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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
7 21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves
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
21 June 2016 10 Autonomous Vehicles and the implications for insurance – Scott Reeves
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?
Source: Google images 14 21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves
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
Source: Google images 15 21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves
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
19 21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves
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
22 21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves
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
21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves
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
24 21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves
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
25 21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves
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?
26 21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves
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
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)
29 21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves
The matter of liability will evolve
21 June 2016 30 Autonomous Vehicles and the implications for insurance – Scott Reeves
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
21 June 2016 31 Autonomous Vehicles and the implications for insurance – Scott Reeves
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
21 June 2016 32 Autonomous Vehicles and the implications for insurance – Scott Reeves
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
21 June 2016 33 Autonomous Vehicles and the implications for insurance – Scott Reeves
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.
34 21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves
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
21 June 2016 35 Autonomous Vehicles and the implications for insurance – Scott Reeves
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
21 June 2016 Autonomous Vehicles and the implications for insurance – Scott Reeves
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
21 June 2016 37 Autonomous Vehicles and the implications for insurance – Scott Reeves
Thank you very much for your attention.
21 June 2016
Scott Reeves © 2016 Münchener Rückversicherungs-Gesellschaft © 2016 Munich Reinsurance Company
Images: depositfotos.com