05 Jul

Autonomous Cars once existed solely in the realms of science fiction, brought to life by such memorable machines as Chitty Chitty Bang Bang and Herbie. Now, however, they are on the cusp of becoming a reality within everyday life. Waymo’s self-driving cars in the U.S. have driven 1,000,000 miles through California and so far there has only been one collision where their car was deemed to be at fault. In the UK, driverless cars are set to be trialled on motorways in 2019 and it is estimated that by 2025, a car will be able to drive itself from door to door without a driver needing to touch the wheel. IHS Automotive has suggested that by 2050 autonomous cars will outnumber conventional cars. It is worth noting, however, that the first fully-autonomous cars are expected to cost approximately £170,000 and, with the average vehicle in the UK currently costing £6,000, it may be some time before driverless cars are within the average consumer’s price bracket.

How will driverless cars affect insurance?

The introduction of driverless cars will have a significant impact on the motor insurance industry. As cars become increasingly autonomous fewer accidents are likely to occur and this will push premiums down. Root – a start-up insurance company – is already offering cheaper rates for Tesla drivers with auto-pilot and other insurance companies offer premium reductions for vehicles with semi-autonomous features such as automatic braking. There are also likely to be fewer fraudulent claims as insurers will be able to access vehicle data to check the validity of claims. The Bank of England has estimated the effect will be a 21% contraction in the UK Motor Insurance market by 2040. In the short-term, issues are likely to arise with the interaction between increasingly autonomous cars and self-driven cars. Motor insurance companies may end up paying claims and then seeking subrogation against the manufacturer.

What does the future hold for the self-driving car insurance industry?

Further into the future, it is possible we will see a world in which the majority of cars are fully-autonomous and the question then arises as to where the insurance risk for these vehicles lies. It is possible that the risk would be transferred from the driver to the automotive manufacturer of the vehicle; any accidents involving self-driving vehicles would be due to an issue with the software and therefore could perhaps be covered under the manufacturer’s product liability policy. One issue, if this approach were taken, would be the creation of large aggregation risk. Software failures, or indeed software hacks, could cause a significant number of vehicles to malfunction simultaneously and result in a large claim resulting from a single event. Another issue is that product liability insurance policies are not currently fit for purpose; insurers will need to design an entirely new product and motor insurers should be at the forefront of any such efforts. The UK’s Department for Transport has already announced plans to press ahead with proposals to develop a single insurer model for autonomous vehicles with insurers covering both the driver and the vehicle when it is in fully autonomous mode.

There is a growing consensus that a future contraction in the motor insurance industry is inevitable as premiums fall in line with a decrease in accident frequency. However, autonomous cars will still require driverless car insurance and it will be important for motor insurers to position themselves to underwrite this, and not let it fall to the manufacturers. Tesla has already announced that in the future they would like to offer a single price for car, maintenance and insurance. Competition in this arena is likely to be fierce and insurers will need to be at the forefront of creating innovative new products for customers with autonomous cars.

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