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The Driverless Future

Autonomous Risk

When self-driving vehicles meet the sharing economy, numerous industries will need to brace for change; insurance among them.
By: | October 1, 2016 • 10 min read

Outside of the rare Google car sighting, autonomous vehicles, or A.V.s, have mostly been the domain of futuristic action movies. That fictional future, though, is now.

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A limited number of autonomous Volvo XC90s will be on the road this year. Audi’s self-driving A8 limousine is due out in 2017. Tesla plans to have fully autonomous vehicles available in 2018. Top executives at Ford and GM expect to launch fully autonomous vehicles by 2020. The U.S. Secretary of Transportation said at the 2015 Frankfurt Auto show that he expects driverless cars to be in use all over the world by 2025.

The twist, however, is that by 2025, the dominating force driving sales of those vehicles will most likely be commercial or public fleet operators, rather than private individuals.

VIDEO: Uber driverless takes to the streets in Pittsburgh.

While carmakers have been perfecting all this autonomous technology, the rest of the world was getting cozy with Zipcar, Car2Go, Uber and Lyft. Now those two disruptive concepts are merging, and the result is a seismic shift in the world as we know it.

Because driverless cars eliminate human error and human foibles like road rage and texting while driving, accident rates are expected to decline. Combined with an overall decrease in ownership, some say that will — eventually — cause a drastic upheaval in the auto insurance industry.

“Right now … everybody’s wringing their hands,” said John Lucker, global advanced analytics & modeling market leader with Deloitte Consulting.

John Lucker, global advanced analytics & modeling market leader, Deloitte Consulting

John Lucker, global advanced analytics & modeling market leader, Deloitte Consulting

“Half of all premiums are going to disappear! The industry’s going to blow up! The personal lines market is going to disappear! And we’re saying, ‘Well, time out everybody.’ ”

The likely reality is more nuanced. Deer will still dart into the road in the blink of an eye. Stray softballs and golf balls will still take out windshields. Car theft isn’t going away. And of course, machines can malfunction or be hacked. Insurance will remain as necessary as ever, but coverage needs will shift in a variety of ways.

“There’s going to be a blurring of the distinctions between various types of commercial insurance and personal insurance,” said James Guszcza, U.S. chief data scientist for Deloitte Consulting.

Sorting through it all is going to be incredibly complicated for carriers, as personal ownership slowly gives way to increased commercial ownership, in the form of driverless “Uber armies” or large A.V. fleets. There will also be a long period when non-autonomous, semi-autonomous, and fully autonomous vehicles will all be in the mix to varying degrees.

“Until all of the vehicles on the road are autonomous, how do you mix and match this?” asked Lucker.

“Your car is acting on its own, then it crashes into somebody who’s driving. How do you figure out who’s at fault? And then, is it a software issue? Is it your liability because you [own the car]? Was it the fault of the [human driver]?

“I don’t think that these things are going to go away,” Lucker said. “There’s obviously a blending of commercial auto, personal auto, potentially E&O for software developers, potentially some sort of product liability risk if a sensor didn’t work properly on the autonomous vehicle … there’s a lot of stuff going on here that traditionally has always been assumed to be a simple personal auto coverage.”

“This is a spectrum,” said Guszcza, “and we’re moving along that spectrum.”

How Quick a Shift?

Opinions vary widely on how fast this transformation will come to pass. Looking out to 2025, “you are going to find universally available cheap automotives, but those are probably going to be bought by self-drive fleet-manager-as-a-service type companies,” said Chris Smedley, CEO of Digital Habitats Corp. and longtime technology entrepreneur.

“Most of us are going to pay for transportation on a per-use basis.”

The rise of mobility as a service (MaaS) is taking hold quickly, and human drivers are indeed being pushed out. Uber CEO Travis Kalanick expects the entire Uber fleet to be driverless by 2030. The foundation is already being laid.

“I can’t imagine how many years it’s going to take for there to be mechanisms where police or road construction can be updated in real time to the point where true autonomous vehicles can navigate.” —John Lucker, global advanced analytics & modeling market leader, Deloitte Consulting

In August, the MIT-born company NuTonomy launched a test fleet of six self-driving taxis in a small section of Singapore, with human drivers on board to take over if necessary. Uber and Volvo also announced plans to launch a fleet of 100 self-driving Uber vehicles in Pittsburgh by the end of summer. The goal is to eliminate human drivers altogether — eventually.  Once that happens, Uber’s Kalanick said, its service will be so inexpensive and broadly available as to make personal car ownership obsolete.

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Researchers seem to agree. A 2015 Barclay’s report concluded that auto sales will dip by as much as 40 percent within the next 25 years, as traditional ownership gives way to family autonomous vehicles, shared autonomous vehicles, and autonomous vehicle pooling (think Waze Carpool with no drivers). Barclays estimated that one shared, pooled vehicle could do the work now accomplished by 17 vehicles.

