Even though they haven’t hit the consumer market quite yet, driverless cars have garnered national attention. They’re seen as the way of the future, but consumers are all over the board when it comes to acceptance of the emerging technology. A new survey of 1,500 drivers, conducted by J.D. Power and Michigan-based law firm Miller Canfield, indicates that the public is currently pretty divided on the safety and reliability of using driverless cars. When asked if they would ride in a fully-automated self-driving vehicle, 14 % said they “definitely would,” 33 % said they “probably would,” compared with 29 % that noted they “probably would not” and 17 % who said “definitely would not.”

Still, some estimates suggest that there will be 10 million driverless cars on the road by 2020. This is small compared to the 1.4 billion driver-operated cars currently on the road, but it’s significant enough for insurance agents to be aware of the shift to automated driving. With the increase of non-liable drivers, how will insurers create truly effective coverage solutions that hold the appropriate parties accountable for any mishaps?

We sat down with Travis Owens, innovation manager at Central Insurance Companies, to get his take on how driverless cars will impact the business of insurance.

In what ways will the increase of driverless cars affect car insurance sales?

Travis Owens (TO): It will impact the transportation industry and ancillary industries greatly — car manufacturers, service and repair, road infrastructure, etc. The evolution of driverless cars will be incremental. The following are recognized levels of adoption that J.D. Power noted during a recent study on driverless cars (noted above):

• Level 1 – Driver assistance, in which the vehicle is controlled by the driver but some driver-assist features may be employed in the vehicle’s design. (This is the lowest level of automation.)
• Level 2 – Partial automation, in which the vehicle has combined automated functions, such as acceleration and steering, but the driver must remain engaged with the task of driving and monitor the environment at all times.
• Level 3 – Conditional automation, in which the driver is a necessity, but is not required to monitor the environment. The driver must be ready to take control of the vehicle at all times if needed.
• Level 4 – High automation, in which the vehicle is capable of performing all driving functions under certain conditions; the driver may have the option to control the vehicle.
• Level 5 – Full automation, in which the vehicle is capable of performing all driving functions under all conditions. Again, the driver may have the option to control the vehicle.

Theoretically, this will potentially lower premiums for car insurance if the person using the vehicle isn’t actually driving it. Will people still need car insurance if they aren’t the primary driver of a vehicle? Where do you see the market heading here?

TO: I could see auto premiums shrinking and being allocated differently. I think the frequency of claims will decrease, but the claims reported will be more severe. Vehicles with automated driving systems are more expensive than those without, and repairing these systems requires costly, specialized labor. The liability will eventually shift to the manufacturer as the automated driving system reaches level five. Ridesharing has the potential to dramatically shrink the market with numerous individuals using one vehicle in lieu of each owning their own. Central Mutual Insurance offers a transportation driver network coverage endorsement for this risk to the car owners offering this service.

What is most important for insurance agencies to know today about the potential implications of driverless vehicles?

TO: Educating customers, monitoring market landscape progression and being aware of product coverage changes will be imperative moving forward. Today there are roughly 250 million vehicles in the United States, and most of them are at a level 1 or level 2. The growth projections for the driverless vehicle movement may be overestimated for the next few years but underestimated for the course of the decade.

When it comes to insurance claims, how do you anticipate that accidents where the car is to blame will be handled?

TO: If an autonomous feature in the car failed and it can be proven, the manufacturer should be held liable. This will be more applicable at the level 4 and level 5 stages of autonomy. Regulation will continue to place liability on the owner of the vehicle until fault can be definitively identified as a product liability claim. Regardless, I believe individuals will still need insurance with applicable form language and appropriate premium for the operating risk.

Do you think that a person will need a driver’s license to operate a driverless car?

Owens: Yes, but the content will shift to operating driverless vehicles. It will be a curriculum similar to an airplane pilot with the knowledge to monitor autonomous functions, and the ability to manually take control.

What are some challenges you anticipate insurance providers will need to prepare for?

TO: This will impact numerous disciplines for the carrier, including underwriting coverage language and selection criteria, claims interpreting forms and analytics digesting telematics to derive pricing, among other things.

What can auto insurance providers do today to start preparing for the onset of driverless cars?

Owens: We are preparing ourselves with continuous learning on the topic and meshing this technology with opportunistic solutions for our independent agents to offer. My advice to an independent agent would be to control what you can and keep in tune with what is around the corner.

Travis Owens has a background in underwriting, marketing and risk management. He is passionate about operations and enjoys connecting resources to execute a plan.

To learn more about the insurance agency outlook for 2018, read this article with insights from Applied Client Network CEO Brian Langerman.