Are we ready for autonomous cars?

The rise of autonomous vehicles is expected to turn the automobile insurance industry on its ear when it comes to motor vehicle litigation.

“There is going to be massive change to the way that the insurance industry has traditionally responded to motor vehicle claims,” explains Robert Love, a litigator at Borden Ladner Gervais (BLG) LLP in Toronto who defends insurance companies.

Love foresees a “fundamental shift” in the nature of litigation, predicting we’ll move from a system focused on assessing fault due to a driver’s mistakes to one that is predicated on product liability and assigning blame based on the failure of things like sensors, warning systems or bad algorithms.

Ryan Stein, director of policy at the Insurance Bureau of Canada (IBC), notes that “right now, motor vehicle coverage is based on human error.”

“With automated vehicles, more of the collisions will happen because of product malfunctions. Product liability claims will be more frequent and these claims are more complex and take longer to settle than a typical vehicle collision tort claim,” he says.

Love predicts that the move to autonomous vehicles is “going to happen a little faster than was previously contemplated two years ago,” with a number of manufacturers shooting for rollouts by 2020 or 2021.

However, the shift to a driverless environment won’t happen overnight. Most observers say it will be years until we live in a world dominated by self-driving cars, known as Level 5 (or fully autonomous) vehicles, according to standards bearer SAE International.

Fewer accidents—but higher severity

Experts say the move to autonomous vehicles will have a profound impact on accidents and claims, both in the short term and long run.

Karin Ots, senior vice-president of regulatory and government relations at Aviva Canada, calls the shift to autonomous vehicles a “sea change” for the insurance industry.

“Our thinking is that the frequency of accidents should definitely go down,” she says, noting that 90% of accidents are caused by human error. However, she cautions, the “severity” of accidents may rise. The cost of fixing vehicles, with all that technology, may also rise.

“How do you rationalize death at the hands of a robot or a mortal algorithm?”

Nonetheless, there is a sense that overall claims costs may decline because of fewer accidents. Whether that will lead to lower premiums remains to be seen. The insurers we spoke to were unsure, but Adam Little, a personal injury lawyer at Oatley Vigmond, who happens to drive a Tesla—a leader in autonomous vehicle technology—agrees with Love and believes that premiums will fall in the long run.

Little notes that cars of the future will have fewer parts and a “crumple” design, making it easier to replace damage. Meanwhile, Love says reduced accidents will lead to fewer payouts, and that means adjusting premiums to reflect the new lowered risk.

KPMG has predicted that total losses from auto accidents will fall by 63% (or US$122 billion) by 2050, adding that safer cars combined with less costly accidents will “potentially reshape the size of the automobile insurance industry.”

However, that scenario is still decades away. Little notes that his Tesla “is technologically advanced, but still requires a lot of involvement from me. You have to be prepared to take full control.”

Weather conditions like Canadian winters and rain storms—which make it difficult for autonomous vehicles to read the road lines—will also pose a challenge in perfecting the technology.

Venturing into unknown territory

Gavin Finlayson, a commercial litigator at Bennett Jones LLP in Toronto, says “there is going to be a shift in how risk is assessed.”

The focus, he says, will be less on the driver and more on the technology. “It represents great change in the field of product liability and is going to cause change and upheaval in the insurance industry market.”

Moreover, before we even arrive at a Level 5 world dominated by driverless cars, the transition period will likely promulgate a mini boom in litigation, lawyers predict. That’s because there will be a period of “co-mingling,” where both driver error and manufacturer liability will be at issue in the courts. It will be years before regular cars are off the roads and, in the meantime, autonomous and non-autonomous vehicles will be sharing the roads—and crashing into one another.

Eric Boate, a lawyer in the Barrie, Ont. office of insurance defence firm McCague Borlack LLP, says that when it comes to vehicle automation and fault for accidents, “the courts haven’t really tested this issue too much. We’re venturing into unknown territory with liability.”

Love says failure to warn or explain to drivers how the autonomous technology works, as well as maintenance and upkeep, will play a more prominent role in motor vehicle litigation going forward. He notes that answers can’t be buried in an owner’s manual stuffed into a glove box. “It has to be real-time warnings and instructions being given to the user.”

Lawyers note that the law is steeped in precedent and it takes years for the courts to formulate and clarify legal principles. Autonomous vehicles and the interplay they have with humans are uncharted waters when it comes to assessing who is at fault, who should pay and how much they should pay.

Injured parties, however, cannot afford the length of time it takes to fight over product liability suits, so expect to see the regulatory environment change dramatically. Interestingly, Volvo has announced it will accept liability for accidents when its vehicles are in autonomous mode.

