Automated vehicles raise questions on premiums & liability

The recent announcement by China’s largest automotive-battery maker that it is ready to manufacture batteries capable of powering a vehicle for 1.2 million miles (two million kilometres) over a 16-year lifespan could give an added impetus to the growth of electric vehicles (EVs).  

Zeng Yuqun, CEO of Contemporary Amperex Technology Co. Limited headquartered in Ningde, China, revealed the technological breakthrough in an interview with Bloomberg news agency.

While gasoline cars make up the majority of vehicles plying the roads today, Bloomberg New Energy Finance estimates that EVs will account for 54% of all new light-duty vehicle sales globally by 2040. 

The shift towards EVs is also driving the adoption of autonomous technology, as automated vehicles are equipped with technologies that facilitate driving systems without direct input from the human driver.  The Society of Automotive Engineers, a U.S.-based organization that develops standards for engineering professionals, developed five levels of automation for vehicles, ranging from driver assistance (level 1) to full automation (level 5). 

“Right now, we don’t really have fully-automated vehicles on the road, but they are coming,” said Ryan Stein, executive director of auto insurance policy and innovation with the Insurance Bureau of Canada (IBC). 

There are projections that auto-insurance premiums will head south with the rise of autonomous vehicles since human errors account for more than 90% of vehicular collisions. 

“Those are just projections,” Stein said. “Premiums work back to the cost of providing insurance, and the biggest cost for insurance is the cost of claims.”

While there may be fewer collisions with automated vehicles, the autonomous technology in such vehicles will likely make repair and replacement more expensive. Automated vehicles also involve new risks, which include software and network failure, hacking, cybercrime and failure to install or update software, according to a 2018 IBC report on insurance for automated vehicles. 

Joe Daly, a spokesperson for Desjardins Communications, said it is too early to say how self-driving technology will affect car-insurance premiums. “There is still great uncertainty as to how the technology, consumer acceptance, regulation and insurance will evolve,” Daly said. 

The conundrum that automated vehicles present is not whether insurance premiums will increase or fall, but the issue of liability. Existing car-insurance policies are built on the premise that human error — not product malfunction — is the primary cause of motor-vehicular collisions. The shift in responsibility for collision from human drivers to automated technology could lead to a rise in product-liability litigation, the IBC report states. 

“Because the person who is in the driver’s seat may not have caused the collision, you could have people injured in the collision who would need to pursue a claim against the vehicle manufacturer or the technology provider to make sure that they are compensated. And that will be a product-liability claim which is a lot more complex and takes a lot longer to resolve than auto-insurance claims,” Stein explained.

As provincial insurance acts are the primary legislation underpinning the insurance coverage that people buy, Stein underscores the importance for insurance companies to work with the regulators to make sure that insurance laws are updated “to reflect the unique risks associated with automated vehicles.”

The IBC recommends the creation of a single insurance policy covering both driver negligence and automated technology. This will ensure that vehicles are properly insured and prevent the prospect of a lengthy and complex product-liability litigation for people who are in collisions involving automated vehicles. 

Establishing a data-sharing arrangement with vehicle manufacturers, vehicle owners and insurers will also help to determine the cause of a collision and effect a quick resolution of liability claims. 

“The insurance industry is getting ready for automated vehicles,” Stein said.