Around the Bend

Imagine always having the use of a vehicle only when one is needed. Imagine never having to look for a parking spot. Imagine never having to worry about vehicle maintenance and traffic violations. Imagine being able to use travel time to read, work on a laptop, listen to music, sleep…

If certain vehicle manufacturers and technology specialists are correct in their forecasts, the industry will not be “imagining” the aforementioned scenarios for much longer. Driverless vehicles may be commercially available and legal to travel on roads and highways by the end of the decade. It has been an oft-repeated claim by a number of automobile manufacturer representatives, including Carlos Ghosn, chief executive officer of Nissan Renault, who has stated that by 2020, the automaker will have several models of driverless vehicles commercially available.

WHY A DRIVERLESS CAR?

The most important benefit of a driverless vehicle is safety. More than 1.2 million people were killed in auto-related collisions in 2010, notes the World Health Organization’s, World report on road traffic injury prevention, released in March 2013. Add to that the millions more who are injured annually.

It is estimated 93% of collisions are caused by human error, notes a 2001 report prepared for the U.S. Department of Transportation, National Highway Traffic Safety Administration. As such, given that driverless vehicles are programmed to follow the law – have no need to eat, drink alcohol or apply make-up – from a technical perspective, they are better drivers than humans.

Driver distractions, in the form of smartphones and tablets, are increasingly playing a role in collisions. Few people realize that drivers talking on hand-held or hands-free cellphones are four times more likely to be involved in a collision.

In fact, drivers using cellphones (either hand-held or hands-free) have slower reaction times than drivers with a .08 blood alcohol content, the legal intoxication limit.

Other advantages of driverless vehicles include the following:

• Infrastructure: An aerial shot of most highways will reveal that vehicles occupy a small minority of the space available. Sufficient space is allocated around each vehicle to prevent collisions. Given their ability to communicate with one another, driverless vehicles do not require these types of buffers, thereby increasing the capacity of existing highway infrastructure. A study undertaken by Columbia University estimated that by moving to completely driverless vehicles, existing highway infrastructure capacity could increase by 273%.

• Productivity: Motorists waste an average of 32 days a year sitting in traffic, notes a 2011 article in Macleans magazine. That time could be used more productively, even if that means simply relaxing.

• Environment: Information from a variety of sources and then extrapolated by MARCON indicates approximately 23% of fuel is consumed sitting in traffic or looking for a parking space. Intelligent driverless vehicles would not only be able to identify and use the most efficient route (utilizing highways and side streets based on complete traffic information), the shared driverless vehicle will normally move from one traveler to the next, thereby greatly reducing the need to seek parking. Moreover, given that vehicles will be shared, there will be fewer of them roaming the streets.

• Aging: It is estimated 120,000 Canadians who hold valid licences to drive suffer from some form of dementia. Seniors are relatively less urbanized than the rest of the Canadian population (therefore, less access to public transit) and depend on access to their vehicles. Shared driverless vehicles can provide secure, affordable transportation to those who are incapable of driving themselves.

USAGE, NOT OWNERSHIP

Cars are the single largest expense of most Canadian adults. But unlike a house whose value increases over time, a vehicle’s value declines considerably as soon as it is driven off the lot.

An additional benefit of driverless vehicles is the fact that this technology will facilitate usage, instead of ownership. The recent growth of ride-sharing and car-sharing emphasizes urbanites’ growing aversion to car ownership (there is an estimated 140,000 car-sharing members in Canada, and this number is expected to increase at least six-fold by 2020), indicates information from Navigant Research.

Recognizing this mounting trend, particularly among Millennials living in North America and Europe, automotive OEMs (original equipment manufacturers) have vertically integrated forward into the car-sharing space, examples of which include BMW’s DriveNow and Daimler’s Car2Go.

Research out of the United States indicates that the average driver uses his or her vehicle for about an hour or two a day. As such, the vehicle remains idle more than 90% of the time.

