Insurance and Risk Management of Autonomous Vehicles

Every day most of us wake up, have our coffee, get into our cars and drive ourselves to work. The average human being’s morning routine is going to change immensely within the next few years starting with how they get to and from work. Scientists and engineers have been making technological advancements at monumental rates. One of the most prominent advances in today’s society is autonomous vehicles (AV), also referred to as self-driving cars. An autonomous vehicle is a vehicle that is fully self-operable and transports passengers from location A to location B without any human action or interference. Autonomous vehicles used to only be imagined as only a thought of the future or something out of the hit television series “The Jetsons”, but now have become recently within reach. A majority of the top car manufacturers have begun testing their own autonomous vehicles and should be available for purchase by the year 2020 (Schroll 803). For example, in 2019 Apple has already registered the domain name “Apple.Car.com” as their engineers are hard at work to produce Apples first autonomous car (Fallon). 

It is not hard to imagine, but AV technology is incredibly expensive at the moment with most of them listed at starting prices of hundreds of thousands of dollars. Therefore autonomous vehicles are not going to be an item in every household for years to come. Although, some researchers predict that AV will make private car ownership a thing of the past. Due to the fact that millennials prefer to purchase items through subscriptions and pay-per-use, these researchers believe that AV and ride sharing companies will replace personal ownership of vehicles with carpooling and car-sharing with the use of AV’s (Fallon, 2). Companies such as Uber and Lyft would purchase multiple AV’s and then “coordinate large-scale carpooling with others who have similar requests, which will reduce the number of drivers on the road, as well as the number of accidents. (Schroll, 809). Google has come out and said that they hope to reduce the number of drivers on the road by 90% in years to come if society accepts the idea of carpooling and ride-sharing as their main means of transportation in the future.

The Insurance Institute of Highway Safety (IIHS) identified the 3 main factors that cause motor vehicle accidents in order to understand what is causing accidents and how to prevent them. The 3 main source of cause of motor vehicle accidents are vehicular (malfunction of the vehicle), environmental, and last but most importantly, humans (O’Brien, 2). Human operated vehicles have high levels of risk that many people do not think of when they enter their vehicles. In fact, the likelihood of dying in a car crash is extremely more likely to happen than dying in a plane crash. Car accidents are one of the leading causes of death in the United States and the death rates in human operated vehicles remain high with an estimated 40,000 American’s losing their lives in fatal crashes during 2018 (National Safety Council, https://www.nsc.org/road-safety/safety-topics/fatality-estimates). The National Highway and Safety Administration estimates that 95% of all vehicle accidents are caused by human error (Schroll, 804). The scientists and engineers behind these vehicles believe that a majority of the risk will be nearly eliminated with the production of autonomous vehicles with the use of sensors, cameras, collision mitigating breaks, lane-keeping systems and laser range finder (Fallon, 4).

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Although AV’s are significantly safer than human operated cars, it is not possible to have a world without car accident, therefore even if every owned and used AV to drive, accidents would still happen. These accidents involving AV vs. AV vehicles are going to force the legal system and insurance to change. The question is then proposed, how will insurance industry be affected by a world of autonomous vehicles? Our insurance system is very similar to the legal system in the United States. There is a basis of rules and laws that are the framework of the system, but many insurance claims are handled on a case by case basis and sometimes can be the first of their kind. (Schroll 810). Prior to AV technology insurance companies could always rely on the fact that a human operator is always at fault and they just need to figure out who. With the introduction of AV technology, there is new challenge for insurance companies to overcome. Now they are going to a mixed of accidents some with regular vehicles, some with a mix of both AV and regular, and some involving only AV’s. Since AV vehicles take over all the operations the human needs to do, now insurance companies must figure out who is at fault whether it be the driver, the manufacturer, or someone else. (Schroll 808).

Although problems occur when theorizing who to hold liable in the case of ride-sharing AV accidents. Some researches believe that insurance companies should hold the customer and/or passengers liable for damages during an AV accident. The defense to their opinion is that as customers entering a self-operating and driving car that they are aware of the full extent of the risk that there could be an accident. The downside to placing total blame on the rider of an AV vehicle is that will de-incentivize customers from using the AV technology (Schroll 815). On the other hand, not holding the ride-sharing company liable at all means they are not forced to purchase the safest AV’s that are produced, and not holding the manufacturers liable means there is no incentive for them to continue to ensure they are producing the safest self-driving cars they possibly can (Schroll 818). Other researchers believe that the manufacturers of the AV’s should be held completely liable for the damages involving one of their products because they need to be held accountable for the damages their products create. In most cases, the manufacturers are most likely to be at fault in an AV accident, therefore they are “in the best position to improve their product” (Schroll 820). It is imperative we continue to incentivize them to strive to produce the best and the safest products. Should the manufacturers end up facing full liability, it will likely cause them not to produce the AV technology (Schroll 822). All in all, insurance companies are going to have their hands full deciding who to hold liable for AV accident damages.

In a regular accident, liability would be extremely easy to decide who is at fault, but the situation becomes much more complex when AV’s are added to the equation. Carrie Schroll from the Northwestern University School of Law have formulated what she believes is the answer to the insurance companies’ prayer. Schroll suggested the creation of a National Insurance Fund to fund insurance claims related to AV ride-sharing damages and claims that would hold riders, ride-sharing companies, and the manufacturers of the AV vehicles liable for the damages for the fraction of the price of regular auto insurance. Schroll stated that the “average [insurance plan] cost can range from $83 per month to $213 per month and the national fund could reduce monthly costs due to having more people paying into on large plan” (Schroll 828). Schroll proposed that the fund would be a federally managed fund and work similarly to the United States welfare programs such as Social Security and Medicare (Schroll 822). All 3 groups, riders, ride-sharing companies, and manufacturers would pay into the fund through their taxes each one at varying rates. Manufacturers’ tax rate would be based on the number AV’s they produce within the year and the number of accidents the vehicles they produce are involved in throughout the year. The ride-sharing companies’ tax rates would be based on the number of AV’s the company owns totally during the year. Last but not, least rides would pay based on how often they use the AV ride sharing services (Schroll 823).

 All in all it sounds like AV is going to be an extremely complex technology to integrate into our insurance system with little to no interruption, but it is necessary. As society continues to evolve we must embrace the new technology once deemed safe enough for mass usage. I would not be shocked if the older generations are reluctant to begin taking advantage of the AV technology, but I do believe that the younger generations, like mine and those younger than me, are ready and eager to begin using AV technology. I recently lost a fraternity brother in June of 2019 to a motor vehicle accident. The accident involved only one vehicle which leads me to believe the causation was human error. After reading research that AV could possibly reduce human error and the accidents caused by human error by almost 90%, I am 100% on board with the introduction of the technology if it means saving the lives of so many.

Works Cited

• Fallon, B. “Self driving Cars Could Shrink Personal Auto Insurance Sector”. Fairfiled County Business Journal. 52(8).
• O’Brien, Christine. “Autonomous Vehicle Technology: Consideration for the Auto Insurance Industry.” University Transportation Resource Center (The 2nd Connected Vehicles Symposium, Rutgers University). 2013.
• Schroll, Carrie. “Splitting the bill: creating a national car insurance fund to pay for accidents in autonomous vehicles.” Nw. UL Rev. 109 (2014): 803.