The future of liability insurance in the age of the driverless car: the US perspective
The pace at which autonomous vehicle technology is developing suggests that fully driverless cars will one day be mainstream. One transportation scholar at the University of Minnesota has predicted that this will happen as soon as 2030. However, with several obstacles to implementation of the technology - such as consumer acceptance, infrastructure, capital costs, policy and legislation - it is difficult to predict when (or if) all cars on the road are likely to be autonomous.
A shift in use and ownership
Widespread use of autonomous vehicles is expected to drastically reduce the number of auto accidents caused by human error, which currently accounts for more than 90% of vehicle-related accidents in the US.
Alongside this, changes in vehicle use and ownership will see a decline in annual personal vehicle insurance policies – with a shift towards pay-per-use. Further, most fully autonomous vehicles are likely to be owned not by individuals, but by auto manufacturers, tech companies such as Google, and ride-sharing service providers such as Uber.
With some early examples, it also remains to be seen whether we will increasingly see vehicle manufacturers (including the tech giants also in this space) self-insuring their autonomous vehicles. In 2015, Google and several vehicle manufacturers reportedly announced they would assume full liability if their self-driving –vehicles cause a collision. Volvo has also said it would ‘accept full liability’ whenever one of its cars is in autonomous mode (although hasn’t officially elaborated exactly on what ‘full liability’ means).
Regulatory changes have already begun in the US to allow vehicle-testing on public roads and with regard to liability.
In December 2016, Michigan passed a law specifying that an auto manufacturer assumes liability, and insures every car in its fleet, when driverless systems are at fault. In New York, there is a bill pending that would amend the New York Vehicle and Traffic Law to provide for strict liability for manufacturers, owners, and operators of unmanned motor vehicles, with an operator defined as “any person who has control over the unmanned motor vehicle.”
Compare that picture to the UK, where liability remains (for now) on the motor insurer. The recently enacted Automated and Electric Vehicle Act 2018 extends compulsory motor insurance so the victim of an accident caused by an autonomous vehicle is covered by the insurance in place on the vehicle. This means the motor insurer must answer first for liability and is left to pursue separate claims against manufacturers and others for additional claims.
Looking forward, in the US, as elsewhere, further legislative change will be required to clarify issues of control of the vehicle and where responsibility lies when things go wrong.
Autonomous vehicle insurance – covering all angles
The shift towards autonomous vehicles therefore presents a challenge to US motor insurers who must adapt their policies and premiums to reflect the changing landscape, and to compete for business.
When there is no human driver to blame for an accident, inevitably the focus will shift from driver liability to possible design defects in the car. Other policy types may therefore be implicated, including product liability insurance for manufacturers of autonomous vehicles and their components.
We will require a new way of apportioning liability with new insurance products which address product liability issues, as well as dealing with new and emerging risks such as cyber security and data protection.
Cyber liability and infrastructure liability insurance will also come into the frame. To illustrate, autonomous vehicles will need connectivity for ‘over-the-air’ software updates and to transmit performance data. This could, in turn, create vulnerability to network-based attacks. There may therefore be a need to protect against remote vehicle theft, unauthorized entry, ransomware, and hijacking of vehicle controls, requiring coverage for identity theft, privacy breaches, and the theft or misuse of personal data. There will also be a need for ‘cloud-based’ server systems to manage traffic and road networks, which could fail, as could external sensors and signals. Additionally, communication problems originating at the system level might arise.
At least one insurer has also stated that manufacturers may need reputational risk coverage as media focus on autonomous technology increases. Other suggestions include a possible hybrid of auto and product liability insurance, although this would be affected by regulation at state level. Another possibility is real-time per-trip micro insurance, based on variables like location, time of day, who or what is driving the car, and whether the car is for commercial or personal use.
Premiums will need to evolve as well. At least one insurer has considered requiring insured manufacturers to require hold harmless, defense, indemnification, and additional-insured language in all contracts with downstream vendors and subcontractors; defining maintenance procedures to be followed by the vehicle operator; and requiring that autonomous functionality be disabled to prevent potential loss if the operating system detects a problem not addressed by the owner.
It is clear that autonomous vehicles will disrupt the global insurance market, presenting both challenges and opportunities for insurers. However, without a history of claims data, it remains to be seen whether the initial steps taken by vehicle manufacturers and tech giants into self-insuring will continue or will be slowed, pending the outcome of future implementation of the technology.
Concerns held by insurers about the claims environment that autonomous vehicles will bring are understandable. Not least, the difficulties insurers will face in obtaining data from manufacturers to determine the circumstances of an accident and ultimately to assign fault. Investigation of accidents involving autonomous vehicles, is also likely to be much more complex than currently required with non-automated vehicles. The road ahead is exciting, and uncertain, and insurers and their counsel will need to pay close attention as they navigate it.