But there’s a silver lining for car manufacturers. A January 2016 McKinsey report suggested that the decline in private vehicle sales will be offset by increased sales of commercially and publicly owned shared fleet vehicles. Those vehicles will need to be replaced far more often due to heavy usage. The report concluded that overall global car sales would drop from the current annual growth rate of 3.6 percent to 2 percent by 2030.

The bottom line is that until somebody figures out how to make Star Trek’s transporter beam a reality, cars and trucks will still be the lifeblood of commerce and society. It’s the way we use them that’s about to shift in a variety of ways, and every manner of industry will need to assess how the shift will affect them.

Like falling dominoes setting off chain reactions, the mobility revolution will strike blows across multiple industry sectors.

Impact Across Industries

The beleaguered petroleum industry is in for more pain, because a steadily growing percentage of new autonomous cars will be electric. The taxi industry, already ailing, appears to be doomed.

James Guszcza, U.S. chief data scientist, Deloitte Consulting

James Guszcza, U.S. chief data scientist, Deloitte Consulting

The parking industry will take heavy hits — who needs a parking space when you Uber to work? Even those who do choose to buy their own autonomous cars won’t need to park — they can just send their cars home to wait.

Prevailing wisdom says that accidents will decline sharply as A.V. usage increases, which could send the $62 billion repair industry into a tailspin. Automotive computer repair will move to the fore as collision repair needs shrink.

Car-sharing and ride-hailing services, now the disruptors, will become the disrupted unless they evolve as Uber is already trying to do. The traditional car rental industry will also be forced to adapt or die.

The same changes will drive a new dynamic in public transportation as well. In fact, it’s already begun.

In April, the City of Beverly Hills, Calif., unanimously passed a resolution to develop a public transportation system consisting of driverless municipal shuttles. The idea is spreading. All seven finalists in the U.S. Department of Transportation’s 2016 Smart City Challenge submitted proposals that included semi- or fully autonomous vehicles.

Columbus, Ohio, winner of the $50 million challenge, plans a fleet of connected, electric, autonomous shuttles to ferry people around its business district. Other cities’ proposals included plans to shuttle people between transit hubs and airports autonomously, or to have self-driving vehicles handle deliveries and municipal transportation of materials.

For the average business, this shifting dynamic will be a mixed bag. Eliminating drivers will obviously have a significant impact on the cost of transporting or delivering products. However, as new players enter the autonomous on-demand fleet space, trying to grab for market share, choices for business leaders could become cloudy.

“There’s going to be a blurring of the distinctions between various types of commercial insurance and personal insurance.” — James Guszcza, U.S. chief data scientist, Deloitte Consulting

How do you properly vet your vendor? How much do you know about their parts and programming and how safe or reliable their driverless units are? It remains to be seen whether a company could be held responsible if a fleet vendor’s car were to cause life or property damage while delivering its products.

It will likely take decades of litigation to achieve any clarity on these types of liability issues.R10-1-16p28-30_1Driverless6.indd

Deep, Deep Data

The upside for both insurers and insureds is that the newest automotive technologies — and the data they collect — will create transparencies to a degree barely ever imagined before.

The new wave of vehicles will be equipped with ever-more-sophisticated sensors and telematics, enabling an unprecedented degree of precision in adjusting as well as pricing, said Lou Brothers, senior manager, West Monroe Partners.

In the event of a crash, adjusters will simply download both vehicles’ “black box” data and know instantly what happened and why, improving accuracy and eliminating the need for investigations.

“The device knows,” said Brothers.

Lou Brothers, senior manager, West Monroe Partners

Lou Brothers, senior manager, West Monroe Partners

“It knows what it did, it knows what the other driver did, it knows what you did. And if the other car’s a smart car, we know all the components … the friction on the road, the speed, the position of the gas pedal and brake pedal, deceleration patterns … now there’s no question about who’s at fault.”

On-board technology will give underwriters access to more varied and deeper layers of data, potentially enabling them to fine-tune premiums specific to actual usage, said Brothers.

“Lou’s driving on I-78 heading west out of New York through the Holland Tunnel. Say we know that on the entry point on the Holland Tunnel, he has a 2 percent greater chance of a side-by-side collision because of the funneling that happens there. Therefore for that period of time, instead of paying $3.00 for insurance he’s going to pay $3.50 for insurance — just for that 10 minute period.

“We know everything about the car, where it is, how long it’s there for, we know the accident statistics of all of those different areas — you could really drive yourself into a very detailed, nuanced view of this one driver, in this one car, in this one scenario, at this moment.”

Admittedly, said Brothers, that capability is still a long way off. “The amount of computation, the amount of analysis and of thought that would have to be put into those risk models would be insane,” he said.

