How equipped is the current auto insurance landscape to handle accidents involving self-driving cars? Ryan Stein from Insurance Bureau of Canada (IBC) weighs in—and shares a two-part framework for how insurance laws could be updated.

Highlights

  • IBC recommends a two-part framework to update auto insurance laws to deal with the adoption of self-driving cars: a single insurance policy that covers both conventional and automated cars, and a data-sharing policy to help identify the cause of accidents.
  • Self-driving cars will create challenges for insurers, and will notably introduce new risks with driving, such as cybercrime and hacking risk. However, they will also create opportunities for insurers to better meet consumer needs.

Insurers need a strategy to insure self-driving cars, with Ryan Stein

Welcome back to the Accenture Insurance Influencers podcast, where we interview some of the industry’s experts on trends shaping the future of the industry: artificial intelligence (AI), innovation and tools to enable fraud detection. Our first guest is Ryan Stein, the executive director of auto insurance policy and innovation at Insurance Bureau of Canada (IBC).

In the last episode, Ryan explained there’s an assumption that underpins our existing auto insurance policies—that humans are at fault. However, as soon as one automated vehicle gets into a car accident, that raises the possibility of not just an auto insurance claim, but of a product liability claim. In this episode, we discuss IBC’s proposal for how to bridge that gap, enable innovation and protect consumers from protracted claims processes.

The following transcript has been edited for length and clarity.

In our last episode, you talked about the need for insurers to proactively look at updating auto insurance laws before automated vehicles hit the roads en masse. Why is that important?

If you wait for there to be a mass of automated vehicles on the road, it’s way too late. It’s important to start looking at these issues as these vehicles start coming off the assembly line one at a time.

You don’t want people that are injured in a collision having to go through a lengthy claims process––and by the way, no one wants to be in a claims situation to begin with––so you want the laws to make it as fair and as quick as possible. And when you see a new type of risk, in this case automated vehicles and the threat of people having to go through product liability litigation, you want to be able to address it sooner rather than later.

In the United Kingdom, the government passed legislation to address this exact issue. They realized that people are going to start using automated vehicles and when there’s a collision, it’s not going to be as clear-cut anymore. Was it the person who caused it? Was it the technology that caused it? Was it some combination of both? And the whole process of figuring out the cause and compensating the injured people was going to be a lot more complex, and they didn’t want people to be sitting through what could look like a never-ending process.

So, the UK government passed a piece of legislation that created a single insurance policy that covers a liability claim or provides coverage if the automated vehicle caused the collision, regardless of whether it was the person operating it or the automated technology.

And what does that mean for someone who’s in an accident involving an automated vehicle?

That means that the person who was injured just has to show that they were injured, and that the automated vehicle caused the accident. They don’t have to get into the negotiation of whether it was the person or the technology, because then you’d have different insurance companies representing all the different interests involved.

Here’s how it works: if an automated vehicle causes an accident, the insurer of the automated vehicle pays out the claim to the injured person and compensates them. If it turns out the technology caused it—and not the person who owned that vehicle—the insurance company that paid out the claim could try to recover their payment from the vehicle manufacturer or technology provider. That’s where that product liability discussion takes place.

The single insurance policy allows you to separate the injured person from the product liability discussion. You compensate them and they move on with their life, and then the insurance company and the vehicle manufacturer or technology provider figure out exactly what the cause was. If they need to transfer money between the two of them, they will do that.

It’s ultimately trying to fix that claims issue. You don’t want people who are injured having to be in a protracted and costly product liability litigation. The single insurance policy addresses it, and IBC’s working group and IBC as a whole, believe there’s a lot of merit there. And the proposal that we put in our paper, it has some differences but is modeled on the UK solution.

I understand that IBC looked at some other options, too. What were some of the other approaches that you considered?

The first one was just status quo, keeping the legislation the regulation as is. And our working group decided that that wasn’t adequate––that people would get stuck in complex and protracted product liability litigation, and that just wasn’t acceptable. The public policy around insurance should be about fair and quick compensation.

Then they looked at full no-fault insurance. That means there’s no more liability. People don’t sue each other anymore. You collect if you’re injured. You get all your medical and your income replacement expenses from your own insurance company––and in an automated world, that makes a lot of sense. If you take out the whole suing aspect, then you get rid of that product liability issue, and people just get compensated by their own insurers.

