In an era where technological advancement is not just a trend but a tidal wave, Artificial Intelligence (AI) is at the forefront of this transformation. How this develops will change the risk exposures facing consumers and businesses. The insurance industry globally is currently forecasting what this means in terms of insurance product development.
Take for example autonomous vehicles (AV). In Australia, it’s anticipated that vehicles will increasingly incorporate automation. The Australian government, in collaboration with state and territory governments, industry and the research community, is preparing for the safe deployment of AVs. Automated vehicles are defined as vehicles capable of performing all driving tasks without human intervention, powered by an integrated automated driving system comprising both hardware and software.
What Does This Mean for Insurance?
Traditionally, when analysing the cause of a motor vehicle accident and the responsibility of the parties involved, factors considered included:
- The Driver;
- The Vehicle;
- And the Environment and Conditions.
When underwriting a motor vehicle risk and calculating insurance premiums, an insurer focuses on specifics about the driver including, amongst other things, their age, gender, driving experience, previous claims history, and demerit points. The insurer also considers vehicle-related factors including, its insured value, performance and safety characteristics/features, manufacturer, age, and average repair cost.
However, in the case of AVs, removing the driver factor poses new challenges. What happens when the vehicle’s technology, taking over decision-making, causes an accident? What action is the vehicle’s technology programmed to prioritise in these situations? This raises complex issues of liability and policy coverage. In accidents involving AVs, determining liability—whether it’s the manufacturer, software provider, or vehicle owner—becomes a complex task.
Does the fault lie solely with the vehicle, necessitating a product liability insurance policy for the manufacturer? Or, will motor insurance policies for owners still be required? Additionally, what if an owner’s inadequate maintenance contributes to an accident? And, if a manufacturer ceases operations, what insurance protections exist for the vehicle owner?
If AVs are safer and smarter, then the risk of an accident occurring should be reduced resulting in lower accident frequency. In isolation, this factor may assist in placing downward pressure on insurance premiums. However, the technology components in these vehicles might be more expensive to replace, refit and reprogram resulting in AVs having an increased average claims costs when involved in an accident.
Regulatory Landscape is not Keeping Pace with Innovation
In Australia, infrastructure and transport ministers at the Biannual Infrastructure and Transport Ministers Meeting held in 2022 agreed on a national approach to regulating automated vehicles. Ultimately this will likely lead to an Automated Vehicle Safety law.
Insurers will likely watch this space closely as it will shed some light on what this could potentially mean for how liability issues are resolved and the risks that are or may need to be covered under motor insurance and products liability policies.
The challenge will be for the regulatory and legal framework to keep up with the pace of innovation. Not meeting this challenge could potentially lead to greater uncertainty and increased litigation to resolve the uncertainty using laws that were designed on the assumption that a person would be operating a vehicle – not a computer.
Looking to Singapore
When looking to Singapore in this space, Singapore commenced their autonomous vehicle journey in 2014 with the establishment of the Committee of Autonomous Road Transport Singapore (CARTS). This comprised of members from the public and private sectors.
Their roadmap includes a phased approach: initial trials in a controlled environment, followed by town deployment for commuter services and some trucks and utility vehicles, and ultimately island-wide deployment.
Embracing the Future with Caution
While emerging technologies present exciting opportunities for the insurance industry, they also require us to be vigilant and adaptable. We must continue to invest in understanding these technologies, developing robust risk assessment models, and fostering strong partnerships with tech companies and regulators.
The future of business insurance lies in striking a balance between embracing innovation and mitigating the associated risks. It’s a journey fraught with challenges, but one that holds the promise of a safer, more efficient, and more customer-centric insurance industry.