“We’re talking about … driving down to the statistic of one.”

But when it happens, it presents some very attractive possibilities for the businesses that will be entrusting their products to autonomous on-demand fleets.

If allowed access to the data collected from commercial fleets, companies would be able to make better decisions about the risk level of each provider, and even about the routes traveled by vehicles being used to conduct their business.

It could also drive a conversion to usage-based automotive insurance, giving commercial fleet owners more power to control their premiums and offer more competitive rates to customers.

Imagine a carrier sending a message that said, maybe you should consider these alternate routes because they’re safer. Or maybe suggesting taking a longer route because it’s better paved or lowers the overall risk of the route.

In the end, money talks, said Brothers. If your carrier told you that if you were to leave 10 minutes earlier every day, your premiums would go down $80, chances are good that you’d leave 10 minutes earlier.

“That kind of real-time alert could be a very positive thing that I think people would welcome.”

Infrastructure Lacking

Risk managers trying to map out how the mobility shift will impact their organizations still have some time to get a handle on it. Despite the current race to put autonomous vehicles on the road, some believe the pace of change will be slow because the infrastructure to support a driverless world doesn’t exist, and few are talking about how to create it.

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That’s why projects like NuTonomy’s Singapore test and the Uber/Volvo Pittsburgh venture make sense, because they’re constrained to areas that can be mapped precisely.

The trickier problem is that even keeping vehicles to proscribed routes won’t eliminate unknowns, experts said.

“Let’s say a sinkhole gets formed because of a massive rainstorm,” said Lucker. “How are the police going to alert this global GPS repository that Maple Street is now closed, so every single car knows not to turn down Maple Street?

“Worse, what if there’s an obstacle or accident halfway down a road, the cars don’t know that, and a whole string of cars goes down the road and they form a traffic jam. How will the cars sort out how to get out of there?

“There is no mechanism to create the global GPS database repository of changing road conditions and changing obstacles that an autonomous car is going to have to have access to in real time in order for something to be truly autonomous,” Lucker said.

“I can’t imagine how many years it’s going to take for there to be mechanisms where police or road construction can be updated in real time to the point where true autonomous vehicles can navigate.” &

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]

More from Risk & Insurance

More from Risk & Insurance

Insurtech

Kiss Your Annual Renewal Goodbye; On-Demand Insurance Challenges the Traditional Policy

Gig workers' unique insurance needs drive delivery of on-demand coverage.
By: | September 14, 2018 • 6 min read

The gig economy is growing. Nearly six million Americans, or 3.8 percent of the U.S. workforce, now have “contingent” work arrangements, with a further 10.6 million in categories such as independent contractors, on-call workers or temporary help agency staff and for-contract firms, often with well-known names such as Uber, Lyft and Airbnb.

Scott Walchek, founding chairman and CEO, Trōv

The number of Americans owning a drone is also increasing — one recent survey suggested as much as one in 12 of the population — sparking vigorous debate on how regulation should apply to where and when the devices operate.

Add to this other 21st century societal changes, such as consumers’ appetite for other electronic gadgets and the advent of autonomous vehicles. It’s clear that the cover offered by the annually renewable traditional insurance policy is often not fit for purpose. Helped by the sophistication of insurance technology, the response has been an expanding range of ‘on-demand’ covers.

The term ‘on-demand’ is open to various interpretations. For Scott Walchek, founding chairman and CEO of pioneering on-demand insurance platform Trōv, it’s about “giving people agency over the items they own and enabling them to turn on insurance cover whenever they want for whatever they want — often for just a single item.”

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“On-demand represents a whole new behavior and attitude towards insurance, which for years has very much been a case of ‘get it and forget it,’ ” said Walchek.

Trōv’s mobile app enables users to insure just a single item, such as a laptop, whenever they wish and to also select the period of cover required. When ready to buy insurance, they then snap a picture of the sales receipt or product code of the item they want covered.

Welcoming Trōv: A New On-Demand Arrival

While Walchek, who set up Trōv in 2012, stressed it’s a technology company and not an insurance company, it has attracted industry giants such as AXA and Munich Re as partners. Trōv began the U.S. roll-out of its on-demand personal property products this summer by launching in Arizona, having already established itself in Australia and the United Kingdom.

“Australia and the UK were great testing grounds, thanks to their single regulatory authorities,” said Walchek. “Trōv is already approved in 45 states, and we expect to complete the process in all by November.

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group.” – Scott Walchek, founding chairman and CEO, Trōv

“On-demand products have a particular appeal to millennials who love the idea of having control via their smart devices and have embraced the concept of an unbundling of experiences: 75 percent of our users are in the 18 to 35 age group,” he added.

“But a mass of tectonic societal shifts is also impacting older generations — on-demand cover fits the new ways in which they work, particularly the ‘untethered’ who aren’t always in the same workplace or using the same device. So we see on-demand going into societal lifestyle changes.”

