3 May 2016
The Insurance Perspective
CHECK AGAINST DELIVERY
Introduction
Good morning. Thank you John for that introduction and thank you to Thatcham for the invitation to be with you this morning at this timely event.
I’ve been asked to outline the key issues that the insurance industry is working on as we consider how to help customers manage their risks in a world of increasing vehicle autonomy.
I think it is beyond dispute that autonomous vehicles have the potential to significantly improve road safety outcomes, both here in the UK and around the world. With human error accounting for 93% of road accidents, the development of autonomous vehicles will mean a significant reduction in the number of road traffic accidents. There are also other potential benefits including decreasing congestion in our cities, decreasing vehicle emissions and extending mobility to people with disabilities not currently able to drive.
Market disruption
Some see these developments as a threat to traditional insurance markets. And they are. But just like in many other aspects of technological change, the insurance industry will continue to act as a key enabler of the roll out of autonomous vehicles. Since the 17th century, insurance markets have innovated and changed in the face of changing consumer demands and technological advances. Increasing vehicle autonomy is just another change that the insurance industry needs to understand and innovate for to accommodate.
But it’s not just the insurance industry that is facing threats. Indeed, those vehicle manufactures who argue that increased vehicle autonomy is going to lead to the demise of the motor insurance market should probably take a look at how their own sector is changing with the rise of disruptors. Motor manufacturers are facing threats to their own business models from technology giants such as Apple or Google and will need to keep up with the billions that these companies can dedicate to R+D. Consumer demand is changing, especially in big cities. Will consumers of the future want the hassle and cost of owning their own car -autonomous or otherwise - at all? Especially when car-sharing schemes or services like Uber are increasingly accessible and affordable? And let’s not forget that many people actually enjoy driving.
Let’s also not forget that a large number of consumers think that a driver should always be in control of a car. I may be old-fashioned but I’d put myself into that category. When I fly home to New Zealand I expect there to be pilots in the cockpit of the plane who are trained to fly it. I know that the auto-pilot will do the majority of the flying but I expect the pilots to take over control of the plane should something go wrong. And I think most consumers take a similar view to vehicles.
So ensuring consumers understand the limits of vehicle autonomy will be critically important. We know all too well from conventional vehicles that drivers misunderstand what their cars can and cannot do. We know that there are difficulties with programming cars to deal with real world driving conditions – fallible human beings drive but without necessarily following the rules of the road. And we know that in-vehicle computer systems are only as good as the inputs they receive.
Which is why, in my personal view, the use of the term driverless cars is not only misleading but potentially dangerous. At least until the very long-term, a car is going to require a trained, competent and sober driver to oversee its operation even if it is operating autonomously.
And of course we all know from Google’s recent experience in Mountain View, California that autonomous cars can crash.
None of what I’ve just said should be interpreted as the insurance industry not supporting the development and roll out of autonomous vehicle technology. Far from it. But there are some big questions for the future about consumer demand for autonomous vehicles. And there are big questions of the future about the political, regulatory and liability environments in which these vehicles will operate. But predictions about the demise of the insurance industry in the context of autonomous vehicles are wide of the mark.
Insurers’ role in facilitating autonomous vehicles
The reason these predictions are wide of the mark is because of the work that insurers are doing now to understand the challenges and opportunities posed by the autonomous vehicles of the future so that the industry can respond effectively.
Insurers want to see safer vehicle technology, tried and tested and understood by the driving public. In fact, insurers are active partners in the Government funded trials taking place across the UK. Soon, there will be further trials of technology in Greenwich, Milton Keynes, Bristol and Coventry – all backed by an insurer. And, of course, Volvo’s announcement last week of the roll out of their “Drive Me London” programme will provide critical information on how a small number of autonomous vehicles perform on the streets of the capital.
In partnership with Thatcham, the ABI has formed the Automated Driving Insurance Group (ADIG). Since launching the group in December, we’ve had three very productive meetings, attended by fourteen of the ABI’s leading motor insurance companies along with representatives from the Lloyds Market Association, the Motor Insurers’ Bureau and legal experts. The Government has set its ambition of placing the UK “at the forefront of the testing and development of the technologies that will ultimately realise the goal of driverless vehicles”. We see our work through the ADIG as an important contribution to achieving that goal.
The approach we have adopted through the ADIG follows that adopted when insurers embraced Autonomous Emergency Braking. Insurers encourage and enable technological change, are at the forefront of the debate and actively incentivising the use of safer driving technology on the roads.