Little predicts we will move to some type of no-fault system with a compensation fund, either through insurers or by the auto industry, self-funding it with parts and software manufacturers. The fund will quickly pay out compensation to individuals injured in accidents, and leave the industry to fight it out over which manufacturer is at fault.

Melissa Logue, national automobile underwriting manager at RSA Canada, notes that the IBC and member companies are working on a framework for automated vehicles.

“This framework focuses on the consumer and ensuring that injured individuals are compensated in a fair and timely manner, regardless of whether the human operator or automated technology is responsible for the accident,” she says.

Navigating regulatory waters

When it comes to regulating autonomous vehicles, many in the industry are looking to the United Kingdom—the first country to draft a law dealing with autonomous vehicles—for guidance.

The Vehicle Technology and Aviation Bill, currently wending its way through Parliament, sets out how liability for accidents involving autonomous vehicles will be apportioned and covers situations where drivers implement “unauthorized alterations” or fail to update software. It includes a single-policy model covering drivers when the car is in both regular and self-driving mode.

Insurers will pay out for damages and then seek to recover from the responsible party, which could include manufacturers.

IBC’s Stein says a single policy model that covers drivers whether they are negligent or the technology malfunctioned “has a lot of merit.”

Lawyers, however, warn that while the U.K. system is attractive, Canada’s bifurcated provincial and federal regulatory regime will make it complicated to implement a similar system. For example, the provinces are responsible for regulating roads and insurance, while the feds regulate standards relating to manufacturing, making it difficult to regulate a single national solution.

Love adds that a one-policy approach could work; however, it will require “a cooperative approach” between manufacturers and insurers and would be a “tricky agreement” to negotiate.

Finlayson adds that the regulation of autonomous vehicles is an “international problem,” and will eventually require some type of global solution setting out standards and processes, similar to the Warsaw Convention, which regulates liability for the international movement of people and goods. “I think that’s a possibility and at some point will become an inevitability.”

If someone in California writes bad code and there’s a crash in Japan, where does liability sit, he asks? Finlayson also envisions eventual caps on manufacturer liability.

Aviva’s Ots says it will be important to develop a framework that is “simple for the individuals. If we can keep addressing this issue from the perspective of the individual who is going to be the driver or passenger in the car, we have a better shot of building a better system.”

Accessing vehicle data

There are also interesting privacy and moral issues raised with autonomous vehicles. On the data front, for example, cars will essentially be a black box of information, which insurers will need to obtain in order to determine fault.

RSA’s Logue says that “data-sharing arrangements between insurers and manufacturers will be necessary to determine the cause of a collision.” That will have privacy implications for drivers and raises the interesting legal question of who owns that data— drivers or manufacturers—and will you need some type of warrant or court order to get it?

The cyber risk that autonomous vehicles present is also a big opportunity. As commercial fleets automate, the ability of hackers to take over a fleet and threaten to shut it down unless a ransom is paid, or to redirect vehicles in order to steal goods, will create new opportunities for insurers to market cyber products.

Little suggests that “cyber insurance might become more important than collision damage insurance.”

However, perhaps the biggest challenge is on the moral side and determining what the standards should be for those developing the algorithms that control vehicles.

Take a hypothetical situation where a car must take evasive action to avoid a collision with a truck. Does it turn and crash into a tree or wall, possibly injuring the driver, or mount the sidewalk and run over pedestrians?

Finlayson says it raises the question of “How do you rationalize death at the hands of a robot or a mortal algorithm?”

Manufacturers have duties and obligations to the lives of people who buy their equipment and transport passengers, but not necessarily to pedestrians and bystanders.

It’s an ethical dilemma that Finlayson says governments are going to have to grapple with in some fashion. Germany, for example, is working on ethical guidelines on how autonomous cars should be programmed.

“Fundamentally, we have to ask ourselves as a society, ‘Are these the kind of decisions that we want to give to Google?’ ” he asks.

Finlayson expects municipalities will also be singled out in an autonomous vehicle environment, since there will be more sensors in the public infrastructure to guide vehicles. For example, a cloud server going down could lead to crashes.

However, all of this spells opportunity for astute insurers that embrace the coming change, he says.

“This is an amazing and exciting area because it is evolving and it’s all speculative. With great change comes great opportunity.”

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Copyright © 2018 Transcontinental Media G.P. This article first appeared in the April edition of Canadian Insurance Top Broker magazine

This story was originally published by Canadian Insurance Top Broker.