automated driver assistance: implications for insurance and reinsurance
DESCRIPTION
Automated driver assistance and autonomous vehicles will have a significant impact on insurers in the medium-term to long-term.TRANSCRIPT
Automated driver assistance Implications for insurance and reinsurance
www.pwc.com/insurance
“The world we have made as a result of the level of thinking we have done thus far creates problems we cannot solve at the same level of thinking at which we created them”
Albert Einstein
September 2014
Dr. Anand S. Rao (PwC US Analytics)
PwC
Agenda
01. Automated driver assistance & autonomous cars
02. Implications for insurance/reinsurance
03. Ethical and legal considerations
04. Conclusion
2
PwC
Road traffic accidents caused by human error is still substantial globally
3
Automated driver assistance & autonomous cars
Source: Human error as a cause of vehicle crashes, Walker Smith, Center for Internet and Society; Road Fatalities, OECD, 2013
93% of road traffic accidents are caused by human error
1.3 million fatalities occur globally
50 million injuries occur globally
PwC
Autonomous and automated driving assistance technologies are still evolving…
4
Automated driver assistance & autonomous cars
• Cruise control
• Automatic braking
• Lane keeping
Source: National Highway Traffic Safety Administration – Preliminary statement of policy concerning automated vehicles
Level 1
Function-specific Automation
Level 0
No Automation
PwC
Autonomous and automated driving assistance technologies are still evolving…
5
Automated driver assistance & autonomous cars
Source: National Highway Traffic Safety Administration – Preliminary statement of policy concerning automated vehicles
Adaptive cruise control
And lane centering Level 0
No Automation
Level 1
Function-specific Automation
Level 2
Combined Function Automation
PwC
Autonomous and automated driving assistance technologies are still evolving…
6
Automated driver assistance & autonomous cars
Source: National Highway Traffic Safety Administration – Preliminary statement of policy concerning automated vehicles
Cede full-control of all safety-critical functions under certain traffic or environmental conditions
Level 0
No Automation
Level 1
Function-specific Automation
Level 2
Combined Function Automation
Level 3
Limited Self-Driving Automation
PwC
Autonomous and automated driving assistance technologies are still evolving…
7
Automated driver assistance & autonomous cars
Level 0
No Automation
Level 1
Function-specific Automation
Source: National Highway Traffic Safety Administration – Preliminary statement of policy concerning automated vehicles
Level 2
Combined Function Automation
Perform all safety-critical functions under all conditions
Level 3
Limited Self-Driving Automation
Level 4
Full Self-Driving Automation
PwC
Combination of three different types of vehicle and infrastructure automation will be involved in this evolution
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Automated driver assistance & autonomous cars
Road Monitoring
Lane Departure Active Collision Avoidance
Road Train
Vehicle Automation
Autonomous Vechicles
Driver Detection
V2I Automation
High Speed Data
Traffic Management
V2V Communication
Emergency Response
PwC
A number of the technologies are still in the early days of research and application
Active Research
Experimental Application
Mass Market Adoption
Early Stage Mid Stage Late Stage
• Adaptive Cruise Control
• Lane Departure Warning
• Automated Braking
• Self-parking Assist • Distance Warning • Remote
Diagnostics
• Vehicle Stability Control
• Adaptive Lighting • Navigation • Anti-theft
Setection • Emergency
Services • On-board
Diagnostics • Event Data
Recorder
• Blind Spot Detection
• Drowsy Driver Alerts
• Stolen Auto Disable
• High Speed Wireless Data
• Road Monitoring/Night Vision
• Public Safety Settings
• Biometrics • Advanced Traffic
Management • Vehicle to Vehicle
Communication • Vehicle to
Infrastructure Communication
• Automated Highway Driving
• Driver Emotion Detection
• Road Trains • 3D Mapping • Fully Autonomous
Driving Systems • Mesh Networks
Autonomous Vechicles
Road Monitoring Driver Detection
Lane Departure
Navigation
Automated Driver Assistance & Autonomous Cars
PwC
Risk reduction to risk elimination will occur over a couple of decades (2040 or beyond)
Implications for insurers and reinsurers
Risk Elimination
04
Risk Reduction
01
K
S
I
R
Risk Slicing
02
Risk Shifting
03
10
PwC
Four likely scenarios facing auto-insurers
Implications for insurers and reinsurers
Slow Adoption
A (Loss reduction offset by premium growth)
Shrinking Premium
B (Moderate adoption fuelled by regulators)
Bundled Insurance
C (Insurance included with Cars)
Death of Auto Insurance
D (Elimination of losses with fully self-driving cars)
11
PwC
Audience polling question
Implications for insurers and reinsurers
By 2025 what do you think is the most likely scenario?