Wooing Baby Boomers

In addition to its backing for Trōv, across the Atlantic, AXA has partnered with Insurtech start-up By Miles, launching a pay-as-you-go car insurance policy in the UK. The product is promoted as low-cost car insurance for drivers who travel no more than 140 miles per week, or 7,000 miles annually.

“Due to the growing need for these products, companies such as Marmalade — cover for learner drivers — and Cuvva — cover for part-time drivers — have also increased in popularity, and we expect to see more enter the market in the near future,” said AXA UK’s head of telematics, Katy Simpson.

Simpson confirmed that the new products’ initial appeal is to younger motorists, who are more regular users of new technology, while older drivers are warier about sharing too much personal information. However, she expects this to change as on-demand products become more prevalent.

“Looking at mileage-based insurance, such as By Miles specifically, it’s actually older generations who are most likely to save money, as the use of their vehicles tends to decline. Our job is therefore to not only create more customer-centric products but also highlight their benefits to everyone.”

Another Insurtech ready to partner with long-established names is New York-based Slice Labs, which in the UK is working with Legal & General to enter the homeshare insurance market, recently announcing that XL Catlin will use its insurance cloud services platform to create the world’s first on-demand cyber insurance solution.

“For our cyber product, we were looking for a partner on the fintech side, which dovetailed perfectly with what Slice was trying to do,” said John Coletti, head of XL Catlin’s cyber insurance team.

“The premise of selling cyber insurance to small businesses needs a platform such as that provided by Slice — we can get to customers in a discrete, seamless manner, and the partnership offers potential to open up other products.”

Slice Labs’ CEO Tim Attia added: “You can roll up on-demand cover in many different areas, ranging from contract workers to vacation rentals.

“The next leap forward will be provided by the new economy, which will create a range of new risks for on-demand insurance to respond to. McKinsey forecasts that by 2025, ecosystems will account for 30 percent of global premium revenue.

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“When you’re a start-up, you can innovate and question long-held assumptions, but you don’t have the scale that an insurer can provide,” said Attia. “Our platform works well in getting new products out to the market and is scalable.”

Slice Labs is now reviewing the emerging markets, which aren’t hampered by “old, outdated infrastructures,” and plans to test the water via a hackathon in southeast Asia.

Collaboration Vs Competition

Insurtech-insurer collaborations suggest that the industry noted the banking sector’s experience, which names the tech disruptors before deciding partnerships, made greater sense commercially.

“It’s an interesting correlation,” said Slice’s managing director for marketing, Emily Kosick.

“I believe the trend worth calling out is that the window for insurers to innovate is much shorter, thanks to the banking sector’s efforts to offer omni-channel banking, incorporating mobile devices and, more recently, intelligent assistants like Alexa for personal banking.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.”

As with fintechs in banking, Insurtechs initially focused on the retail segment, with 75 percent of business in personal lines and the remainder in the commercial segment.

“Banks have bought into the value of these technology partnerships but had the benefit of consumer expectations changing slowly with them. This compares to insurers who are in an ever-increasing on-demand world where the risk is high for laggards to be left behind.” — Emily Kosick, managing director, marketing, Slice

Those proportions may be set to change, with innovations such as digital commercial insurance brokerage Embroker’s recent launch of the first digital D&O liability insurance policy, designed for venture capital-backed tech start-ups and reinsured by Munich Re.

Embroker said coverage that formerly took weeks to obtain is now available instantly.

“We focus on three main issues in developing new digital business — what is the customer’s pain point, what is the expense ratio and does it lend itself to algorithmic underwriting?” said CEO Matt Miller. “Workers’ compensation is another obvious class of insurance that can benefit from this approach.”

Jason Griswold, co-founder and chief operating officer of Insurtech REIN, highlighted further opportunities: “I’d add a third category to personal and business lines and that’s business-to-business-to-consumer. It’s there we see the biggest opportunities for partnering with major ecosystems generating large numbers of insureds and also big volumes of data.”

For now, insurers are accommodating Insurtech disruption. Will that change?

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“Insurtechs have focused on products that regulators can understand easily and for which there is clear existing legislation, with consumer protection and insurer solvency the two issues of paramount importance,” noted Shawn Hanson, litigation partner at law firm Akin Gump.

“In time, we could see the disruptors partner with reinsurers rather than primary carriers. Another possibility is the likes of Amazon, Alphabet, Facebook and Apple, with their massive balance sheets, deciding to link up with a reinsurer,” he said.

“You can imagine one of them finding a good Insurtech and buying it, much as Amazon’s purchase of Whole Foods gave it entry into the retail sector.” &

Graham Buck is a UK-based writer and has contributed to Risk & Insurance® since 1998. He can be reached at riskletters.com.