Insurance & Liability
Breakout Session - TRB
Symposium
July 2015
Insuring Autonomous Vehicles
– Changes? Challenges?
More Recent Autonomous Vehicle
Puck Magazine, April 16, 1902
(The caption reads, “AS THE LAW STANDS: Owner (To Chauffeur). — Don’t stop! It only costs about ten dollars apiece to run them down. I must break the
Another Autonomous Travel Threat
Advertisement from 1957 Independent Electric Light and Power Companies ad. “ELECTRICITY MAY BE THE DRIVER. One day your car may speed along an electric super-highway, its speed and steering
Some Bad News
--
Accidents—93
+% or more caused by or contributed to by driver
error.
--5.3 million crashes in 2011
--Leading cause of Death, ages 3-34.
--Over 32,000 to 35,000 U.S. deaths. In U.S., over 1 mil. Worldwide
per y. Over 10 y., more that the population of St. Louis.
--U.S. auto deaths over 2x - 3x worldwide Ebola deaths in 2014.
http://www.cdc.gov/vhf/ebola/outbreaks/2014-west-africa/case-counts.html
--Over two million emergency room visits/year.
--NHTSA estimates U.S. economic and social costs of $871
Billion/year (not including cost of car ownership).
Causes of Crashes
•
41% due to recognition errors: inattention, distraction, and
inadequate surveillance of driving environment.
•
33% due to decision errors: speeding, misjudgment of other
cars’ speed and illegal maneuvers.
•
11% due to performance errors: overcompensation, poor
directional control.
•
7% due to the driver falling asleep.
•
8% due to other types of driver errors.
•
2% Vehicle Problem: tire/wheel related, brake related,
steering/transmission/engine related.
•
2% Driving Environment.
•
2% Unknown
•
Source: NHTSA Crash Stats (Feb. 2015)
•
In over 35% of traffic fatalities, the brakes are not applied.
Source: Calif. DMV,Some Less Bad News – Declining Deaths per Billion Vehicle Miles. (Downward
trend—50 per
billion
vehicle miles traveled (VMT) in 1960 to 11.3 per billion
Compensation for Injuries (Liability)
•
Faulty cars with Faultless Drivers
•
Standard Auto Policy
•
Liability Coverage—“legally responsible”
•
Uninsured/Underinsured—“legally entitled
to recover from owner or operator”
•
When, if ever, will a faultless driver be “legally
responsible” for an accident or be “legally
entitled” to recover from a faultless
“Uninsured” Robo Car
“Robot depicted as uninsured motorist only. Farmers
Insurance does not insure any form of robot or
non-human.”
Although mandatory in all new vehicles, it is predicted that ESC will be standard or optional on 95% of registered vehicles in 2029 and 100% by 2040.
Other Incentives?
•
Cash to retire older cars? Air quality control districts
do this now.
•
Tax Credits/Deductions (Compare electric cars)
•
Carpool lane?
•
Higher speed limit for safer cars?
•
55 for trucks
•
65 for manually driven cars
•
75 for cars in self-driving mode?
Getting Insurance Right
• 2015 Boston Consulting Group survey suggests 44-55% are ready to
purchase AVs, despite added expense, BUT
• reduced insurance and better safety were the two most important
reasons cited.
The Boston Consulting Group, “Revolution in the Driver’s Seat: The Road to Autonomous Vehicles.”• So—If these vehicles are much safer, passing insurance savings to
purchasers is important to their acceptance in the private vehicle
fleet.
• Two modes of introduction
• The Moon Shot – introducing driverless cars in fleets
How Insurers Price Insurance
•
The Classic Way:
•
Calculating the “Base Rate.” Based on Prior Data (e.g., three year
experience), actuaries predict the total cost, including overhead and
profit, to service the entire book of business. Divide by number of
policies = an “indication,” or “base rate.”
•
Class Plan. Adjust the base rate to better reflect the risk for each
policyholder based on various characteristics – safety record, gender,
education, residence, etc.
•
Why not charge the base rate to all? Less risky insureds would gravitate
to a company offering a class plan reflecting their lower risk. More
risky insureds would gravitate to the company charging only the base
rate. Thus, over time, in the absence of a well constructed class play, an
insurer would populate its book with high-risk insureds.
•
The Future: Telematics? UBI?
What Goes Into A Traditional “Class Plan?”
Insurers often use the following characteristics in pricing: oMotor vehicle record (driver safety record)
oAccident history
oHow a car is driven (speed, braking, etc.) oAspects of a person’s credit
oWhere the vehicle is mainly kept oNumber of miles driven
oAge
oMarital status oGender
oOccupation oEmployment
oCharacteristics of the vehicle
California lists 3 “mandatory” and 16 “optional” rating factors for auto
Future Rating Insurance Rating Issues
•
Insurance class plan rate structures will need to
change:
•
How meaningful is the driver’s record when the
car (mostly) drives itself? Other driver
characteristic rating factors?