Slow Adoption of new automated driver assistance – loss reduction offset by premium growth
A
Bundled insurance with car manufacturers paying for insurance or vehicles being increasingly shared
C
Significant adoption of automated driver assistance and self-driving cars resulting in the death of the auto insurance industry
D
Shrinking premium with moderate adoption fuelled by regulatory intervention
B
12
PwC
Adoption is likely to be more cautious unless forced by regulations
13
Implications for insurers and reinsurers
Adoption Rates of Vehicle Safety Technology1
Years Since Introduction
Pe
rc
en
t o
f N
ew
Ve
hic
les
w
ith
Te
ch
no
log
y S
tan
da
rd
0
10
20
30
40
50
60
70
80
90
100
0 5 10 15 20 25 30
Anti-lock Brakes
Electronic Stability
Side Airbags
Projected
Source: Adapted from “Highway Loss Data Institute: Predicted availability of safety features on registered vehicles”
PwC
Automated driver assistance technology will impact both severity and frequency of accidents…
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Implications for insurers and reinsurers
Average Change due to Technology
Frequency Severity
-3.2% -1.1%
-2.3% -5.5%
-0.4% 0.0%
-6.1% -20.0%
-1.8% -1.1%
Forward Collision
Adaptive Headlights
Lane Departure
Blind Spot Detection
Park Assist
Source: PwC Analysis based on Highway Loss Data Institute reports on predicted availability of safety features and initial results of collision avoidance features, 2011 - 2012
PwC
The net impact on losses in the next ten years will be significant…
Implications for insurers and reinsurers
$22.68 $19.18
$24.06 $22.70
$12.41 $12.41
$5.89 $5.04
$18.28
$16.37
$-
$10.00
$20.00
$30.00
$40.00
$50.00
$60.00
$70.00
$80.00
$90.00
Baseline Without Driver AssistTechnologies
Baseline With Driver AssistTechnologies
To
tal
Pr
oje
cte
d L
os
se
s
Bil
lio
ns
Bodily Injury Claims Collision Claims
Comprehensive Claims Personal Injury Protection Claims
Property Damage Claims
We project losses to decrease by ~10% due to driver assist technology by 2025
Source: PwC Analysis based on Highway Loss Data Institute reports on predicted availability of safety features and initial results of collision avoidance features, 2011 - 2012
*Assumes current increasing trend in car-miles driven continues
Total Projected Losses, 2025*
15
PwC
The net impact on losses in the next ten years will be significant…
Implications for insurers and reinsurers
Total Projected Losses
$60.00
$65.00
$70.00
$75.00
$80.00
$85.00
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
To
tal
Lo
ss
B
illi
on
s
Year
Baseline Upper Bound Lower Bound Middle Estimate
*Assumes current increasing trend in car-miles driven continues
We project losses to decrease between 3% - 10% due to driver assist technology by 2025
Source: PwC Analysis based on Highway Loss Data Institute reports on predicted availability of safety features and initial results of collision avoidance features, 2011 - 2012
16
PwC
This reduction is based on assumptions around technology advances and consumer adoption
Implications for insurers and reinsurers
Use industry data to estimate impact on frequency and severity across loss categories
Estimate availability and penetration curves of each technology based on prior technology take-up rates
Project total impact on frequency, severity, and total loss
1
2
3
Historical data demonstrates a ~15 year span between initial introduction and 95% new vehicle availability. The total car population takes ~30 years to reach 95% penetration
Loss categories include Bodily Injury (-15%), Collision (-6%), Comprehensive (0%), Property Damage and Protection (-14%), and Personal Injury Protection (-10%)
We calculate a linear baseline projection using 2009 – 2013 claims data. Based on expected penetration and impact of each technology, we estimate the total effect by 2025
17
PwC
Automated driver assistance also raise some fundamental ethical issues…
Ethical and legal considerations
Tunnel Problem: A hypothetical scenario in which a passenger in an autonomous vehicle is approaching a tunnel entrance when a child attempts to cross the roadway but stumbles, creating an obstacle.
Autonomous Car’s Decision: The vehicle must decide to either
1. Maneuver to avoid the child, thereby possibly injuring the passenger, or
2. Not maneuver, keeping the passenger safe but possibly injuring the child.
Source: An Ethical Dilemma: When robot cars must kill. Who should pick the victim. Jason Miller, robohub.org. 2014
18
PwC
Ethical and legal considerations
An ‘ethical dial’ can transfer liability risk from the manufacturer to the consumer…
Source: An Ethical Dilemma: When robot cars must kill. Who should pick the victim. Jason Miller, robohub.org. 2014
Ethical Dial: Ability for the driver to personalize the “Ethics Setting” governing the judgment calls in tunnel problems, with extremes of self-preservation and community preservation. Liability risk is transferred from manufacturer to the consumer.
…but legal challenges and the need for obtaining ‘prior regulatory’ approval may be required
19
PwC
Audience polling question
Ethical and legal considerations
If you find yourself as the passenger of the tunnel problem, how should the car react?
Continue straight and kill the child A
Swerve and kill the passenger (i.e., you) B
20
PwC
In a recent survey, close to two-thirds said they will protect themselves at the expense of the child
Ethical and legal considerations
Continue straight and kill the child
64%
Sweve and kill the passenger (you)
36%
Source: N = 113, Analyzed on June 22, 2014, by the Open Roboethics Initiative.
If you find yourself as the passenger of the tunnel problem, how should the car react?
21
PwC
Automated driver assistance offers opportunities and threats to the insurance and reinsurance sectors
Conclusion
Opportunities
• New channels/customers (e.g., manufacturers, car share programs)
• New ancillary services (e.g., navigation, safety, emergency, vehicle maintenance)
• New risk products (e.g., cyber-risk, micro-insurance)
Threats
• Increase in severity of claims but decrease in frequency
• Reduction in losses and hence premiums
• Risk sharing and pooling by car manufacturers
Automated driver assistance and autonomous vehicles will have a significant impact on insurers in the medium-term to long-term
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Dr. Anand S. Rao Email: [email protected] Twitter: AnandSRao