On October 25th, Otto, the recently acquired subsidiary of Uber, piloted a driverless truck to move a load of beer between locations. While highly controlled, the test demonstrates how quickly autonomous vehicle technology is approaching and highlights the idea that it may come to commercial first.
The focus on autonomous vehicles has been on Personal Lines with entries by every major manufacturer and dire predictions on what it will do to personal auto insurance rates. But the actual autonomous vehicle tests that are occurring around the world are all commercial applications—either livery service such as Uber is testing in Pittsburgh, or the trucking example we see here with Otto.
The reason for this is simple economics. The cost of this technology, at least for now, is significant. While it may make sense for a small portion of high end cars in Personal Lines, the investment required makes more sense for commercial applications. If industry can keep vehicles in play longer or reduce or eliminate personnel costs with full automation, then it is the commercial sector where we will see this technology first. In fact we already see increasing use of autonomous vehicles in agriculture, warehouses, and manufacturing in select areas.
What we haven’t done is thought through the likely impact of autonomous vehicles on commercial insurance. We will look at this in two parts. In the next post in this, we will look at the likely impact of fleet coverage by industry. Today, we will focus on the likely impact to fleet insurance that product leads, actuaries, and underwriters need to start to consider.
- Rating: Today commercial rating is driven by the vehicle mile and driver history. When autonomous vehicles enter the market, they will perform better than many drivers. But not all autonomous vehicles will be the same. We are already seeing large differences in how some of the modern safety equipment such as automatic braking is performing across different manufacturers. It will likely be the same with autonomous vehicles. Carrier will need to understand how different autonomous systems and versions perform and rate accordingly.
- Frequency: Autonomous vehicles, to date, are reducing the frequency of accidents, which will reduce losses, resulting in reduced prices. Estimates have ranged from 20-40% pricing reductions, but more evidence is needed as the technology matures.
- Severity: The usual argument here is that while frequency will be lower, severity will be higher since the autonomous equipment can cost as much as $30,000 per vehicle. . But this argument overlooks an important consideration: losses are often more driven by injury than the physical damage. The modern safety equipment of autonomous vehicles is likely to reduce the severity of an accident as much as the frequency.
- Vehicle Usage: Because of the added investment needed for autonomous vehicles, commercial entities can be expected to try to drive more significant returns. Autonomous vehicles will likely reduce fleet size but increase the usage of those vehicles. For example, how many trucks are sit stationary on the side of the road as the driver gets required rest? If the truck instead could keep driving through the night in autonomous mode while the driver slept in the back usage could increase by 30-50% per vehicle.
- New Risks: Autonomous vehicles will have new risks. We also saw in October how simple internet enabled devices were able to be used for denial of service attacks because they lacked proper security. Autonomous vehicles will need proper controls, will need to be updated readily, and will need their equipment to be properly maintained. Carriers need to understand and plan for these risks.
- Liability Transfer: This is the biggest question around autonomous vehicles. When the system is driving the vehicle, who is liable for any accident it causes? Laws today would suggest that the driving system would be treated like brakes or airbags and if they failed to act correctly. Liability would fall to the manufacturer, not the user. But whether this will hold or whether new laws will emerge remains to be seen. The best solution is for early interaction of carriers to work out coverage to ensure the insured is adequately protected.
- Workers Compensation: While it may not be an immediate impact, these technologies will reduce the number of truck, delivery, and livery drivers needed as autonomous vehicles are able to do more tasks in fully autonomous mode.
Bottom line, if you write fleets, livery, or trucking it is time to start thinking now about:
- Product changes needed to cover these vehicles
- Pricing changes needed to evaluate autonomous drivers
- Operational changes to drive hyper-efficiency as these technologies start to impact core pricing
The winners will get ahead of the game and proactively reach out to manufacturers and their customers that will be early adopters.