Driverless vehicles will facilitate vehicle-sharing and render the usage experience hassle-free. For example, with today’s car-sharing models, the user/driver must travel to the vehicle’s location and park the vehicle in an available space after usage. With driverless technology, the vehicle is summoned through the user’s smartphone and upon arriving at his or her destination, the vehicle simply leaves for its next travel assignment. What could be easier?

WILL COLLISIONS DISAPPEAR?

It would be ridiculous to assume that all collisions will disappear, particularly during a period of time where both driverless and “conventional” vehicles are sharing the road.

However, given that driverless technology addresses issues of distraction, it would be reasonable to assume that the number of collisions will decline significantly. Consequently, claims should also decline substantially.

WHO IS LIABLE?

One of the most important unknowns associated with driverless vehicles is who will be responsible when collisions do occur… and they will. Will the vehicle manufacturer assume responsibility? Or will it be the supplier of the technology that has been incorporated into the vehicle? Some have argued that how this will play out will only become clear when the first collision takes place.

While the details may be worked out after the first collision, the general principles of responsibility must be in place and understood by all concerned before these vehicles are made available for public usage.

Issues of liability are an important hurdle that may delay the introduction of these vehicles as no “deep-pocket” manufacturer/technology supplier will be interested in releasing a vehicle that, following a collision, may result in a lawsuit potentially costing it millions of dollars and negatively impacting its reputation.

It is critical that effective legislation be implemented to appropriately deal with the issue of liability before any accidents occur. Taking a reactive approach may result in a substantial loss of life and money.

Over the last few months, several legal experts weighing in on the subject of liability and insurance related to driverless vehicles have suggested the benefits of the technology to society are so important that governments may decide to establish a fund to compensate victims of accidents involving driverless vehicles similar to the National Vaccine Injury Compensation Program that exists in the U.S.

Vehicle manufacturers and technology suppliers can be contributors to this fund. Upper limits for compensation can be set to ensure fair treatment of victims.

WHAT IS THE ROLE OF INSURANCE COMPANIES?

It is unclear what role insurance companies will play with respect to driverless vehicles. While several “doom” scenarios have been put forth regarding the end of auto insurance, the simple fact that conventional vehicles will continue to operate on our roads and highways, at least for several more years, means that auto insurance will continue to remain relevant for the foreseeabl e future.

Driverless technology will change mobility and will change how vehicles are insured. A change in carrier mindset is required: from insuring the driver as a risk to insuring the technology itself.

Given that these vehicles will unquestionably facilitate usage, it is expected that personal ownership of driverless cars will be limited. This is likely to result in fleets being owned by regional, national or international organizations and operated locally.

Today, approximately two-thirds of auto premiums in Canada flow through the broker channel and auto insurance is a mainstay of many of the country’s smaller brokerages, note statistics calculated by MARCON.

Moving from individual to fleet ownership and operation will have significant implications for brokers, particularly the smaller ones. This may result in accelerating the pace of consolidation in the brokerage community.

DRIVERLESS VEHICLES INEVITABLE

In February 2013, Glenn Renwick, chairman, president and chief executive officer of Progressive Insurance, was quoted as saying driverless vehicles are “probably not something that need keep anyone awake for quite some time.”

A year later, Renwick, unable to ignore the obvious, stated that he anticipates the shift to driverless vehicles will cause industry consolidation and a shift in what Progressive will insure. Instead of drivers, he suggested the company might insure components or systems that are key to making the vehicles function.

WHEN, NOT IF

Those familiar with the technology may feel the industry is closer to commercialization than everyone has been led to believe. Non-technology-related obstacles remain. The legal/regulatory framework, as well as consumer acceptance, are two important ones.

These hurdles are not insurmountable. Solutions will be developed and these vehicles will be driving on roads and highways.

Will that happen in 2018? In 2020? In 2022? That remains to be seen. Regardless of when, however, insurance companies need to prepare and adapt.