United States: IREG Update - September 18, 2015

Hot Topic: Auto insurance in the age of the driverless car


Not surprisingly, the most common cause of vehicle accidents is human error. Whether a motor vehicle offers one automated function or fully autonomous driving, AV technologies that shift driving responsibility from the driver to the car will reduce the potential for human error and the number of accidents. The overall societal benefits of less vehicle accidents are considerable. According to statistics provided by the Centers for Disease Control and Prevention, in a single year the cost of medical care and loss of productivity associated with injuries from motor vehicle accidents can exceed $80 billion. The Insurance Institute for Highway Safety estimated that if all motor vehicles were equipped with just a few AV technologies (e.g., forward collision and lane departure warning systems, blind spot assist, adaptive headlights) nearly a third of crashes and fatalities could be prevented. AV technology that enables a car to drive itself could reduce vehicle crashes even more.

A recent survey conducted by the consulting firm KPMG posed a series of questions to senior insurance executives from companies representing nearly $85 billion in personal and commercial auto premium. The survey offers somewhat surprising insights into the degree to which such companies expect driverless cars to effect their business. Seventy-four percent of respondents indicated that their companies were not prepared for this change. Over 60 percent of respondents indicated they do not plan on addressing the issue for at least 12–18 months. Over 80 percent of respondents indicated they do not expect driverless cars to significantly impact their business for a decade or more.

On some level, AV technology is certain to change the way insurance consumers drive and commute. According to one KPMG analyst, "the disruption of autonomous vehicles to the automotive ecosystem will be profound, and the change will happen faster than most in the insurance industry think."

Key insurance issues concerning driverless cars

Typical underwriting and claims handling practices will need to be reassessed as driver variability and claim frequency decreases. From an actuarial standpoint, decades of underwriting data may be rendered useless in a relatively short period of time. Winners and losers will be determined by each company's ability to identify and execute a profitable underwriting strategy and any necessary reduction is claims administration overhead.

When the number of vehicle accidents is reduced enough, the need for personal lines automobile insurance may disappear altogether. Insurers will need to consider changing the mix of insurance products offered. For example, injuries to persons and property that result from vehicle crashes could instead be covered by one's health or homeowner's policies. As driverless cars are expected to increase the prevalence of ride sharing and "mobility on demand" services, commercial or hybrid personal/commercial products could become a growth area. AV technology will also transform vehicles into computers on wheels, making cars more vulnerable to cyber attacks. Just last month at the Black Hat security conference in Las Vegas, Nevada, computer experts demonstrated how they were able to assume control of a Jeep Cherokee from a laptop. As greater numbers of autonomous vehicles take to the roads, the demand for protection against risks associated with cyber attacks may increase dramatically.

On the regulatory front, the proliferation of AV technology will continue to shift responsibility from the driver to the vehicle manufacturer. Because of the differing degrees to which AV technology actually controls the vehicle may exist for some time, regulators may find no-fault automobile-insurance regimes in the best interests of their respective insureds. Consumers would be able to receive compensation quickly and without the need for a protracted and expensive process for determining who of the driver or the manufacturer was actually at fault. Product liability causes of action will also need to be examined to allow the proliferation of AV technology without undermining consumer safety.


AV technologies are propelling the auto industry increasingly closer to the realization of the driverless car. Insurers that desire to maintain market share in the automobile insurance market must carefully consider the risk associated with the fundamental shift in the industry that is expected to occur. Exposure to these potential effects should be evaluated sooner than later to ensure that future strategies and operations are properly aligned with decreased premiums and consumer demand for current automobile insurance products.


Noteworthy links from the past two weeks


  • Well respected Iowa insurance lawyer and regulator Jim Mumford passed away [InsuranceNewsNet]
  • Guy Carpenter issued a report on global re-insurance regulatory changes [Intelligent Insurer]
  • The Wall Street Journal criticized federal regulators for designating MetLife a Systemically Important Financial Institution [Wall Street Journal]
  • The NAIC's Cyber Security Task Force considered a "Cybersecurity Bill of Rights" [NAIC]

Life & Health

  • Health insurance CO-OPs created by the Affordable Care Act and other health insurance start ups continued to face a challenging marketplace [New York Times]
  • The Center for Medicare and Medicaid Services Inspector General reported on oversight failures concerning the contractors who built healthcare.gov [BloombergBusiness]
  • New York's Excellus Blue Cross Blue Shield indicated that a cyber breach had exposed the records of up to 10 million customers [Reuters]
  • The Obama Administration proposed new rules to shield transgender patients from bias [New York Times]

Property & Casualty

  • Consumer Reports published an assessment suggesting that of credit history had a larger impact on auto insurance costs than any other factor [WRAL]
  • North Carolina's Governor signed a new law regulating the ride-share industry [Charlotte Business Journal]

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