhaps your warranty should cost you more than if you’re a smooth driver. So, it’s that combination of the driver inputs and the outputs of the vehicle that show the most valuable datasets.”

While the amount of data will continue to increase, Hewett said the real goal is not simply to gather and process it but to evaluate the insights and decipher what it all means. “Understanding the dynamics of an accident allows the insurer to very quickly close a claim,” said Hewett. “They know the type of damage, what they should be paying, how long it’s going to take to repair and get that vehicle back on the road. It’s really all about the intelligence that you take from the vast amount of data and understanding what is important and what is not.”

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