Korean Auto Insurers Grasp the Autonomous Nettle

By Graham Jarvis

TU-Editor

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26th November 2020

South Korean insurance companies are to start to sell autonomous vehicle insurance.

Korea Bizwire said in September 2020 that South Korea’s regulator: “The Financial Supervisory Service announced that the nation’s 12 non-life insurance companies will start selling new insurance products that can cover the risk related to accidents involving commercial self-driving cars from late this month.”

Reports suggest that the country has established the legal foundation for the commercialization of Level 3 autonomous vehicles. By revising the country’s Act on Compensation for Car Damages, insurance companies will be able to sell insurance products for self-driving cars – beginning with policies for commercial self-driving cars. The website reveals that it becomes effective as of October 2020; “Following the Ministry of Land, Infrastructure and Transport’s establishment of safety standards for self-driving cars and the revision of the Act on Compensation for Car Damages.”

Personal ‘self-driving cars’

The business newswire adds: “The insurers will likely cover personal self-driving cars after reviewing market trends next year. The insurance policy for commercial self-driving cars will have a specific clause that requests the indemnity to be paid by carmakers when accidents occur due to defects in the self-driving mode.

“The insurance rate for commercial self-driving cars is set at a level 3.7% higher than that for general commercial vehicles given that new risks such as system defects and hacking must also be taken into consideration.” The self-driving vehicle policies will have a specific clause requesting indemnity “to be paid by carmakers when accidents occur owing to defects in the self-driving mode”.

Establishing a committee

With safety being a key consideration, through the amendments to their legislation, Dr Andrew Jackson, CMRS, Research Director at Ptolemus Consulting Group, says South Korea is establishing a committee to enable them to force connected and autonomous vehicle (CAV) manufacturers to indemnify any claims or victims whenever the vehicle rather than the human driver is found to be at fault.  He adds: “There have also been amendments to make sure that if the vehicle operated is in an accident, the insurance company must notify the investigation committee and provide any data that the committee requests from its insurance telematics devices (i.e. black boxes).

“The committee examines any accidents that occur and safeguards whether the motorist has acted negligently or if the vehicle has malfunctioned. Looking at the way the wording is shaped it would seem that legislation is trying to clear up where responsibility should lie and where a legal decision needs to be made. It is taking a pragmatic approach to work out which party is likely to be liable. “  

Setting the trends

Jackson believes that South Korea is “absolutely setting the trend”. The race at the moment is between China, North America – particularly the US and South Korea. He says they all have been aggressive in their policy to achieve a strategic position, adding that “South Korea’s AV strategy goes back 10 years”.

The nation’s momentum in connected and autonomous vehicles (CAV), including from an insurance perspective, has been driven from a governmental perspective. Its government wants to be a market leader in this space. Jackson adds: “Their first goal is to deploy Level 3 vehicles by 2021 commercially, and they want to achieve Level 4 by 2024, and then by 2027 they want commercial vehicles to be a Level 4 on public roads.”

To meet this ambition, he says government investment has significantly increased in autonomous technology: “It has gone from about 10bn won ($8.7M) in 2014 to 200 billion won ($176M) by 2018.” China is hot on its heels in his view, which has a supportive policy leading to legislation that increasingly permits the use, reveals Jackson, of Level 4 robo-taxis.

Limitations in place

There are, nevertheless, some limitations in place, meaning that the vehicles are only permitted to operate autonomously in strictly geo-fenced areas. He explains that the US is similar: “However it is taking longer in terms of agreeing a federal legislation in the USA, which is one of the main reasons why you hear of testing of autonomous vehicles only occurring in specific locations in the USA. The legislation for testing often exists at the state level in places such as Arizona.”

He finds that the European Union is far behind in comparison as a bloc because there is “no clear unifying strategy”. There are exceptions to this rule in the EU. He explains, owing to a legislative loophole, that Germany is pushing for a legal framework to “allow for the more comprehensive roll-out of autonomous vehicles (beyond just testing) by as soon as summer 2021, so they don’t lose ground to their competitors”. The loophole permits individual EU members to unilaterally legislate, which is why Germany is pushing for a legal framework for autonomous vehicles and CAV insurance.

Liability conundrum

Jackson suggests that the creation of such a legal framework is quite complex. However, in 2017 South Korea amended its legal framework to make the owner or the operator of a CAV “specifically liable for any damages caused by an AV during its operation, but critically this was in the context of testing”.

He thinks it was an important step forward to enable the understanding of where liability sits, despite that fact that its focus was on providing insurance cover for the testing of CAVs. Defining where liability lies is one of the most common legislative challenges whenever it comes to considering insurance liability for the operation of CAVs.

Jackson adds: “It will be interesting to see how it evolves, and you will see equivalency between different countries. The whole issue of liability is in a state of flux. The recent amendments in South Korea demonstrate that the situation is fluid as the amendments include a specific clause that requests the indemnity to be paid by carmakers when accidents occur due to defects in the self-driving mode.”

South Korea’s aim was to specify criteria for the operational performance of CAVs in autonomous mode because there is a need to, as he explains, “make sure that when seeking liability where the responsibility lies – with a human driver or with the vehicle.  They were also looking to improve how the vehicles worked in terms of safety”.

Learning from South Korea

Jackson says all of the countries involved in CAV development are looking to each other for this purpose. Yet, to him, there is a bigger question: what will they learn from it? He thinks nobody has quite answered it yet – particularly whenever it comes to drawing the liability and responsibility line, which remains in his view quite blurred.

“The amendments to the Act on Compensation for Car Damages demonstrate that,” he explains before adding that a number of class actions in North America highlight the importance of getting the question of liability and responsibility in legislation right. This could even lead to a need to educate motorists about how to operate autonomous vehicles.

Yet he thinks this becomes a different ethical consideration when the vehicles become fully autonomous, when it becomes imperative to understand whether an accident was caused by a technical flaw to the vehicle, or whether it can proven that the liability rests with the human operator. By resolving these conundrums, it will because possible for more countries to allow the launch of CAV insurance policies. South Korea has got off the starting block but more amendments may be needed.