The issues associated with autonomous vehicles are complex and require detailed consideration. In the longer term, calls for a strict liability or a first party insurance model may emerge but a move to either system now would be both premature and disproportionate. The current motor insurance model is suitable, for the medium term at least.
Although vehicle autonomy is increasing, it is not absolute. Vehicle autonomy may assist drivers with parking or on motorways but for most of a journey, conventional driving will take place with conventional insurance needing to respond to cover any crashes. I find it difficult to see how the driver of a conventional vehicle will accept a scenario where they are required to purchase third party motor insurance to protect the driver of an autonomous vehicle, but that the reverse does not apply.
As I said earlier, there are challenges facing the motor insurance industry but we are in a great position to face those challenges head on. Nobody has all the answers. But the sectors with a stake in this agenda must collaborate, so that the promise autonomous vehicle technology offers consumers delivers on its potential.
The ABI’s priorities for the next 12 months
Through the ABI, insurers are playing their part.
We know that the Government is likely to release a consultation paper later this year on “close to market” technologies with a view to amending the regulatory framework to facilitate the roll-out of these technologies by Summer 2017. The first challenge for the Government will be to decide what ‘close to market’ means. So I’m looking forward to hearing from Hakan Samuelsson in a moment about Volvo’s views on this.
The ABI’s priority will be responding to the Government’s consultation and helping to establish what regulatory changes will be needed. But before then, the ABI will continue our work with Thatcham to understand what drivers can expect from this first wave of autonomous vehicles.
And we will be considering the vexed question of liability. The question that the media most often asks is: who will be liable in the event of an accident involving an autonomous vehicle?
The simplicity of the question betrays the complexity of what the answer might be.
Just as is the case now, it will depend on the individual circumstances that caused the accident and we hope that the Department for Transport’s forthcoming consultation will look to address some of the issues. These include:
- Who decides what safe use of an autonomous vehicle is? In itself, this raises some difficult moral and ethical questions. If an autonomous vehicle’s software is forced to choose between multiple courses of action all of which cause harm, who makes the decision as to what the car should be programmed to do? Is that for the vehicle manufacturer to decide, the Government or the customer?
- What happens if the functionality of a vehicle is significantly upgraded or changed after insurance is purchased? Does the manufacturer declare this or are we relying on drivers to tell their insurer?
- Will drivers need specific training before they are allowed to drive cars incorporating autonomous technology, especially for the periods when the car is switching between autonomous and non-autonomous modes?
- If manufacturers do accept liability, are existing product liability laws and limits adequate for all conceivable road accidents?
This is far from an exhaustive list but gives you a flavour of the complexity of the subject area.
We anticipate that as the answers to some of these questions emerge, some amendments of the Road Traffic Act will be needed. Officials from the Department for Transport have attended our ADIG meetings and the insurance industry is keen to continue to offer whatever assistance we can as they shape their forthcoming consultation. This is new territory for everyone and we welcome the open-minded and constructive way officials have engaged with the insurance industry to date.
Some manufacturers, including Volvo, have said they will be willing to accept liability should one of their autonomous vehicles be involved in an accident. Others argue that the driver will need to monitor the vehicle’s systems, and therefore, it will be the driver who will ultimately be responsible when an accident occurs. But there can’t be different legal outcomes depending on the brand of vehicle involved in an accident. Public policy and regulation is not brand specific. So the Department’s consultation should also allow us to better understand the views of vehicle manufacturers, which at the moment seem to be based on brand self-promotion rather than contributing to a coherent regulatory framework of the future.
Ultimately though, it appears everyone has the same objectives:
that safer vehicles and safer roads result in fewer people being killed or seriously injured; and
to maximise the economic benefits from new and emerging technology with competitive markets for both vehicle manufacturers and insurers.
Insurers are working together and with others to ensure that these objectives can be achieved.
Conclusion
So in conclusion, autonomous vehicles have the potential to dramatically reduce deaths and injuries on the roads. Insurers will need to adapt to this changing world, just as they have been adapting to the changing world for centuries.
Insurers, vehicle manufacturers, the Government, politicians, media and, most importantly, consumers will all have views on how we can all make the most of the opportunities autonomous vehicle technology provide, but will also have views on the challenges it poses.
Clarity will take time to develop: clarity in terms of the regulatory and legal framework but also clarity in terms of consumer demands and expectations. There are challenging times ahead as we seek answers to these crucial questions but I am confident that we can resolve them by continuing to work collaboratively together.
Thank you.