As technological advancements continue to revolutionize the automotive industry, it also continues to disrupt other industries in its wake. The self-driving technology or autonomous vehicle technology, which seemed like science fiction, not more than a decade ago, is now becoming a reality. The technology has been in the news for some time now with new players coming into the field. Most of the major automobile companies aim at introducing their autonomous vehicles in the next few years while few are already testing their self-driving cars on the roads. Waymo, Google’s autonomous car technology, has aggressively put their self-driving car to tests across multiple locations in real-world conditions.
The car has so far self-driven more than 10 million miles, and the company has now launched a public trial of the self-driving car. While the evolution of technology is likely to gain speed, the ripple effects are already being felt across related industries. For instance, the insurance industry is trying to grapple with the impact of the self-driving technology on the insurance space.
Currently, insurance covers losses of accidents caused primarily by drivers; what happens when the machine replaces human drivers? Self-driving technology raises such complex questions which the insurers must think over before the driverless cars become part of the mainstream society. One factor that weighs in their favor, however; is that the shift to a fully self-driving car will be carried out in stages. Before becoming completely driverless, vehicles will go through phases of being driver controlled and semi-autonomous where controlled will be switched between driver and auto depending upon the conditions.
Technology purveyors and auto manufacturers including Google, Mercedes, BMW, Tesla, Audi, and GM all plan to roll out their autonomous vehicles in a phased manner with increasing levels of automation over time. The U.S. National Highway Traffic Safety Administration has defined the six levels of automation as;
- No automation: Zero autonomy; the driver performs all the tasks
- Driver assistance: Some driving functions will be automated, but the driver will be needed
- Partial automation: Vehicle has combined automated features, but the driver must remain engaged with the driving task and constantly monitor the environment
- Conditional automation: The driver does not need to monitor the environment, but the driver must be ready to take control with notice
- High automation: The vehicle can perform all driving functions under favorable conditions. The vehicle will have driver mode and auto allowing the control to transition between the two modes
- Full automation: The vehicle is capable of performing all driving functions without any assistance from the driver. There may be an option for the driver to control the vehicle
The introduction of each level of automation has huge implications for the insurance industry. The industry will need to transform itself parallel with these levels as the vehicles gradually come out to the market. The impacts that the driverless cars will have on health insurance are diverse and many, some of which is covered in this article.
- Fewer claims and payouts:
The autonomous vehicle technology will make the overall ride safer and comfortable. Reports suggest that around 1.3 million road fatalities are caused every year globally. About 94 percent of car accidents occur due to human error. The autonomous technology takes the human driver out of the equation and replaces it with a machine equipped with powerful sensors. This will eliminate/reduce the accidents caused due to human negligence. As the technology is in its infancy, a few hiccups along the way are possible.
The Google self-driving car initiating an accident, the Uber incident that killed a pedestrian and the Tesla model X crash in California are instances which suggests that the self-driving technology can be prone to errors, but as the technology evolves and more powerful sensors come to the market, a lot of the accidents currently attributed to human negligence will plummet. It must also be noted that these accidents occurred after the vehicles had self-driven millions of miles which is still a much lower accident rate than the accidents involving human-driven vehicles. For instance, The first accident initiated by a Google autonomous car occurred after 1.45 million vehicle miles traveled, which is approximately 0.7 accidents per million vehicle miles traveled (VMT). This is significantly lower than the current U.S. average of about two accidents per million VMT.
A study from NHTSA showed that motor vehicle crashes in 2010 cost USD 242 billion in economic activity, including USD 57.6 billion in lost workplace productivity, and a staggering USD 594 billion due to loss of life and decreased quality of life due to injuries. Self-driving vehicles will eliminate the vast majority of vehicle crashes which would erase or at least, mitigate these costs. All this suggest a significant decrease in car-related fatalities/injuries and the associated financial, social and health burdens which means fewer people would go after auto and health insurances, consequently; insurers will be pressured to lower premiums. Besides potentially fewer accidents, the increase in eco-friendly vehicles will also reduce pollution and its harmful health effects much of which may be attributed to vehicle emissions. This will result in decreasing the risk of a variety of respiratory diseases, heart disease, and lung diseases. Lowering the risk of diseases reduces the financial risk; hence, reducing claims and payouts for insurers.
However, there is also a flipside to this vision of an autonomous future. The fact that autonomous vehicles promote an inactive lifestyle will also have diverse effects on people’s health. People preferring to sit inactive to the healthier modes of transportation such as walking, cycling or even taking the public transport can fall victim to chronic diseases including heart diseases, strokes, cancer, and diabetes. However, the reduction in premium due to safety will far outweigh the increase in premium due to increase preference of inactivity.
Since drivers are currently held liable for accidents, all personal insurance products are therefore purchased by the vehicle owner. However, this trend will change with the advent of driverless cars. The accountability will be no more on the driver because there will be no driver. The liability will shift from the driver to the vehicle manufacturer and the network provider. Both these entities will be responsible for any fatality or injury in autonomous vehicles. The vehicle manufacturer will be liable when the accident is due to an issue with the hardware or software of the car; the network provider will be liable when the accident is due to a network fault such as failure to provide the correct direction coordinates. Autonomous vehicles will be dependent on the network to determine driving aspects such as the location of the car, the speed, and direction of other vehicles and the overall traffic.
