Insurance risks abound even in a robotic world

Mariel Devesa, head of product innovation for Farmers Insurance, is keeping a close eye on the many changes within the auto industry. Automakers are slowly evolving into technology companies, and many of them are becoming mobility service providers. This presents a host of liability challenges for drivers, passengers and automakers. If a car is hacked, for example, who will pay for the repair? How will cars be insured for that?

Said Devesa: “I think it’s really a question of, legally, whose responsibility is it and who takes the blame? Is it the auto manufacturer, software maker, hardware manufacturer? Who’s at fault? I think there’s a lot of questions that still need to be addressed. Cybersecurity will be a big question, as well as who takes the liability.”

Devesa noted that some manufacturers, such as Volvo, have said they will when their autonomous vehicles screw up. Others have yet to make similar promises. “Those are very different operating models,” she said. “If a catastrophe were to happen, if one were to hack into a whole fleet of cars and turn right and hit the accelerator, what happens then? Does an OEM have the funds to be able to support such a catastrophe? We haven’t seen it yet, so I think there’s a lot that needs to be worked through.”

Innovation and disruption

In trying to solve the problems surrounding connectivity, autonomy and cybersecurity, Devesa said that Farmers has looked at what others have achieved.

She explained: “I think that Farmers has taken the position of being very open to innovation and working with disruptive companies. We had a leadership role in ride-sharing and developing the first mainstream product that was rolled out for ride-sharing drivers. We also helped create the structure for legislative reform that then created the laws that were enacted that allowed our product to exist.”

Devesa expects a similar path for car-sharing services and autonomous vehicles. “Full autonomy is very simple because it changes the risk from more of a driver/human error to more of a mechanical/technical error,” she said. “That’s a shift from personal to commercial. More complicated is in the middle: when a driver has to take over, is that more of a risk or less as it gains autonomy? Because then a person isn’t driving as much, so maybe their reflexes aren’t as good. Maybe that means there’s more accidents. Well, who’s at risk? Is it the driver? Is it because the car didn’t alert the driver well enough, so it’s the car? Is it really the car or is it the driver?”

A different kind of insurance

There have been many discussions regarding how insurance fees may change when autonomous vehicles arrive but Devesa sees it as more of a shift in function, not a rate adjustment. “I think if you choose to drive a car then your insurance may be similar to what we have today,” she said, referring to the time when autonomous vehicles are available. “But in the function of an autonomous vehicle, where the driver is no longer in the car, then that is a different set of insurance, it’s a different way to think about insurance.”

Devesa added that she personally knows “many people” whose kids no longer own a car. “They just have an Uber [account],” she said. “And the reason for that is because they are weighing the total cost of ownership [and] insurance versus an [Uber] account. It’s not something you would have thought about or even contemplated a few years ago.” She added that if the price of owning a car increases while the cost of sharing declines, more consumers will wonder if they should switch to a mobility service.

Big expense

Consumers may not always directly buy insurance, however. Some automakers could end up paying that bill if they follow through on their promise to accept liability for autonomous vehicles. Devesa said this adds up to “pretty big numbers pretty fast” for car manufacturers. “In ride share there were clearly defined rules that came in as to what periods of time are covered, what are the minimum liabilities needed, who’s responsible for that,” she said. “I think that as we move more and more to autonomous, we’ll likely see similar language or some sort of legislation.”

Devesa does not want politicians to work on this alone, however. She added: “I think what works best is when industries come together to come to a solution. I think that worked with ride share. Politicians need to solve something but it is in our best interest to be at the table, designing what that looks like to ensure that we can actually execute on it. It’s not just an insurer’s decision, it’s not just an OEM’s decision – it’s the combination, and then saying, ‘How do we mutually solve a problem?’”

When asked what Farmers’ role is in getting to that point, Devesa said the company is “constantly in conversations.” “I think it’s being open and being participatory to find a solution, [that] is key,” she said.

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