It is quickly approaching: a world where we can get into a vehicle anytime and anywhere, but do not own it. It is a world where we are all passengers. Where we do not have to worry about dangerous drivers and accidents are drastically reduced due to the lack of human involvement. Where we can talk on the phone, review a report for a meeting, watch TV or do anything you want on your morning commute to work. Vehicles and vehicular transportation are changing drastically and quickly. While automakers and other stakeholders have invested an estimated $80 billion into autonomous vehicle technology, it remains unclear when this technology will achieve widespread consumer adoption. The when is up in the air, but the if is no longer in doubt. Regardless of the precise timeline for its widespread adoption, it is clear that autonomous-vehicle (AV) technology will continue to improve safety and reduce risk. It is only a matter of when, not if it becomes ubiquitous.
Alongside the transformation of vehicles and differing modes of vehicular transportation, investment in autonomy, electric technology, and mobility services continues. The convergence of these three trends is set to transform how consumers and companies think about vehicles as they relate to rick, safety, and insurance. As the automobile is quickly evolving before our very eyes, we should take a moment to consider where we were, how we got here, where are we going and imagine the future possibilities.
Since the Ford Model T came off the production line in 1908 cars have been continuously evolving. Changes to vehicles over time have had the dual effect of not just improving driver experience, but has forced the automobile industry to balance innovation with safety. For example, in 1911 rear view mirrors were used for the first time. In 1921 the headrest was invented to reduce the harm caused by whiplash in rear-end collisions. 1947 saw the first car with padded dashboards, which was intended to minimize chest damage when hit head-on. In 1956, power steering became a standard feature for drivers which made maneuvering a vehicle more comfortable and improved safety. In 1958, cruise control improved user experience and paved the way for what will is the modern-day autonomous features. In 1963 the inertia-reel seatbelt was initiated by allowing the seatbelt to re-adjust to the preference of the passenger. In the US made it mandatory to have collapsible steering columns and side marker lights in all vehicles. In 1974, General Motors provided optional airbags for the driver and passenger’s seats. In 1978 the first electronic anti-lock braking system was introduced. 1981 saw the release of the first production car with supplemental restraint system airbags for the driver’s seat. By 1984, most vehicles came equipped with airbags. The 1990s saw an increasing amount of electronic systems being installed in vehicles. In 1994 side-impact airbags were introduced. In 1996 the Brake Assist System was introduced.
The turn of the century introduced new protection measures for pedestrians and development of computer technology continued. In 2000 the Lane Departure Warning System was developed. This technology which used audible, vibration and visual warnings to alert the driver if they are leaving their lane. 2004 saw the introduction of the blind spot information system using cameras and motion sensors to avoid accidental collisions when the driver is parking or switching lanes. In 2010 the pedestrian detection system was first utilized, causing cars to brake automatically when they detect a pedestrian. It uses camera and radar technology to keep an eye out for other vehicles as well. Today, multiple safety features aided by computers are able to keep drivers from swerving out of a lane, backing up into another vehicle, running into a vehicle in front of us, flipping over, spinning out, or generally doing anything dumb. And if future predictions are correct, we can soon look forward to cars that will be able to drive themselves. There will not be an overnight change to driverless cars. Human drivers will continue to mix with autonomous vehicles on the road, and there will be various stages until we reach full autonomy. With the march of time, the modern-day automobile will support evolution until it eventually becomes fully automated.
It is best to consider AV capabilities along five levels. For example, Level 0 means no autonomy; the human is at the wheel. Level 2 (partial automation) indicates the vehicle can steer, brake and accelerate under some circumstances. Level 3 (conditional automation) is when the vehicle can monitoring the environment as well as manage almost all driving functions. Under this technology, the driver will need to be available to take over if the vehicle confronts a situation it is not programmed to handle. Level 4 (High Autonomy) is when the vehicle can operate without human input under select conditions such as geographic area and road type. Level 5 (Full Autonomy) is where a destination is entered, but the AV operates on in any conditions and on any road than a human driver could negotiate. While full adoption of Level 5 vehicles may be some way off, onboard computers will increasingly take over, particularly for city driving.
With these onboard computers, vehicles will become more proficient at communicating with one another and control centers will harness data to improve safety and traffic flow. Wireless technology will allow each vehicle to broadcast their position and speed to nearby cars. This will let each vehicle understand their surroundings, better identify potential perils, and determine possible corrective actions to take if such a hazard occurs. Also, communication with control centers will allow cars to broadcast their location and receive the areas of other vehicles, thus allowing the vehicle to choose a route with less traffic, which would speed up travel times and decreasing the risk of accidents.
Much of the potentialities around the AV is their potential to reduce fatalities on the road dramatically. The National Highway Traffic Safety Administration estimates that 94 percent of the estimated 2.2 million crashes in 2015 were the result of driver error, 2 percent were due to the environment, and the remaining 4 percent were due to unknown reasons/causes. The number of accidents through driver fault will continue to drastically decrease as vehicles become more autonomous. If a car accident occurs today the fault usually on the driver. With AV’s, in the future more of the liability will fall on the technology and manufacturer of the vehicle. Not coincidentally, it is estimated that as the number of autonomous vehicles increases, the number of motor vehicle accidents is anticipated to decrease substantially. Less motor vehicle accidents translates in fewer insurance claims. This should increase the insurability of highly autonomous cars. As a result of the increasing use of telematics and black-box technology, the cause of the motor vehicle crashes will be easier to determine. Onboard technologies will bring much more certainty in determining each vehicle’s contribution to a crash event. This can considerably accelerate insurance claim resolution and reduce unnecessary legal costs.
