Insuring Autonomous Automobiles
What challenges will an increase in autonomous vehicles pose for insurers?
Narrator: Welcome to The Future of Insurance, the podcast that looks at technology, innovation and the evolution of the insurance industry. The Future of Insurance is presented by Argo Group, a specialty insurance company that helps businesses stay in business.
Gordon Bass: There’s a lot of buzz about cars that can drive themselves, and rightly so. From Tesla to Alphabet, car makers and tech giants are leading a massive shift in the way we’ll get from point A to point B in the near future. But driverless vehicles raise a lot of questions, like, how comfortable are we giving the wheel to a computer, and how much safer are they going to make our roads? And most importantly for us, what are they going to mean for the insurance industry? We have two guests today who are going to talk about just that. Dr. Chandra Bhat is director of the Center for Transportation Research at the University of Texas. And in Dallas, Thom Rickert is vice president and head of marketing at Trident Public Risk Solutions, an Argo Group company.
So, Dr. Bhat, why should we give the wheel to driverless vehicles?
Dr. Chandra Bhat: You know, the benefits of autonomous, driverless vehicles are very substantial. Certainly, one of the main things we’re looking forward to is safety. Today … rather last year, we had about 40,000 lives lost on United States roadways. The past two years has started seeing an uptick in fatalities and so, we certainly hope that the number of fatalities will go down considerably and potentially even to zero and … you know, 40,000 lives lost, that’s a huge number.
Gordon Bass: OK, so if we put our trust in these vehicles, they’re going to save lives. But it can’t be that simple, right? So, how else are they going to change transportation?
Dr. Chandra Bhat: Capacity on highways could increase, so you could see less traffic congestion because of platooning. You could get away with much lesser parking. So, if vehicles can drop people off at their workplace, rather than parking the vehicle there for eight hours … you know, the vehicle comes back home. You know, you don’t need parking garages; so, in many cities, about 30 percent of the surface area is taken up by parking. And so, you can reclaim all that land for other beneficial purposes. So, there are lots of different benefits. But I think we also should look at, you know, what might be some unintended consequences and how we can regulate those right now so we are able to harness the most benefits from driverless vehicles.
And I think there is some issues, broader issues such as, how will public transportation morph in this new marketplace? You know, many public agencies are facing some very important questions. They plan for 30- or 40-year time periods. Should we be investing more today in roadways? Should we be investing more in public transportation? There’s so much of uncertainty, and I think that’s the fascination for us as researchers, as we navigate this new landscape.
Gordon Bass: Thom, what are some of the other consequences we’re going to be considering?
Thom Rickert: One of the interesting considerations, when you look in large metropolitan areas, where there is so much parking space and so much impermeable surfaces. That’s one of the main causes of flooding today, is that there is not enough permeable soil to absorb the rain when it falls. So, there’s things like that, where there is a downstream effect, that you may not think of, by this technology being implemented to a much higher degree.
Gordon Bass: So, there’s a great reduction in the rate of accidents and some unintended consequences. Let’s talk about some of the unique risks introduced by driverless vehicles. Dr. Bhat, tell us about cybersecurity issues.
Dr. Chandra Bhat: Imagine that you’re a small vehicle and you masquerade at being a tractor trailer turned upside down, and you communicate that to all upstream vehicles and you bring I-35, here in Austin, to a complete parking-lot status. So, I think that’s a huge issue, and that’s one of the most innocuous things we can think about. You know, hackers can do much more sinister things with this kind of technology. But, I think that, in the bigger picture … you know, I think the consideration is, what will happen, once we have driverless vehicles, to professional drivers? What will happen to taxicab drivers? So, I think this have very exciting times for us in the transportation field.
Gordon Bass: Let’s talk a little bit more about when things go wrong. For example, there’s inevitably going to be accidents, and that’s going to raise the question of, who’s liable? Is it the manufacturer? Is it the driver? Is it the municipality?
