implications for insurance - Finity Consulting · More than one function is automated at the time,...

Autonomous Vehicles – implications for

insurance

21 June 2016

Scott Reeves, Munich Re

Image from Google images

Agenda

1. What we know so far

2. What’s over the horizon?

3. Near-term implications for the insurance industry?

4. How will the insurance industry respond?

2 21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves

I have already been in a vehicle where I had almost no control…

21 June 2016 3 Autonomous Vehicles and the implications for insurance – Scott Reeves

What we know so far…

‘Automation’ is not just one thing NHTSA levels of automation

Source: National Highway Traffic Safety Administration, Preliminary Statement of Policy Concerning

Automated Vehicles, 5/2013 5

The vehicle is self-driving for entire trip; no human control required Full Automation

Level 4

Testing

Limited Automation

Level 3

Testing

Driving functions are sufficiently automated under certain traffic or environmental

conditions; the driver can safely engage other activities but expected to be available

for occasional control. (Google car)

Combined Function

Level 2

In production

More than one function is automated at the time, but the driver remains attentive.

Example: adaptive cruise control in combination with lane centering

Function-specific

Level 1

In production

One or more functions is automated, but under human control.

Examples: electronic stability control or pre-charged brakes

No-Automation

Level 0

No longer in production The human driver is in complete control of all functions of the car

Autonomous Vehicles and the implications for insurance – Scott Reeves 21 June 2016

Understanding autonomous vehicles

Sensors, cameras, radar and Light

Detection and Ranging (LIDAR) provide

data about vehicle’s position and

surroundings to a computer that controls

the car.

LIDAR, like radar, fires bursts of energy

at a target and measures the return time

to calculate the distance.

LIDAR generates high-resolution, three-

dimensional data.

Image: Google, Inc. Google and the Google logo are registered trademarks of Google Inc., used with permission. 6 21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves

Human vision vs. machine vision

Field of view: 100 degrees

Distance: 30 meters ahead Field of view: 360 degrees

Distance: 300 meters ahead


v

Status of AV technology

Source: Thomson Reuters, The 2016 State of Self-Driving Automotive Innovation, 1/7/2016

Number of unique inventions

8

Google ranked 19th for AV patents

21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves

Status of AV technology – car manufacturers

Manufacturer Target Model/Focus

Audi 2017 Audi to pilot driving A8 in 2017

BMW 2015 Prototype partnership with Chinese search engine company Baidu

Ford 2020 “Smart Mobility” plan may produce car within five years

GM 2020-2030 Semi-autonomous by 2020; fully autonomous by 2030

Mercedes 2020

2015

Fully autonomous E, S Class models “imminent”

Daimler Freightliner Inspiration truck licensed in Nevada

Nissan 2020 Partnership with NASA to progressively introduce AV technologies to consumers

beginning in 2016 up to 2020

Tesla 2015 Autopilot Model S sedan introduced in 2015

Toyota/Lexus Unspecified Partnership with Stanford University and Massachusetts Institute of Technology

to develop "human-centric systems“

Volvo 2017 100 fully autonomous on road in Sweden 2017

Continental

component / retrofit

2016

2025

Low-speed in traffic

Fully-autonomous

Source: Manufacturer’s websites, 2016 9 21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves

Current success stories


Delphi: coast to coast (5,500km) – 99% AV Google: over 1m miles driven*

Source: CNNMoney, Driverless Car Finishes 3,400 Mile Cross-Country Trip, 4/3/2015, Google, Self-Driving

Car Project, Accessed 3/7/2016

Image source: Delphi, Google

The AV revolution has not really begun yet

Source: McKinsey & Company, Ten Ways Autonomous Driving Could Redefine the Automotive World, 6/2015. 11 21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves

What’s over the horizon?

Ready to take you where you (might) want to go

Based on your web

browsing before you walk

out the front door, the car

will assess the most likely

place you want to go first

Source: Google images 13 21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves

Protection against natural hazards

Avoid hail by advance-alert

Enact disaster response plan

Go to pre-identified

undercover site

(but how far away now?)

Do you have control?


No need for large urban parking stations

Parking stations will not be

required…your AV will drop

you at the door, and then

Drive home, or

Drive to a designated

parking lot many km away

(in wasteland), or

Convert to a Uber taxi


Car ownership may fall

Today your car is an unused

asset 95% of the day.

Will we own fewer cars if

they are available on-

demand?

Will you hire-out your car?

Or send it on errands when

it’s not in use?

Source: Forbes, Self-Driving Cars Are Coming, 10/13/2014 16 21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves

Livery options

Google and Uber

compete to develop

driverless taxis.

