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Autonomous vehicles will shift liability profile, experts say

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Autonomous vehicles will continue to gain traction despite several major safety incidents and that will cause a shift in the liability profile away from personal auto to commercial insurance and product liability, experts say.

But companies in the autonomous vehicle sector have begun to shift away from the perception that they could self insure their liability risks and are seeking partnerships and solutions within the insurance industry, they say.

Uber Technologies Inc. shut down its self-driving car operation in Arizona two months after a fatal crash involving one of its vehicles, although limited testing will continue in Pittsburgh and two California cities, Reuters reported. In March, one of its SUVs operating in autonomous mode hit and killed a woman crossing the street in Tempe, Arizona, marking the first fatality involving a self-driving vehicle.

“While autonomous vehicles may reduce or eliminate some risks, as recent events show there will be crashes and new risks are likely to emerge,” Ryan Gammelgard, counsel, public policy resource group State Farm in Bloomington, Illinois, told the U.S. House of Representatives subcommittee on housing and insurance on Wednesday.

While “the future of AV is now,” the trend raises questions about how the insurance industry will incorporate AV risks into its underwriting and how consumers realize the anticipated insurance savings benefits, said David Carlson, senior vice president of Marsh L.L.C.’s US manufacturing and automotive industry practice in Cleveland.

Manufacturers, component suppliers, and technology companies will start to assume more liability for the performance of their systems, which will require a refocusing of current risk management strategies, he said.

“The liability pendulum will shift from personal auto to commercial product liability or a hybrid of some form of coverage,” he said. “The strongest growth in insurance will be in the area of product liability.”

But such a shift raises new questions and concerns, experts say.

In some states, for example, there has been an attempt to create a liability exception for manufacturers in relation to unapproved modifications without defining what constitutes a modification, Mr. Gammelgard said.

“That’s a huge red flag for us,” he said.

Product liability has “decent-sized towers because it’s housed within casualty so there’s a lot of premium built in there,” Mr. Carlson told Business Insurance. “What has to happen is understanding how the autonomous vehicle product liability is going to be different than just standard product liability. That’s where the data is going to be critical to ensure as they build capacity in the marketplace, that there’s enough capacity and the right type of capacity and the right limits so that product is actually covered correctly.”

Market appetite will be another key issue, he said.

“Many companies have gotten away from insuring auto liability just because of the liability,” he said. “But on the flip side, there are new markets and people that do have an appetite. Then you get into the actual owners and operators: where are they going to play? They may be completely cut out of the scenario and then it may be the manufacturers making the cars or the rideshare companies that maybe own the fleet and now the liability is going to reside with them.” 

Technology companies originally wanted to self insure these risks, but now say they will only self insure for technology problems that can be attributed to their systems, experts say.

“Now we get back to assigning liability,” said Jack Gillis, incoming executive director, Consumer Federation of America in Washington, D.C. “Was it a technology problem that created the failure or did the driver make some sort of mistake? Or did I fail to download software when I was notified to download new software? There are going to be huge liability issues associated with these AVs.”

The evolving risk is starting to instigate new partnerships to provide coverage, experts say. For example, Tesla has partnered with Liberty Mutual Insurance Co. to provide an insurance plan for its vehicles.

State Farm currently believes that existing state liability and tort laws are sufficient and can evolve to handle the technology, but access to data is a key issue for the insurance industry, Mr. Gammelgard said.

“Crash-related data is essential for developing proper pricing and underwriting these vehicles and determining who is at fault, who is liable for crashes,” he said.

Efforts to incorporate data access provisions into state laws have been “met with significant resistance by some of the manufacturers and tech companies,” even information that State Farm believes is “pretty innocent and straightforward,” Mr. Gammelgard said.

“We are going to need (legislators’) help to ensure that everyone has access to this data,” Mr. Gillis said. “It is our data. We are the consumer. This is our vehicle. This is our accident. This is our experience. That is one set of data that needs to be made publicly available.”

The insurance industry will “also desperately” need data on how the technology works such as the success rates of automatic breaking for the different companies, Mr. Gillis said.

“There are so many different variables and data is the only way we are going to be able to assess which ones work and which ones don’t,” he said.