automated driver assistance: implications for insurance and reinsurance

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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)

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Automated driver assistance and autonomous vehicles will have a significant impact on insurers in the medium-term to long-term.

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Page 1: Automated driver assistance: Implications for insurance and reinsurance

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)

Page 2: Automated driver assistance: Implications for insurance and reinsurance

PwC

Agenda

01. Automated driver assistance & autonomous cars

02. Implications for insurance/reinsurance

03. Ethical and legal considerations

04. Conclusion

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Page 3: Automated driver assistance: Implications for insurance and reinsurance

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

Page 4: Automated driver assistance: Implications for insurance and reinsurance

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

Page 5: Automated driver assistance: Implications for insurance and reinsurance

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

Page 6: Automated driver assistance: Implications for insurance and reinsurance

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

Page 7: Automated driver assistance: Implications for insurance and reinsurance

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

Page 8: Automated driver assistance: Implications for insurance and reinsurance

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

Page 9: Automated driver assistance: Implications for insurance and reinsurance

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

Page 10: Automated driver assistance: Implications for insurance and reinsurance

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

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Page 11: Automated driver assistance: Implications for insurance and reinsurance

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)

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Page 12: Automated driver assistance: Implications for insurance and reinsurance

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

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Page 13: Automated driver assistance: Implications for insurance and reinsurance

PwC

Adoption is likely to be more cautious unless forced by regulations

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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”

Page 14: Automated driver assistance: Implications for insurance and reinsurance

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

Page 15: Automated driver assistance: Implications for insurance and reinsurance

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*

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Page 16: Automated driver assistance: Implications for insurance and reinsurance

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

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Page 17: Automated driver assistance: Implications for insurance and reinsurance

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

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Page 18: Automated driver assistance: Implications for insurance and reinsurance

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

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Page 19: Automated driver assistance: Implications for insurance and reinsurance

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

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Page 20: Automated driver assistance: Implications for insurance and reinsurance

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

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Page 21: Automated driver assistance: Implications for insurance and reinsurance

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?

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Page 22: Automated driver assistance: Implications for insurance and reinsurance

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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Page 23: Automated driver assistance: Implications for insurance and reinsurance

For additional information contact

Confidential Information for the sole benefit and use of PwC's Client.

© 2014 PricewaterhouseCoopers LLP. All rights reserved. PwC refers to the United States

member firm, and may sometimes refer to the PwC network. Each member firm is a separate

legal entity. Please see www.pwc.com/structure for further details.

Dr. Anand S. Rao Email: [email protected] Twitter: AnandSRao