Eliminating the “driver”

significantly reduces

overhead costs.

Consumers can expect a

driverless Uber fleet by

2030.

Source: Mobility Lab, Uber’s Plan for Self-Driving Cars Bigger Than It’s Taxi Disruption, 8/18/2015 17 21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves

Near-term implications for insurance

There is enormous scope for improvement

Driver error is the cause of 94% of accidents

38,300 fatalities

4.4 million injuries

$412** billion accidents

In 2015 in the US*

Source: National Safety Council Vehicle Fatality Estimates, 2/17/2016

*provisional estimate increase of 8% year over year, largest increase in 50 years

**cost of motor-vehicle deaths, injuries and property damage


We are already seeing significant safety improvements*

KEY:

LDW -

Lane

departure

warning

ACC -

Adaptive

cruise control

Source: Insurance Institute for Highway Safety (IIHS), 2015 20 21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves

Insurance industry will lose business

As of 2015, approximately 38% of general insurance industry premium is

derived from motor vehicle insurance

According to Celent, US auto insurance premiums could drop 60%

starting in 2020’s

IHS Automotive predicts worldwide self driving vehicles sales of 230,000

by 2025; 11.8m by 2035

Source: APRA Net Earned Premium (Domestic MV, CTP) 31/12/2015, , SNL, IHS Automotive, Emerging

Technologies: Autonomous Cars—Not If, But When, 1/2/2014, Celent, End of Auto Insurance, 5/2012 21 21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves

But zero crashes are not guaranteed

In the real world there are always unknown moving obstacles . . . it’s always

possible to find situations where a collision will happen.”

Thierry Fraichard

Project-Team ‘Perception, recognition and integration for modelling of activity’ (PRIMA)

2014

“As the Google AV was reentering the center of the lane it made contact with the

side of the bus. The Google AV was operating in autonomous mode and traveling at

less than 2 mph, and the bus was traveling at about 15 mph at the time of contact.”

California Department of Motor Vehicles, Google Accident Report 2/14/2016


What is the cost of repair?

AV technology is not just one system

23 Source: BCG, Revolution in the Driver’s Seat: The Road to Autonomous Vehicles, 4/21/2015


Is the insurance industry doomed as we know it?

“Self-driving cars and ride-sharing programs will completely disrupt the car-

insurance industry.”

"Accident frequency will decline to where the difference among driving behaviors

becomes negligible and it is difficult to charge a meaningful premium for

insurance."

"Insurance will take the form of commercial product liability instead of personal

driver liability as we let the robots do the driving."

"Vehicle utilization will rise and cars on the road will decline as one car can serve

the driving needs of multiple travelers per day, which, in-turn, means fewer cars."

Business Insider

“This could be the beginning of the end for the car-insurance business”

July 21, 2015


Likely implications for insurance premiums

CTP

Product recall

Cyber risk

tech E&O/IoT

Comprehensive Motor

Equipment breakdown/warranty

Products liability

Transition to full

vehicle

autonomy

------

Varying degrees

of impact over

time

Likely to shrink

Likely to increase Likely to increase

Likely to increase Likely to increase

Likely no material change


Products – potential coverage implications

Expertise - Potential difference between the AV company and existing auto

parts/technology is the amount of knowledge that the auto manufacturer has about the

product or technology used.

Causation – What caused the loss/accident? Will parts manufacturers exposure be

evident in all cases?

Allocation/Accountability – Who is responsible? Given that the AV company is

providing specs to the OEM (and not vice versa), is the AV company ultimately liable if the

auto is built to spec, even if the part fails?

Reputational risk - Given the amount of media attention surrounding this technology, if

there are issues, does this technology present a reputational risk to the AV company’s

brand and other businesses?

AV manufacturer may pick up liability - e.g. Volvo, Mercedes, Google….Who next?


Liability issues – AV cyber vulnerability

Traditional

Bodily injury / Property damage

Privacy Product liability

technology E&O

Equipment malfunction

Hacking / Malfeasance

Vulnerable

technology and software

Example: Jeep

2015 hackers (researchers) accessed a Jeep

while it was driving

Took control of the radio, wiper blades and

brakes

Used a laptop and Smartphone to hack the Jeep

from 10 miles away

Image - https://commons.wikimedia.org/wiki/File:Jeep_Grand_Cherokee_3.0_CRD_Overland_

(WK)_%E2%80%93_Frontansicht_(1),_10._September_2011,_D%C3%BCsseldorf.jpg 27 21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves

https://commons.wikimedia.org/wiki/File:Jeep_Grand_Cherokee_3.0_CRD_Overland_



How will the insurance industry respond?

