To be Autonomous or not to be Autonomous

To be Autonomous or not to be Autonomous

Autonomous cars are paving the way of the future. What does the future hold for autonomous cars and how will the insurance landscape change in the future?


Cars on Highway

The invention of the motor car by Henry T Ford has irrevocably changed our lifestyles, granting us the freedom and independence to comfortably get from one place to another, and undoubtedly enabled us to get around easier and faster. However, in those days only the rich could afford a car. This stands in sharp contrast to the present. Nowadays, anyone who has a driving licence owns at least one car. Malta epitomizes this reality as the number of cars on the road has risen exponentially. This has unfortunately led to an increase in car accidents on our roads.

Various research done in recent years has shown that the change to autonomous cars would reduce the number of accidents on the road and the seriousness of the accidents. Research has also shown that 90 percent of accidents are caused by driver error. The conclusion therefore is that if the driver is removed, the number of accidents should decrease. We have all seen stories about autonomous cars being involved in accidents but these mostly involve an autonomous and a non-autonomous car. 

If you bought a car in the last ten years, you probably have some safety features that are standard with autonomous cars. Features like cruise control, lane control and automated parking. The start- stop technology has already helped drivers ease through congestion more safely.

How comfortable will we be in an autonomous car? Whilst important, this is perhaps not the most pressing question.  After all, consumers are already showing they favour the features of these vehicles individually. The more important question to address would be how the move to autonomous cars will change the insurance landscape in the future.

A traditional motor insurance policy is typically priced based on a set of risk factors such as age of the driver, gender of the driver, age of the vehicle, market value of the vehicle, use of the vehicle, whether it is garaged or parked on the road, expected annual miles driven and security features of the car. With the claims experience gained over the years, the underwriting of a car insurance policy has also varied by the colour of the vehicle and by where the owner lives i.e. post code. Thank goodness for data and analytics. The claims experience data accumulated over the years has enabled underwriters and actuaries to be more sophisticated in their pricing of car insurance premiums. 

How will insurers determine the insurance premiums for a computer driven car? Some researchers say that the introduction of autonomous cars could bring about more uniformity in underwriting. Insurers will have to now consider a different set of risk factors and policy exclusions when setting insurance premiums. The traditional risk factors based on the demographic of the human driver and standard policy exclusions may no longer directly apply for autonomous cars. The driving ability of the other drivers on the road and the modernity of their cars will become more and more important. 

With anything new and uncertain due to the lack of evidence to back the experience, the general consumer expectation at the outset is that the insurance premiums would be higher. This may also be the case as there will be a mixture of both autonomous and ‘traditional’ cars on the road.

Autonomous cars will be more expensive with the higher level of technological specifications and features. By virtue of the higher market value, insurance premiums would be higher! This is likely to be the short-term impact. With more expensive cars, the replacement costs will also be higher, again resulting in higher premiums.

However, most researchers say that the invention of autonomous cars will bring lower losses as the computers controlling the cars will be better drivers. The lower probability of loss will reduce the level of insurance premiums. So in the longer term we should see premiums come down.

The most significant change with the invention of the autonomous car is that it will be driven by a computer and not by a human. As the car gains more autonomy, the driver’s role becomes more about monitoring the system and manually overriding the controls if necessary.

With the change to an autonomous car, lawyers may need to determine who becomes responsible when an accident happens since the human driver would no longer be in the driving seat of the car. Insurers will then need to determine the extent to which the car manufacturers and the computer software or robot developer share in the responsibility for an accident. In a nutshell, insurers will need to determine the expected proximate causes of the accidents to be able to provide a more appropriate level of premium. Some researchers say that it will ultimately be the courts which will decide who should assume liability in the event of an accident. This will be a daunting task and the courts will have to work through the same questions as the insurers. 

The insurance landscape is expected to change as the car market changes.  Car manufacturers and computer software developers will play an important role in the invention of autonomous cars. As the cars are given more driving autonomy, the potential liability of car manufacturers and the software developers will increase. They may want to take out their own product liability insurance against this risk.  However, these high-tech companies may also develop solutions to offer insurance directly to their customers. This would change the way in which car insurance is sold. For instance, car insurance could be bundled with car sales in the way that warranties are provided today.

It will be some time in the future before all the cars on the road will be fully autonomous and there will be greater clarity on what the level of premiums would be and greater clarity of the regulatory aspects relating to autonomous cars. Until then it will be an interesting journey.

The KPMG survey and report ‘Automobile Insurance in the era of autonomous vehicles’ can be accessed here.

© 2022 KPMG, a Maltese civil partnership and a member firm of the KPMG global organisation of independent member firms affiliated with KPMG International Limited, a private English company limited by guarantee. All rights reserved.

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