Occasionally, the insurance industry finds itself issued with a challenge as a result of technical developments. This is certainly true of the advances in autonomous vehicles.

At the same time, regulators and policymakers need to respond too. This article therefore provides an overview of the emerging regulatory ramifications that insurers will want to monitor closely.  It is not intended to be an exhaustive research nor does it constitute Lloyd’s official position.

Background

While the development of autonomous technologies is rapidly under way and early prototypes are already available, there are barriers to a shift to autonomous driving that need to be overcome before the technology is widely adopted.

Global regulatory and best standard developments

Clarification of the requirements for the different types of automated vehicles is necessary to support innovation, investment and consumer confidence. In Australia, enabling legislation1  has been passed in South Australia to support on-road trials to enable confidence that autonomous vehicles can operate safely on public roads alongside other vehicle types and road users. Other jurisdictions have determined that they can support on-road trial under current bodies of legislation.

China, meanwhile, is making strides in its bid to become the largest market for autonomous vehicles within 15 years. In April 2016, the media announced that the Tsinghua University – with the support of the national government – is planning on issuing a draft roadmap2  setting out technical standards for cars to communicate with each other together with the infrastructure and regulatory guidelines providing a unified framework.

The US, by contrast, has a variety of state laws and standards to contend with. As of January 2016, California, Michigan, Florida, Nevada, Tennessee and Washington D.C. had enacted legislation allowing limited driverless vehicle testing on public roadways3.  However, industry experts warn that the development of this new technology may be held back by a lack of coordination and the absence of a nation-wide regulatory framework.

Elsewhere in Europe, a meeting of the European Union’s (EU) transport ministers in Amsterdam in April 2016 agreed in principle to support the introduction of common traffic rules, communications standards and actions vehicles makers should take to enable self-driving cars to be able to operate across Europe by 2019. This will allow, in principle, to cooperate on cross-border testing so the systems in vehicles do not need to be updated at each border.

Furthermore, in the UK, the Queen’s Speech announced a reform on insurance legislation covering autonomous cars in May 2016. The reform allows autonomous vehicles to be tested and purchased in the UK and, when passed by Parliament, it will be the first legislation of its kind to cover an entire country4.  It will also extend compulsory cover to accidents where the car, rather than the driver, is at fault5.

Clarification of liabilities

Levels of automation are significantly relevant for liability issues, and there needs to be greater certainty around criminal and civil liability in the event of a collision. This would provide clarity on how liability passes between the driver and the manufacturer according to the level of autonomy. Current legal frameworks suggest that these issues would be dealt with on a case by case basis by Courts. However, a framework for determining liability would provide clarity both to the industry and consumers.

This clearly has implications for insurers and in the absence of a clear framework the changing landscape is being shaped primarily by manufacturers and industry leaders, suggesting that regulation will follow afterwards. But even here positions differ. Volvo, for example, has announced that they will accept full liability whenever one of their vehicles is in autonomous mode6 while BMW have disputed Volvo’s claim. According to the latter, the autonomous function will only do what they are told, bringing into question the dichotomy of liability between human and machine7.

Data opportunities

Connected and autonomous vehicles will generate vast amounts of data and it is expected that the motor insurance industry will be disrupted as safety improves and driver behaviour and accident data become more widely available. According to most experts premiums will fall, monoline motor insurers will consolidate and liability will shift from drivers to manufacturers. These same experts predict that the motor insurance industry will need to diversify and fundamentally restructure their business models, or face competition from new entrants into its market from technology-savvy disrupting companies.

There is currently uncertainty about what data agencies will be able to access to assess whether a vehicle’s automation function was operating, and whether such data can and should be made available to other entities, such as insurers. Public perceptions will be impacted by how personal information of customers is handled, and whether clearly defined privacy laws exist. To protect consumers and provide market certainty, government access to automated vehicle data may warrant additional legislative privacy protections.

For the industry to thrive, appropriate data protection and cyber standards will need to be developed too to align with regulatory positions. They will also serve to recognise the threat connected vehicles pose when driving autonomously in respect of cyber-attacks as an attack carries the risk of significant, coordinated traffic disruptions or collisions. In the US, the National Institute of Standards and Technology (NIST) is currently developing a framework to improve critical infrastructure cyber security.

Conclusion

There is already a great deal of connectivity and autonomy in vehicles compared to a decade ago,. This suggests that the evolution of autonomous vehicles will not be a big bang change, but instead will be a transition which is happening and will continue to happen over time. Several car manufacturers are competing for the release of the first fully autonomous vehicle, with some sources suggesting they will be on the road by 2020 (Tesla, Volvo8, and Jaguar Land Rover9).

The continued development of regulatory standards to allow autonomous vehicles to become a part of everyday life is a necessary precondition for the adoption of the technology in a speedy, safe and seamless way. In an area where regulation and safety standards are yet to be fully developed, insurers can encourage prudent progress by making their own risk assessments and providing policies for responsible operators. There is an opportunity for insurers to engage in the transfer of new risks and to liaise with industry and regulatory experts, to make it possible for continued technological innovation and to see the adoption of this new and exciting technology and opportunity.

1http://www.ntc.gov.au/Media/Reports/(80E9EBF1-53F0-44F7-96CF-07D60A324122).pdf  
2http://uk.reuters.com/article/uk-autoshow-beijing-china-selfdriving-idUKKCN0XK016 
3http://www.wsp-pb.com/Globaln/USA/Publications/transportation-infrastructure/driving-towards-driverless-monograph.pdf
4http://www.telegraph.co.uk/business/2016/05/18/bill-announced-in-queens-speech-will-help-britain-become-leader/
5http://www.lexology.com/library/detail.aspx?g=ad5eec39-5e4a-4878-be80-33e4feebb85d&utm_source=Lexology+Daily+Newsfeed&utm_medium=HTML+email+-+Body+-+General+section&utm_campaign=Lexology+subscriber+daily+feed&utm_content=Lexology+Daily+Newsfeed+2016-07-08&utm_term 
6http://www.autoexpress.co.uk/volvo/93595/volvo-to-accept-liability-if-autonomous-car-tech-fails 
7http://www.autocar.co.uk/car-news/industry/uk-insurance-industry-consult-autonomous-cars
8http://www.driverless-future.com/?page_id=384 
9http://uk.reuters.com/article/us-jaguarlandrover-driverless-idUKKCN0ZS2V2