Connected cars will collect massive amounts of data. The frequent use of advanced driver assistance systems will grow exponentially and the evaluation of such data will significantly increase the knowledge and understanding of an insurance carrier's risk. If the 94 percent of accidents are related to human error, if you take the human out of the equation, the advancement of autonomous technology will then cause the risk to insurance carriers to decrease. This should cause insurance premiums to be reduced over time. Although it remains unclear when the AV will achieve mass adoption, the risk will inevitably shift dramatically. AV’s that take human motorists out of the equation entirely will result in fewer traffic accidents. As such, the switch to autonomous vehicles is likely to alter our lives in remarkable ways. While technology continues to evolve, making accidents far less likely, an accident can still happen. But the risk of serious injury is far lower than it used to be thanks to the introduction of several safety features since the Model T was introduced. The advanced driver assistance system is the culmination of over a century of innovation in safety features.
AVs also have the potential to overturn more than a century of not just vehicle design but urban planning as well. The possibilities include connecting vehicles wirelessly to share information on roads, setting up electricity grids that manage energy supply and demand, impose real-time pricing and travel-on-demand services that give people greater flexibility. All this can reduce the cost of transportation. Self-driving cars will also enable vehicles to travel closer together, which would cut down on traffic congestion. The impact of the AV will be profound and impact almost every part of our lives.
A driverless future, based on increasing technological advances, may very well lead to the following:
1. People will not own vehicles. Transportation will be provided as a service from companies who own fleets of AVs;
2. Technology companies will hold more of the world’s economy as companies like Amazon, Google, Facebook will turn transportation into a pay-as-you-go service. These companies may own the world. Over time, they will own so much data about people, repetitions, obstructions and routes that new entrants will have insurmountable barriers to enter the market;
3. Parking lots and parking spaces on roads or in buildings will become unnecessary;
4. Local auto mechanics, car dealers, car washes, auto parts stores and gas stations will be unwarranted;
5. Gas will become much less valuable as electric cars replace fuel powered vehicles;
6. The same vehicles that transport people will start to transport goods as well. We already see this with companies as Uber and Uber eats. Computer algorithms will optimize routes of travel;
7. AVs will need much less space between which will allow traffic flow to be better regulated and will maximize infrastructure utilization;
8. The public will undoubtedly have less privacy as interior cameras, and usage logs will track when, where and how often you go somewhere;
9. Litigation over car accidents will not be individuals vs. individuals but will be more likely be big company versus big company. Forced arbitration clauses will become a mandated component of the contractual relationship with transportation providers;
10. There is already talk of in-transit purchases such as food and merchandise;
11. Traffic accidents from human error will be no more, but non-malicious software and technical issues will likely be the leading cause of delays. One of the most serious of issues will be the hacking of computer systems in AVs. This will significantly increase the need for cyber insurance;
12. AVs will likely be filled with advertising of all sorts which will decrease the cost of the ride, although there will probably be a way to pay more to have advertising-free travel experience;
13. Sensors of all kinds will be embedded in AVs that will have other ancillary uses such as improving weather forecasting, crime detection, and prevention, finding fugitives, infrastructure conditions. Of course, all this data will be monetized, likely by the companies who own the transportation services;
14. Google and Facebook will add everything about customer movements and locations to their massive databases. Unlike GPS chips that only tell them where someone is at the moment, AVs will know where you have been, where you are going and likely with whom.
There is little doubt that the widespread adoption of AV will have a massive impact on the automobile insurance industry. Since insuring privately owned vehicles is what the auto insurance industry is all about, insurers have every reason to be happy that the number and severity of accidents and insurance claims will drop. The widespread use of telematics and sensor data will lead to lower premiums as insurers learn to price by real risk. In a future where AVs are prevalent, auto insurers will change their way of thinking, their business models and will adapt to new realities of the risks involved. The speed of the evolution to an AV environment is impossible to predict, but insurance carriers are already starting to create actuarial models based upon real-time and actual driving data that better determine risk and pricing for different stages of autonomous vehicle evolution. Many insurers already offer premium discounts for these features, but as the effects of increased safety become apparent, insurers will likely to lower premiums or risk being undercut by competitors. Other forms of artificial intelligence will be highly useful for insurers to fine-tune data collection. This new information will help price premiums better and provide more valuable services to customers instead of going the way of Kodak and Blockbuster.
Insurance carriers are developing new product offerings in areas including product liability for software and sensors. Market participants who collect, organize and analyze this data will have inherent advantages over those with less developed capabilities. Carriers can and should develop the needed actuarial framework and models. We have already seen partially autonomous safety features such as automatic emergency braking systems change the safety profile of newer vehicles. Insurers will likely use sophisticated actuarial and modeling techniques to be ready as vehicles add more and more autonomous features. Insurers will also probably be identifying and collaborating with ecosystem partners such as automakers, communication service providers and software systems.
Finally, carriers will think about new business models. Numerous aspects of the insurance industry will be impacted as the AV advances. Until the vehicle is fully autonomous, liability coverage will be mandated. Over time, as the vehicle advances to stage 5 autonomy, the coverage will change, as manufacturers, suppliers and even municipalities are called upon to take responsibility for an accident. Self-driving cars raise complex questions for insurers. Answering those questions will take time. The industry has time to research and make changes accordingly. But the proverbial ball is in insurers’ courts to make the most of the next 5 to 10 years and shift their business models to accommodate the coming changes in technology. One day, human driving may not just become uncommon, but eventually illegal. Change is afoot to our vehicles, our roads, our modes of transport, our urban footprint, our way of thinking about transportation and our insurance processes. This is one journey consumers, and insurance companies should not want to navigate on autopilot.
By: Steven J. Shanker, Esq.
