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Autonomous, semi-autonomous cars will require the development of new insurance business models, Lloyd’s speaker says


July 23, 2015   by Canadian Underwriter


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The rise of autonomous and semi-autonomous cars will change the nature of car ownership and challenge the auto insurance market to develop new business models, the London, United Kingdom-based Lloyds Market Assocation (LMA) said this week.

Autonomous and semi-autonomous vehicles will mean fewer collisions, at lower speeds, the Lloyd’s speaker suggested

Speaking at an LMA event at Lloyd’s of London, David Powell, the LMA’s non-marine manager, outlined how advances in vehicle technology will result in reduced private car ownership, major changes to the auto insurance market and a shift in the nature of vehicle accidents.

“Autonomous and semi-autonomous cars will fundamentally alter the nature of driving and the insurance industry’s business model,” Powell told an audience of Lloyd’s underwriters and claim experts on Wednesday. “These vehicles mean fewer collisions, which will take place at lower speeds. Removing the driver removes eight-out-of-ten of the most common causes of vehicle accidents.”

“Self-driving cars will trigger a decline in private car ownership while also creating new models of car ownership,” he went on to say. “Why own a car at all when you can simply command one to pick you up and drop you at your destination, with the efficiency and logistical benefits of self-driving cars meaning car travel will become much cheaper?”

Powell suggested that two-car households could become one-car households. “It’s easy to imagine a scenario in which, after having dropped one partner at the train station, the car returns home on its own to be used by the other partner before returning to the station that evening to pick up the commuter,” he said.

Commenting on the liability implications, Powell said that the insurance issues are “fairly straightforward. The law says if you are in control, you are liable for any injuries or property damage you cause. So, if a vehicle cannot be driven by its occupant – for example, it has no steering wheel or controls – then it becomes a product liability issue.” In this case, the occupant has no need for auto insurance, similar to a passenger in a taxi.

Autonomous and semi-autonomous vehicles have liability implications as well

“If the car can be driven, the driver will require insurance protection,” he told the audience. “Even if, at the moment of the crash, the occupant did not have his or her hands on the steering wheel, it would be very hard to argue that that person was not in control of the vehicle in the eyes of the law.”

The challenge, Powell said, is going to be the transition between the current model and that which will be required in the future. “Right now, we’re not able to say how that’s going to work.”

Another challenge is the vulnerability of autonomous and semi-autonomous cars to hacking and cyberattacks, with Powell suggesting that a combination of improved encryption and underwriters applying contractual terms to minimize their exposures would be the solution.

Also speaking at the event was Peter Shaw, CEO of Thatcham Research, the U.K. insurance industry’s automotive testing centre. Shaw said that the hardware already exists to make cars fully autonomous; the next steps are to conduct extensive vehicle testing, while addressing the legal, political and cultural aspects of the change.

Shaw noted that vehicle manufacturers’ use of combined radar, camera and laser-sensing technology has resulted in major improvements in the vehicles’ abilities to accurately identify pedestrians, cyclists and other potential risks. Shaw suggested that by 2023, autonomous emergency breaking would be required of all new vehicles and by 2030, the majority of vehicles on U.K. roads would have this fitted.

Shaw concluded that advances in vehicle technology are already changing insurers’ claims experience with Thatcham Research, and predicted an 18% fall in vehicle write-offs in the next ten years.