A TEAM EFFORT TO SECURE THE CONNECTED CAR OF THE FUTURE FROM HACKING
THE CONNECTED CAR WILL TRANSFORM AUTO INSURANCE
The arrival of the autonomous car and rising demand for mobility services will have a dramatic impact on the auto insurance marketplace
James Dodge, a senior consultant at Milliman, warns: “This is a time of dramatic change. The whole ecosystem is changing from a traditional model in which we drove our own private cars to one with shared on-demand mobility services.”
Accident rates are set to fall dramatically with less driver error. A survey from the US’s National Highway Traffic Safety Administration indicates that currently “94% of auto accidents are caused by human errors such as speeding, driving under the influence, and driver inattention”.1 The insurance product mix will change too, with the changing nature of risk boosting the use of commercial and product liability. “Car manufacturers are strategically rethinking their business models from the automobile business to mobility solutions,” Dodge explains. “They are not just selling cars, they are selling a mobility platform.”
The automotive revolution will pose challenges to risk assessors. Actuaries used to know, for example, the relationship between miles travelled and the number of fatal accidents – 1 per 90 million in the US – and the effect of gender and age. In the future their calculations may include information about how often cars are hacked, and the quality of technology – including cybersecurity – across driverless car brands.
“For the insurance companies this will be an interesting journey,” Dodge says. “How do you price risk in this environment? How will all the costs be settled for example, in the unfortunate fatal Tesla accident? What is the industry learning from the Google car/bus ‘crash?’
Christine Kogut, a colleague of Dodge at Milliman, maps out the co-operation needed between insurers and car manufacturers in coming years: “Actuaries, as risk assessors in this new environment, may need to learn new approaches passed along from the engineering element where mathematical models are used to estimate the reliability of a system.
“The carmakers’ insurance program would ideally be structured such that there is a transparent line of sight to the cost of potential liability. The way in which the carmakers manage this risk will contribute to the success and acceptance of the autonomous vehicle market in the years to come and the insurance industry will need to demonstrate its creativity and foresight to keep innovation on the right track.”