Thom Rickert: I think a lot of it sort of follows the way that you look at liability today and the duty owed one person or one company to a person. So, it’s the causation link. So, you look at the original equipment manufacturer, like in airbags. If you have a defective piece of equipment, then you are looking at product liability that flows up to the auto manufacturer and the original equipment manufacturers. There is just the ownership of the vehicle. And depending on what level of automation is used in the vehicle, where … for example, a person has to pay attention and take control under certain operating conditions, then that liability could continue to flow to the operator of the vehicle and/or the owner of the vehicle. When you talk about fully autonomous, then it’s again that liability that flows up to the original equipment manufacturer. But what if the owner of the vehicle doesn’t program it correctly or doesn’t maintain it correctly? So, the liability can flow, just like today, from the owner of the vehicle, to the operator of the vehicle, to the manufacturer of the vehicle. And it depends on the fact cases that surround each type of accident.
Gordon Bass: You’re especially interested in how public entities are going to be affected by driverless vehicles. So, what are some of the unexpected issues they’re going to be contending with?
Thom Rickert: Right now, when you look at involuntarily stops, mostly 85 percent of those are traffic violations, where a police officer’s stopping a vehicle. If the cars are programmed to follow the laws, to not speed, to stop at lights, etcetera, then that’s going to be a significant reduction in the work load … and so, will public entities need as many law enforcement officers? There’s going to be other security issues when you talk about the infrastructure. That maintenance … just like a city has to maintain a road free of potholes, that maintenance now of that infrastructure that talks to vehicles is going to have to be considered. And that type of maintenance and equipment is much more expensive, so it begins to stress city budgets. And especially, during this time of the ramp-up to that type of technology, as it begins to build, is having to replace and consider where they deploy that equipment.
Gordon Bass: And then what are the implications for the insurance industry?
Thom Rickert: Well, I think when you look at, most likely, a decrease in vehicles, owned vehicles. So, as the pool of insureds goes down, then you’re looking at, you know, are you getting credible numbers? Your accidents are going to go down. And so, you may have lower losses to an insurance company, and they may have fewer claims, fewer dollars paid out, on the liability side. But, on the physical damage side, those vehicles are going to most likely be more expensive and the equipment inside more expensive to replace. So, I think that the overall impact on insurance companies is going to be the balancing of reduced losses, increased dollars paid out for physical damage, lower amounts paid out for liability when you have fewer accidents and then the understanding of the risk, so that, especially on the commercial liability side, when you have trucks that are platooning … high speed, following each other close, controlled by the vehicle-to-vehicle and vehicle-to-infrastructure. How are you going to understand the best risk control and best risk management for that type of exposure, for delivery vehicles or platforms like Uber and that type of thing? How are you going to look at those companies’ liability and then underwrite them? And in order to do that, you really have to understand the technology.
Gordon Bass: Last question, and it’s the big one: Realistically, how soon are we going to see a significant number of driverless vehicles on the road?
Dr. Chandra Bhat: So, there are many ways to look at this. One way is to look at what may be the earliest, when our entire fleet will become driverless. Now, one way to look at that is, we have sales of about 16 million vehicles per year, and we have about 250 million vehicles in the Unites States. So, even if magically tomorrow, every sale is basically of a driverless vehicle, it essentially gives you the time window of about 15 years for our entire fleet to be turned over. Now, that is the earliest you would see. Obviously, there are so many other factors that are going to come into play: Whether manufacturers can supply driverless vehicles at that rate; whether people will buy driverless vehicles at the same rate that they purchase vehicles today. So, the general sense is that it would take about 40 years or so before we have potentially, literally complete turnover to driverless vehicles. So, we are talking about 2055, 2060 perhaps for an entire turnover.
Gordon Bass: Dr. Chandra Bhat and Thom Rickert, thanks so much for joining us today.
Bhat & Rickert: Thank you! Pleasure!
Narrator: You’ve been listening to The Future of Insurance from Argo Group. To learn how your business can leverage technology to transfer risk, go to argolimited.com.