Insurance 2028 – part 2

At the beginning of the year, I wrote an article on the changes that technology could have on our everyday lives in the future and the effect that this will have on the insurance industry. I considered what would happen if we could step into a time machine and go forward to the year 2028. In this case, I will be focusing on transport and in particular autonomous vehicles (AV).

To set the scene, the Dubai Smart Autonomous Mobility Strategy, launched by His Highness Sheikh Mohammed bin Rashid Al Maktoum, Vice President and Prime Minister of the UAE and Ruler of Dubai, envisions that 25% of all Dubai travel will be driverless by 2030. To that end, requirements for self-driving vehicles and safety in the UAE are to be drafted by the Emirates Authority for Standardisation and Metrology.

This regulation may well share some similarities with The Automated and Electric Vehicles Act (AEVA) passed by the UK Parliament this year. The legislation paves the way for insurers to cover automated vehicles, which are set to hit UK roads as soon as 2021. According to the government, the act brings automated vehicle insurance in line with “long-standing motor insurance practice,” ensuring that motorists are covered both when they are driving and when the driver has legitimately handed control to the vehicle.

A recent Pew Research report shows that only 44% of people in America want to ride in an AV. The other 56% said that they would not with the key reasons being lack of trust and safety concerns. Globally 1.3 million people die on the roads every year and 50 million are injured in driving accidents. According to a Lloyds of London white paper, as much as 93% of these incidents can be attributed to human error. This suggested that in actual fact, AV’s have the potential to be substantially safer than human operated vehicles.

So when I step out of the house to go to work in 2028, what could my experience look like? Well in all likelihood it won’t involve me owning a car. Electric Vehicles (EV’s) have far fewer moving parts (around 20 compared to 2000 in a combustion engine) and as such lifetime costs are reduced, given this, the lower cost of charging an electric car and the lack of cost for a driver it is likely most vehicles will work on a transport as a service model. So essentially, my journey would start with me opening my phone app and ordering a ride much like Uber or Careem today.

Once the AV arrives I am free to watch TV, read a paper or take calls and respond to emails since the car needs no more input from me. The roads are far emptier as some estimates suggest that AV’s would reduce the number of vehicles in a city by up to 60%. As I approach my destination the vehicle pulls up outside my office and then seamlessly slips back into the traffic, off to pick up another fare or maybe to automatically charge itself if the battery is low.

What could this look like for the insurance industry?

1. Who requires insurance?

The AEVA envisages a similar set up as now: vehicle owners having a policy that covers the vehicle regardless of operating mode reflecting the fact that responsibility for damage caused by a car while it is being driven currently rests with the car owner and driver. As cars become increasingly automated this will need to be altered. If the vehicle is part of an autonomous fleet (owned by an Uber/Careem style firm) then the firm would be liable and could then claim against the manufacturer if they felt a product defect (either hardware or software) had caused the crash. Again, this model is likely to be replicated in the short-term.

1. What emerging risks exist that may need to be insured?

Alongside insuring the vehicle against damage, it may cause to itself, property and or other people AV’s create a series of other considerations. Manufacturers will almost certainly want to manage reputational risk given the spotlight likely to be on AV’s in the early years of operation (there are a few examples of AV crashes being widely reported already). Cyber Security will also be a significant concern for autonomous connected vehicles in particular. Finally manufactures will need to consider liability for a wider range of categories around non-performance in commercial environments.

1. Will premiums increase or decrease?

AV’s tend to work best around one another where connectivity plays a role in scoping road conditions and predicting issues. Where dumb (people driven) vehicles are also on the road, the possibility of accidents may not decrease as sharply. As the technology becomes more widely accepted however and fleets become more connected and owned by fewer entities accident rates should fall dramatically which ought to reduce claims and therefore premiums. Personal lines customers will also no longer have to worry about no claims, gender or age in pricing with “pay by the mile” becoming the norm.

1. Who owns the data from the vehicle in the case of an accident?

Data from connected AV’s ought to allow improved risk pricing and also extremely accurate understanding of the cause of accidents. The AEVA suggests that this data must be released to all parties in the event of an accident so that the cause can be accurately understood. This should allow owners/operators to be automatically reimbursed by manufacturers where appropriate and speed up claim resolution as well as reducing fraud.

1. What does all this mean for people working in the industry?

These changes, as well as the increasing use of technologies such as AI in the industry, are likely to reduce overall staff numbers, with customer service staff particularly effected by reduced claims volumes. Actuarial skill sets will likely become increasingly focused on data science and working with emerging technology. Likewise, I would expect marketing, communication and commercial roles to become increasingly digital.

If you’re interested in how these changes may affect your career in Insurance, why not get in touch with me directly at ianjenkins@cartermurray.com