Tech Can Reduce Risk But Not Insurance Costs

The introduction of new technologies nearly always comes at a high promise and quite often with an equally large promise and expectations.

ADAS technology is not immune to this effect and this means that it may take time for the safety, insurance profitability and the prospect of lower insurance premiums to occur. Mark Sherman, underwriting manager at Allianz UK, explains that crash damage costs continue to challenge the insurance industry. He claims that ADAS will reduce incident frequency but with a caveat: “The technology in a modern vehicle is such that parts are expensive and repair times [are often] extended due to repair complexity.”

So, even when incident frequency declines, the problem remains that cost of repair is still rising. He elaborates: “How quickly ADAS systems impact policy premiums will depend upon the speed of penetration of ADAS across the UK.” He believes it will also depend on the future availability and cost of sourcing and repairing such systems.

Stripping out costs

Kurt Rowe, associate of law firm Weightmans, adds reports say that once autonomous emergency braking (AEB) is fitted to all new cars as standard, “there will be a reduction in the instances of accidents causing whiplash claims by 20%, which would be interesting for insurers”.

“The Civil Liability Act 2018 has introduced a tariff for whiplash claims,” he says before explaining that it ranges from £225 ($292) to £3,725 ($4,842) for whiplash injuries lasting for up to 2 years.” He says this is coupled with a proposed increase of the Small Claims Track limit from £1,000 to £5,000 for road traffic accident personal injury claims.

“These whiplash reforms have the ability to strip out significant cost in an already overly inflated system, and with a potential 20% reduction in minor “shunt” type accidents, the benefits for insurers are clear to see,” he argues. Yet, he thinks that the real benefits of AEB and ADAS generally will not manifest themselves until the market reaches autonomous driving Levels 4 and 5.

In his view, these levels won’t be reached for another 15-20 years. Nevertheless, he emphasizes that there are still many benefits associated with Level 2’s ADAS technologies. “However, with those benefits come risks associated with how drivers use their assistance systems,” he warns.

Tesla crashes

To illustrate his point he cites a fatal incident, and others, involving Tesla: “A person in the US crashed into a truck while allegedly watching a video on his phone and there was another incident where one where a driver only spoke Mandarin while the instructions were in English.”

“The car warned him that it wanted him as the driver to take over but he didn’t because he didn’t understand the instructions,” he explains before underlining that education is key to resolving issues likes these. For this reason, he thinks that driving tests should be subjected to rolling reviews to ensure they cover the ADAS technologies that are currently available in the mainstream market.

“This will go some way to raise awareness but there will inevitably be a “skills gap” which can only be addressed by manufacturers ensuring that those buying their vehicles are suitably trained on the systems available for deployment on the vehicle they are purchasing,” he advises while claiming that this kind of education is vital to manage and to mitigate the risks of human interaction with ADAS technologies. Without such education more semi-autonomous vehicle deaths could still occur.

Human error

Sherman adds that 90% of current road accidents are attributable to human error. He believes that “ADAS offers a significant opportunity to substantially reduce accident frequencies and the resulting injuries and deaths”. He says there is an ever-increasing number of vehicles on the road today that are equipped with ADAS systems.

These systems don’t just include AEB. There are other technologies to consider, such as automatic parking systems (APS) and electronic stability controls (ESC). With their increasing introduction he predicts that the severity of certain accidents will reduce, with “a corresponding improvement in limiting the extent of bodily injury”.

“However, with more advanced technology incorporated into vehicles, the average cost of material damage claims is expected to rise (e.g. recalibration of cameras after a glass claim, replacement of sensors after damage to a bumper).” So, while there may be savings in the cost of personal injuries, the cost of claims to the vehicles could actually increase. From an insurance perspective this means that the opportunity to reduce premiums may swing in roundabouts and not be realized.

Premium models and fleets

While ADAS may be trickling down to the mainstream market, it is mostly the preserve of premium models and of fleets. Even so, Rowe comments: “The benefits are obvious, however, it is not fool-proof and the technology is not yet as advanced as to allow a driver to blindly trust that the vehicle.  So, the key is to remember that these are driver assistance technologies and are not, therefore, a replacement for the vigilance of the prudent driver.”

Sherman also concludes: “Allianz fully supports ADAS and the continuous automation of driving as we believe it will improve road safety and reduce casualty volumes.  There is, however, a need for some clear identification between driver assistance systems and autonomous driving, as well as the driver education, particularly in relation to understanding the operation, performance and limitations of each system.” Beyond this, time will tell what impact will have on the insurance industry. Meanwhile, the industry as a whole very much welcomes its gradual roll-out.

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