Different phases of autonomous vehicle technology will attract different parties to buy insurance. In the first phase that includes the driver assistance and partial assistance levels, the car manufacturer will be held accountable if it can be proven that the damage was caused due to malfunction of automotive function. In any other case, the liability lies with the driver. Same goes for the manual mode of the second phase of autonomous vehicles i-e conditional automation and high automation. However; in the auto mode of phase two, the car manufacturer or network provider will be liable for any collision or damage caused due to hardware and/or software and network fault when the car was auto driven with the only exception of non-maintenance of the vehicle.
The medical payment coverage will depend on the party that is liable for the loss. This also holds true for the third phase of autonomous vehicles.
- Low insurance premiums:
The savings as a result of fewer claims will be matched by a significant reduction in insurance premiums. The self-driving technology comes with a number of healthcare benefits including lower risk to a variety of diseases and fewer car-related injuries. The technology eliminates the risk of getting distracted and panic or involvement in any activity that is deemed bad while driving. Health insurance cost/revenue per mile will continue to go down as more sophisticated technologies come to the forefront.
Technologies that already come installed in today’s semi-autonomous vehicles including the cruise control, driver drowsiness detection, blind spot detection, antilock braking system, augmented reality dashboards, enhanced gesture control, and health monitoring apps have reduced fatalities and injuries to a great extent which has significantly impacted the insurance premium. New factors will likely impact the insurance premium in the fully self-driving car era. This also means that new parameters for pricing and underwriting will emerge over time.
As underwriters typically offer discounts for new and safer technologies, with the advent of autonomous technology, reduction in bodily injury liability claim rates is expected which would reduce health insurance premium for self-driving vehicle commuters. This would make the people driving the conventional vehicles the most expensive insurance class as the pool of conventional drivers shrink.
- Claim history, driving behavior, etc. will be irrelevant:
In case of an accident of a self-driving car, the insured party’s claim history, driving behavior, age, and other similar factors are irrelevant since the accountability will shift from the driver to the car manufacturer and network provider. The car manufacturer will be liable when an accident is caused due to an issue with the hardware or software of the car.
The network provider will be liable when an accident arises due to a faulty network such as miscommunication with other autonomous vehicle or providing faulty direction coordinates. The way the insurance policy is priced will fundamentally change with this shift in liability.
Getting medical care in such cases can become a tricky situation especially if different insurance policies are in place. A number of factors determine the responsibility that lies with a particular party or an insurance carrier. The factors include the types of insurance coverage at the place and the person at fault at the car accident, but ultimately, most health insurance policies will cover car accident injury bills, at least to some extent.
- Elimination of fraudulent claims:
The reduction in accidents will also reduce frauds. The reason for this is not solely the lower number of accidents but also the availability of more credible and better data to the insurer. More data will be at hand for any event during the journey, thanks to the powerful sensors and data recording tools, this awareness may change and modify human behavior as well. There will be little chance for fraudulent customers to come up with fabricated answers as the data the insurers need come from sensors and customer’s mobile phone.
The current progression of ever-increasing disk storage capacities and ever-decreasing prices means that the storage devices in these self-driving cars will store terabytes of data. It is assumed that the autonomous vehicles will be connected to a network and cloud most of the times albeit it gave way to cybersecurity concerns. With deep data available on events and tools to pull the data into reports, there will be a complete description of events available in most of the situations without needing the human aid recollections.
Hence; the insurer will be in a better way to paint a picture of what happened and resolve claims more quickly and accurately. This, however; demands complete cooperation between the automaker and the insurer regarding data sharing, not to forget the regulatory issues that currently imperil data privacy.
The Bottom Line:
Although the future looks bright for the driverless technology, it may take a few years for us to feel the ripple effects across relevant industries including the insurance industry. Autonomous technology may well be introduced in the next couple of years, but it may take a while for the common folks to go to the scrap car buyers to get a value for their old conventional cars before shifting to the self-driving technology. However, it is prudent for the insurers to start pondering over the future impacts and effects of the introduction of autonomous technology so that when the hour arrives, insurers are ready to grab any opportunity with both hands.
Such insurers who build policies to recognize the shifts of risk will find themselves at an advantage over their competitors and will be in a position to make a profit in a very competitive market. As the horizon remains unclear for now, our advice is to take these predictions with a pinch of salt. The good news, eventually, is that whatever route this complicated issue takes for the insurance industry, the fact that all our commutes should be safer and more entertaining is clear. While the risk may transfer from one entity to another, overall there should be less risk in the world, and that is all that matters in the end.
Audrey Throne is a mother of a 3-year old and a professional blogger by choice. Throne is passionate about health, technology and management and blogs frequently on these topics.
Find her on Twitter: @audrey_throne.