Driverless cars will force insurers to look towards different areas of risk

The primary societal movers of the development of the self-driving car are safety and the environment.

An automobile run by a machine will be more fuel-efficient and less polluting than one driven by a person and it is expected eventually to practically eliminate road accidents. Therefore, an important collateral benefit of the car’s evolution to autonomy should be a reduction in insurance premiums, as insurers take stock of the effects of advanced driver assistance systems (ADAS) on road safety.

In fact, this is already occurring, says Andrew Miller, chief technical officer at Thatcham Research, the independent motor insurers’ automotive research centre. “ADAS is already lowering rates,” he says. “These first steps are based on the emerging data on the effectiveness of AEB [advanced emergency braking] systems.”

He says that various studies, carried out in the US and by Thatcham, showed that vehicles equipped with autonomous emergency braking systems reduced accidents by up to 20% compared with similar vehicles without AEB. In addition, there was a 7 to 10% reduction in all insurance claim types and a 20% reduction in third-party damage.

Kamalesh Mohanarangam, senior analyst in chassis, safety and ADAS at Frost & Sullivan, says data provided by the US National Highway Traffic Safety Administration (NHTSA) showed that  Volvo’s City Safety braking system is capable of reducing claim frequency of bodily injury by 33%, property damage by 15% and collision damage by 20%.

“The NHTSA proposed adding automatic emergency braking to the list of recommended advanced safety features included in its New Car Assessment Program,” he adds. “As a result, 10 major vehicle manufacturers committed to making AEB a standard feature on all new vehicles built.”

The British insurance industry has also recognised the benefit of AEB, he says, “and cars with AEB as a standard fit already qualify for a reduction in vehicle insurance grouping of up to 5 groups. This amounts to a premium reduction of about 10%.”

This development in the UK is largely owing to research conducted by Thatcham. Miller says that Thatcham showed their data to UK insurers. “They saw the potential benefits and this is reflected in current insurance rates.”

Thatcham plays a vital role in helping insurers decide whether to offer premium discounts and how much, which is based on the ADAS technology installed in the vehicle. “We can assess how good the systems are,” Miller explains. “We rate the safety of the cars by testing them on a track. The insurers then decide on how much of a reduction this variant of car receives. The typical reduction is 10%.” This process has been in place since 2012.

Insurers in Australia and Germany have also begun to offer premium reductions based on ADAS, he says, and many insurers in the UK are now considering the step. In addition, carmakers such as Mercedes-Benz are beginning to use these discounts as a sales feature.

Mohanarangam says Volvo Car’s insurance partners are offering premium discounts of 20 to 25% to cars equipped with AEBand Subaru Australia has signed a deal with an insurer to offer 20% discount on insurance premiums for models fitted with its EyeSight pre-collision braking system.

“Insurance companies are waking up to it,” he notes. “Major insurers will start offering reductions in the next couple of years.” He adds that AEB has been particularly effective in preventing crashes “because most crashes are related to rear-ending”.

Thatcham’s Miller cautions, however, that not all ADAS features launched in the future will lead to more discounts. “We have not seen any significant benefits from adaptive cruise control, which is more of a comfort feature,” he says. “But lane-keeping assistance, road departure warning and automatic emergency steering could all lead to insurance benefits in the future.”

And Thatcham is now developing a test for rating automatic braking for very low-speed manoeuvring, such as parking, and quantifying the benefits. This work includes discussions with international auto safety researchers.

“As cars become more autonomous, it will be reflected in [insurance] pricing,” Miller says. “If we can show that risks come down, we’ll see a reduction in premiums.”

He expects this development to accelerate as more vehicles on the road are equipped with ADAS. “When you get a fleet effect, it increases the quality of the data. We expect the data to show significant benefits.”

Mohanarangam is less optimistic about a continuing drop in auto insurance premiums. He says lane-changing and parking were not frequent crash scenarios. “Assisted parking could eliminate fender-benders but this will not lead to significant reductions in premiums,” he explains. “I believe only when the fully autonomous cars are introduced into the market will there be the next significant drop in premiums.”

According to Miller, when the car has reached full autonomy – what the SAE has defined as Level 5 automation – the nature of the insurance will change completely. “Effectively, it will be product liability insurance,” he says. “When you own a Level 5 car, all you do is tell it where to go. You have no control over it. The ability of the car to take me there, without injuring myself or a third party is a product liability question. You may want to insure it like you do a house.”

Mohanarangam says the introduction of autonomous vehicles, as well as changes in the nature of car ownership, will lead to a significant drop in insurance revenues from premiums. “Insurers will be collecting lower premiums going forward,” he says. “They will compensate for this somewhat with revenues from carmakers and systems suppliers, who will be insuring their products to cover product liability.”

One issue that will need to be resolved as the car evolves to full autonomy is who is responsible in case of a crash involving a car where the driver and the car’s autonomous systems share the driving, especially at Level 3, which the SAE defines as “Conditional Autonomy” and where the driver is no longer required to monitor the driving environment and serves only a “fall back” function.

The questions to be answered in this case, Miller says, are if the crash was the result of a system failure or if the driver interfered in the system. “The question will be proving liability afterwards, with proper accident reconstruction capability. Insurers are starting to look at this situation now. And the car industry is starting a dialogue now with insurers about how data is provided around these types of incidents.”

Mohanarangam agrees, saying: “It’s totally necessary to have an accident reconstruction system in the car to ascertain who is at fault, the vehicle or the infrastructure, in case of an accident.” However, he expects the autonomous systems to function virtually flawlessly, with a negligible failure rate, because carmakers will build in backup systems.

“For example, when Nissan launched its steer-by-wire system, it had two backup systems which take over in case of failure,” he explains. “Even if the second system fails, the third will take over and the driver will be alerted to park the car. This is how future autonomous systems will be backed up. So the chances for a complete systems failure will be negligible.”

However, recent announcements by two major Japanese carmakers – which will certainly give insurers pause – suggest that we are still years away from fool-proof safety systems. Earlier this year, Honda and Subaru recalled tens of thousands of cars because of issues related to their AEB systems.

In the case of Subaru, the manufacturer found that a fault in a brake light somehow disabled its EyeSight AEB systems in several 2015 and 2016 models, while the AEB system in two 2014 and 2015 Honda Acura models interpreted certain roadside objects, such as guardrails and fences, as road obstacles and applied emergency braking unnecessarily.