Tailored insurance models to handle future auto risks

As our relationship with the automobile slowly shifts from mass ownership to car-as-a-service, the gig economy in ride providing has exploded. A great many vehicle owners across the world now earn extra money by driving for a service like Uber or Lyft. Indeed, a great many forego ownership entirely and it’s not unusual to find people in car-dense cities who don’t own a vehicle, relying instead on ride-sharing providers to cart them around.

This explosion in part-time chauffeuring coincides with a general rise in contractor work, with more of the world’s wage earners drawing freelance income rather than traditional employment salaries.  This increase has raised questions about how to compensate such workers when they are injured or sick. One potential model in the automobile world that has been getting some coverage lately is New York’s Black Car Fund.

The Fund was drafted by New York state’s legislature and passed into law in 1999. It was aimed at providing a safety net for the many drivers of “black cars,” i.e. car-for-hire services including limousines. These services are particularly popular in New York City, where many residents then as now do not own vehicles.

The Black Car Fund attempts to guarantee that the drivers of these services have some form of coverage in case of emergency. “[It] was established… for the purpose of providing workers’ compensation coverage for independent black car and limousine drivers who may not have otherwise qualified to benefit from such insurance under the NY State Workers’ Compensation Laws,” says Matthew Daus, a lawyer and former commissioner and chairman of the New York City Taxi and Limousine Commission. The Fund’s monies come from a 2.5% surcharge on every ride taken with a car service; anyone who has taken a limousine or ordered an Uber in the state has paid it.

As the gig economy widens, it’s clear that some form of help and assistance will be needed for freelancers/contractors. This is especially true in the US, where workers are generally slotted into one of two categories – employees, who are eligible for benefits supplied by their employer, or contractors, who must source health insurance and other forms of coverage on their own. The growth in the second category is why the Fund has been floated as a potential template for such compensatory efforts. Recently, the legislatures of other states such as Washington and New York’s neighbour New Jersey were considering laws that would establish fees for a raft of freelancing and contractor services, in order to fund similar compensatory arrangements.

In the vehicle world, the Black Car Fund is enjoying increased visibility these days and is more likely than anything else to influence the insurance aspect of the ever-growing ride-share industry but perhaps that influence will dwindle once we start to approach full autonomy.

Thinking along those lines raises a pair of questions – what will insurance look like in the years just before self-driving becomes the norm, and after the dawn of this era? Mike O’Malley, senior vice-president for public policy at the American Insurance Association, says that in his country at least, things might not change as much as some people think.

“Automobile insurance will be required in the future for a variety of reasons, he says. “First, there are some 270 million driver-controlled vehicles on American roads today and, with the decades it takes to deploy new safety features across even a portion of the vehicle fleet, it is reasonable to assume that driver error will continue to be a major cause of accidents for the foreseeable future. Beyond that, even the very safest autonomous vehicles will need insurance,” he continued. “Owner and operators might be found negligent if they fail to install the latest software or don’t maintain their vehicles’ mechanical systems – brakes, tyres, headlights, brake lights, etc. – in a roadworthy condition.  Autonomous vehicles also will not be immune from non-collision damages or liabilities, such as from floods, fires, broken windshields and non-collision injuries as passengers enter or exit their vehicles.”

Of course, the autonomous systems and equipment on their own could very well be the subjects of coverage in the future. Says Bryant Walker Smith, an assistant professor of law at the University of South Carolina and an authority on automated driving systems: “An insurer may simply treat the automated driving system like a permissive driver – like a friend or child of the insured. At that point, that insurer will have to decide whether to subrogate a claim – that is, whether to demand compensation from the manufacturer of the faulty automated vehicle or another company responsible for the vehicle’s faulty automated operation.”

It’s almost a certainty that auto insurance in the robot-driving days will shift away from individual coverage, and more towards the corporations and organisations operating fleets of car-as-a-service vehicles. “Many automated vehicles are likely to be owned by companies rather than by individuals,”Walker says. “As they do today, these fleet owners may partner with traditional automotive insurers, self-insure (if they are big enough), or get commercial insurance.”

However, what if individual ownership never really disappears? After all, there are plenty of people that simply love their cars and are eager to drive them. The self-driving future is tantalising for those who are happy being passengers but perhaps there will be room on the road for traditional types who want to take the wheel themselves

This ties in to a point made by the AIA’s O’Malley. “Given the wide variety of reasons that people own and drive vehicles, there’s probably going to be room for multiple ownership models,” he says. “But, with the extent of off-road driving in farming communities and on construction sites, the many different things we tow behind our cars and trucks, and the American love of motorcycles and classic cars, it seems hard to believe that individual ownership will ever go away completely.”

One thing many experts agree on is that the costs to carry insurance for highly advanced assisted, and ultimately autonomous, vehicles will come down significantly. The reasons for this are obvious – such technology promises nearly error- and accident-free operation once humans are removed from the equation. “The real change for automobile insurance in the future could be the cost,” says O’Malley. “State regulations require insurance companies to use risk-based pricing.  So, if autonomous vehicles deliver on their enormous potential and actually reduce the number of accidents, insurance premiums will fall accordingly.”

Outside of the pricing question, the future of individual or vehicle or “all of the above” coverage is entirely speculative at this point but there are those who believe that we might not ever fully move away from the need to make sure a car’s occupants are insured.

Attorney and ex-NYC Taxi and Limousine Commission head Daus is one of them. “The Fund’s model is the future whether the independent contractor or gig economy model continues and grows, or whether companies employ their drivers,” he says. “Many companies who are not required to join the Fund, who have employee drivers, have nevertheless done so owing to cost savings as compared to other carriers.  The future are niche Funds, like this one, that understand the industry they are operating in, and which are a part of it.”


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