In a world where all vehicles are automated, no-fault insurance might make a lot of sense. But in a world where these vehicles are going to be coming off the assembly line one at a time, it doesn’t make sense. First, you don’t want to force the no-fault type of insurance on everybody and second, there’ll still be lots of people driving conventional vehicles. So you need an insurance policy that works for both conventional policies and also conventional vehicles and automated vehicles.

So, I guess there are two reasons why our members like the single insurance policy.

  • One, it’s a way of making sure that people who are injured don’t get caught in a protracted and costly product liability claim or litigation against a vehicle manufacturer technology provider. That these people can go through the typical motor vehicle collision claims process. That’s important, that’s number one.
  • Two, it can work with the existing auto insurance policies that are on conventional vehicles now. So people who have conventional vehicles will be able to still buy the same type of policy that has some liability protection and some coverage for medical benefits and income replacement.

Right. And so that’s the first part of the framework, which is the single insurance policy. The second part called for a data sharing arrangement with vehicle manufacturers, owners and insurers. What does that entail?

These vehicles collect a lot of data, and after a collision no doubt some of that data will help determine what the cause of that collision was. So we think that vehicle manufacturers should share a prescribed set of data that would help determine what the cause was. So, for instance, was the automated status of the vehicle on or off? What was the speed of the vehicle? The location of the collision? And they’d share this data with the vehicle owners or the people involved in the collision and their insurance companies.

If you can figure out the cause, then you can start going forward with settling the claim and making sure anyone that’s injured or needs to repair their vehicle can get compensated quickly. And in the single insurance policy model that we talked about, if the cause were technology-related, there’s an opportunity for the insurer who paid the claim to recover some of the payments from the vehicle manufacture technology providers.

So knowing whether the vehicle is on automated mode or not, could the person have taken control or not––that’ll all help determine exactly what the cause was, and then facilitate any recovery proceedings between the insurer and the vehicle manufacturer or technology provider.

Are insurers equipped to implement this two-part framework now? Or are there capabilities that they should be looking at investing in?

I think insurance companies are used to managing claims in very complex situations. And they also are excellent at using and analyzing data. While there will be some procedural changes, if a provincial or state government were to implement the single insurance policy approach and the data sharing, insurers will have to adjust their practices accordingly. But I believe they already have the capabilities to do that fairly efficiently.

That’s good news. I think that insurers might be looking at automated vehicles and autonomous vehicles as equal parts challenge and opportunity. I’m wondering if you could speak to both of those.

There are lots of changes that that are going to happen:

  • There’ll be fewer collisions, but the technology in these vehicles will make repairing and replacing them more expensive.
  • There will be new risks associated with driving, including software and network failure programming choices, hacking and cybercrime, failure to install updates.
  • Vehicles will record lots of data, which will help for determining the price of the risk or of the auto insurance policy and then also helping settle claims.
  • And then the whole big change that we’ve talked about, which is technology playing a greater role in the responsibility of collisions, and humans playing less of a role.

I look at these as changes, but they’re also opportunities. And insurance companies need to be developing auto insurance policies that deal with the hacking and the cybercrime element, or programming and network failure, and all those new risks. It’s a challenge trying to meet that consumer need, but it’s really an opportunity.

Vehicle automation has a lot of potential to really improve road safety. That’s a huge benefit for the insurance industry, but more importantly the public. The more these vehicles get on the road and make our roads safer, the better it is for everyone—and that’s the real opportunity.

Thanks, Ryan. As you say, automated vehicles pose some challenges for the incumbent insurance players, but they also create some pretty compelling opportunities. Thanks for making the time to speak with me today.

Thanks for having me.

Summary

In this episode of the Accenture Insurance Influencers podcast, we talked about:

  • IBC’s two-part framework for updating auto insurance laws to accommodate self-driving cars: a single insurance policy for all vehicles (conventional and self-driving), and a data-sharing policy among insurers, regulators and involved parties.
  • Self-driving cars introduce new risks to driving, such as cybercrime, hacking and failure to install updates. Simultaneously, those risks create opportunities for insurers to better address consumer needs.
  • Overall, self-driving cars have tremendous potential to improve road safety, which benefits insurers, consumers and society.

For more guidance on self-driving cars:

In the next episode, Ryan will explain why it’s so important for insurers to proactively engage governments and regulators on issues like self-driving cars. He’ll also share general principles for updating laws to accommodate new technologies and trends.

What to do next:

Contact us if you’d like to be a guest on the Insurance Influencers podcast.

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