•
How meaningful is gross annual mileage when the
risk varies significantly between operator
controlled and vehicle controlled miles?
•
Should self-driving cars be in a separate rating
plan?
•
Will policies by mile, trip or
Mandatory Auto Insurance?
•
All States (except New Hampshire) mandate a minimum
level of auto insurance. The so called “Financial
Responsibility” laws. California requires only a
$15,000/$30,000/$5,000 policy (adopted and unchanged
since 1967!)
•
These were adopted when death’s per VMT were at their
height.
•
Sound public policy if frequency, severity, and driver
responsibility significantly diminish?
•
Will focus shift to OEMs and fleet owners – much like the
Data?
Data?
Data?
•
Does adequate data for pricing exist? Will AVs
reduce accidents by 93%?
(Casualty Actuarial Society study - “49% of accidents contain at least one limiting factor that could disable the technology or reduce its effectiveness.”)http://www.casact.org/pubs/forum/14fforum/CAS%20AVTF_Restated_NMVCCS.pdf
•
Will prior data be a credible predictor of future
costs?
•
One download changes the safety profile of the
entire fleet.
•
Moore’s Law?
Claims Handling & Liability Determinations
How determine who is liable when an automated vehicle is in a crash that appears to have been caused by that particular automated vehicle? What roles will private auto insurance play?
--The operator will want a defense? Was it driver error or AV error? An insurance policy contains both the duty to indemnify and the duty to defend. The “Black Box.” For a computer view of a recent Google crash, see:
http://www.businessinsider.com/passengers-suffer-whiplash-in-google-self-driving-car-crash-2015-7
--The operator will want the vehicle repaired without pursuing a products claim. Collision and comprehensive coverage.
--UM/UIM coverage when injured by un/underinsured motorists
--Will the insurer or operator be initially responsible? Up to the financial responsibility limits? The insurer will want its money back from the OEM through subrogation.
--Health care for major injuries is a substantial cost. As health care
Some Regulatory Challenges to Pricing
•
1. The Insured’s driving safety record
•
2. The number of miles he or she drives annually
•
3. The number of years of driving experience the insured has had.
•
Followed by 16 “optional” rating factors.
See Cal. Ins. Code sec. 1861.05(a), 10 CCRsec. 2632.5
•
Telematics? UBI? CA insurers may collect only mileage.
Cal. Code Regs. Tit. 10, sec. 2632.5(i)(5)(a)(insurer may use technological device only for “determining actual miles driven . . . .”)All states, including California, provide that rates may not be
“excessive, inadequate, or unfairly discriminatory”
Nevertheless, Prop. 103 and accompanying regs. mandate the
top three Rating Factors in the following order of importance
(abridged)
California’s Good Driver Discount
•
California’s Good Driver Discount. Proposition 103: “at least 20%
below the rate the insured would otherwise have been charged.”
•
Prior approval of rates when safety is rapidly (perhaps
exponentially) increasing.
•
Initial lack of data for rating.
Some “New” Costs?
•
Bumper tappers (less than “fender benders”) can destroy expensive
sensors, raising repair costs.
•
Expensive technology may be destroyed in more serious collisions.
•
Who will be authorized to make repairs? Bob’s Pretty Good Repair
Shop?
Some “New” Costs? (Cont’d)
•
Claims currently un/undercompensated will now flow up to the
OEM, e.g.
•
Parent drives car into tree, injuring parent and child. No
insured claim.
•
Car drives parent and child into tree. Products claim against
OEM.
•
Trucker drives truck into tree. Workers compensation is the
only remedy.
•
Truck drives trucker into tree. Tort claim against OEM.
•
Serious injury, but only $15,000 in insurance or assets.
Claim’s value is $15,000. If a products liability claim, the
OEM’s insurance and assets are available to pay the claim.
The Future?
•
Market for first-party insurance (like uninsured/underinsured
coverage) to protect from injuries from autonomous vehicles?
•
Will insurers and OEMs enter into arbitration agreements to
resolve subrogation claims (much like how insurers resolve
collision claims at present)?
•
Vaccine compensation model. As infrastructure matures,
resolving disputes in a fault based/defect based system may
make less and less sense.
Guarantee Funds and General Motors
Regulators’ first obligation - insure the solvency of insurers so that they can honor the promise of the policy. This is especially so when public policy demands financial responsibility for automobiles. Regulators accomplish this through:
Conservative accounting principles for insurers Financial surveillance
Guarantee Funds
General Motors and Other OEMs – Who Guarantees Their Obligation?
Guarantee Funds? – probably not because OEMs may: Self-insure?—no guarantee fund coverage.
Retain some risk and reinsure? – no guarantee fund coverage for reinsurance Insure with a nonadmitted (“surplus lines”) insurer? – no guarantee fund
coverage.
Insure through a risk retention group? – no guarantee fund coverage. Insure through a captive (in Bermuda?) – no guarantee fund coverage.