Looking ahead

Inevitable Complex Evolving Challenging

Insurance of motor vehicle exposure will change, possibly dramatically over time

Liability shifts from driver to manufacturers and technology companies

Comprehensive motor, cyber, products warranty may grow

Exposures will be more complex – Cyber/software, car manufacturer, driver

Coverage issues will emerge and take time to evolve and stabilize

Telematics use will grow – continue the progress towards individual ratemaking

Insurance industry should understand the issues; be prepared to adjust and

innovate (particularly those with material personal or commercial portfolios)


The matter of liability will evolve


Strict and fault-based liability will continue to apply: victims

will need to be fully compensated, regardless of cause!

→ Continued coverage through policies, with strict liability

also applying for driverless robotic vehicles. Possible

consequences for product liability if motor insurers seek

recourse from manufacturers.

For consideration: Was the accident caused by failure of a

technical unit or a software error, or was it caused by a

driver error?

→ Altered liability; the autonomous functionality will lead to

an increase in the manufacturers’ liability.

In Germany, vehicle owners will continue to be liable

(including for service and software updates), but they

must not be considered test drivers of immature systems

or have to prove product failure.

Insurers must retain the right to seek recourse from

manufacturers.

In the US, where coverage levels are often lower, the

focus on product liability is likely to be greater in future.

New responsibilities will arise for manufacturers, suppliers

and third parties under product liability laws;

users will still have to intervene for a relatively long time

and thus continue to bear responsibility.

Besides: Human or machine – who will ultimately have

responsibility?

Altered risks for the insurance industry


Increased claims expenditure incurred by motor vehicle insurers owing to complex liability issues; specialists with high technical

expertise needed

Insurers need to understand behaviour of the new systems in order to assess the risks, i.e. deep understanding of risks

→ technical know-how

Continuous need for new risk assessments by insurers and support from reinsurers

Rapid but still unclear development of technology and local law / court ruling, different national regulatory regimes

Complex technology Complex liability issues

German multi-line research project acatech: Need for cross-border cooperation between various actors involved in automated

driving: R&D, supply side and users. Science and industry should develop uniform principles of human-machine interaction.

Partnering with customers, manufacturers and technology developers (telematics, telecommunication) increasingly important.

Munich Re partnerships, e.g. with Comet (feasibility study) and with scientific institutions such as Mcity (University of Michigan),

initiatives such as Mobility Domain

Stakeholders in the outcome


Drivers

AV Manufacturers

Software providers

Insurers

Panel repairers

Injured people and families

Governments

Health care sectors

Often mentioned… But also…

Product insurance is not necessarily the end state


dependence on AV functionality

decision being taken from driver?

less ‘fault’ from driver

Complexity of establishing fault

Care / indemnity balance

Focus on motor insurance Focus on product insurance

Government budget pressure

Specific issues for people injured in accidents

Will CTP as a product continue?

A Products Liability regime may see:

Delays to settlement, no interim payments

Uncertainty of available limit

Claimants to follow a class action?

CTP provides funding, taking pressure from

the injured person, and government budgets.

Likely the NIIS provides care for injured

people, funded from the states

Might state governments co-opt existing CTP

arrangements to apply to your responsibility

for consequences of the vehicle.


Munich Re is a supporting

partner of the Australian

Driverless Vehicle Initiative

We are a member of the Policy

and Risk Group, which has

responsibility for planning,

development and coordination of

all position papers, policy and

risk forums

Other insurance partners are

IAG, Suncorp, and Zurich

Munich Re in partnerships


Munich Re - a thought leader in the AV space

36

Identifying promising tech start-ups in Silicon Valley

Partnering with AV start-ups to stimulate progress

Researching AV emerging risks

Collecting and analyzing data

Developing innovative products and solutions

Educating and empowering stakeholders


This presentation contains forward-looking statements that are based on current assumptions

and forecasts of the management of Munich Re. Known and unknown risks, uncertainties and

other factors could lead to material differences between the forward-looking statements given

here and the actual development, in particular the results, financial situation and performance

of our Company. The Company assumes no liability to update these forward-looking

statements or to make them conform to future events or developments.

Disclaimer


Thank you very much for your attention.

21 June 2016

Scott Reeves © 2016 Münchener Rückversicherungs-Gesellschaft © 2016 Munich Reinsurance Company

Images: depositfotos.com

implications for insurance - Finity Consulting · More than one function is automated at the time,...

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