Insuring the Future: Keeping Up With
a Rapidly Changing Industry
by Alix Carman | 3 min read December 4th, 2019
Less than ten years ago, choosing a new car might involve thinking about the make and model, what you could afford, and whether it suited your needs; but there is much more to it today.
Drivers are increasingly considering the negative environmental effects of diesel or petrol vehicles. Now, the choice of a petrol, diesel, hybrid, or electric car will also affect the cost of the driver’s tax and insurance.
There are also an increasing number of driverless features on new car. With heavy investment from car companies in the quest to produce fully self-driving cars, insurance companies are now dealing with a rapidly changing liability landscape.
Driverless Cars and Insurance
Insurance premiums are based on a driver’s likelihood of being in an accident, as well as actual crash rates. For example, in the U.S. more than 90% of accidents are caused by human error, so how could removing the driver change insurance?
“Under the current Irish Road Traffic Act, driving a mechanically propelled vehicle means you have to have insurance, whether the vehicle is autonomous or not”, explains Martin Morrison, underwriter at Allianz Insurance. “However, accidents are mostly caused by drivers doing something wrong. In an autonomous vehicle, a computer can have full control, so the driver isn’t likely to be responsible, and may not be negligent under the current Road Traffic Act. Because of this, the law may have to change to accommodate a change in responsibility of error. Autonomous cars are still crashing and causing deaths. When they improve, and become a reality, insurance may be fundamentally changed.”
Responsibility and Insurance
The idea of a computer controlling a vehicle is not new. Automatic functions already provide many safety benefits, such as anti-lock braking. What is new is the degree to which automated systems are taking over driving functions. While these technologies can perform very well, they can’t be 100% safe all the time.
“With the owner of the vehicle no longer responsible, manufacturers could become liable,” explains Morrison. “Or the technology company if the accident was the result of faulty tech. The law will likely always compensate the injured party. However, the Road Traffic Act may not want to complicate the law, with manufacturers potentially blaming the technology company. The vehicle owner may still be liable, depending on the outcome of the potential legislation changes.”
While fully autonomous vehicles are still some time away, assisted driving technologies are increasing.
“While cars with automated functions can be more expensive to fix, the biggest contributor to insurance costs is personal injury claims, not property damage claims. As autonomous features improve, accidents should reduce, and which may have a positive impact on premium levels. These changes in technology could potentially facilitate car manufacturers or technology companies providing their own insurance products or solutions. For example, manufactures may be able to use a vehicle’s data to understand how well a person drives. As a result, they may be able to assess risk better than insurance companies can.”
Electric and Hybrid Cars and Insurance
The Irish government plans to ban the sale of new petrol and diesel vehicles in 2030 and from from receiving National Car Test (NCT) certificates for these vehicles by 2045. Electric cars must be insured but because the technology is still relatively new, insurers have yet to create a system to calculate risks and produce a policy covering all eventualities. So, what factors are insurers thinking about and how could your car insurance change?
“It is unlikely there will be a monumental increase in the sale of electric cars in the next 10 years, so insurers won’t have enough data to rate hybrid and electric cars,” says Morrison. “But there are things we do know - the types of people buying electric cars are environmentally conscious and they don’t drive far. They are likely to drive on routes they know. However, while autonomous cars can be safer repair damages could be much more costly.”
“There is more to consider when insuring electric vehicles. Currently, insurers typically have breakdown assistance as an add-on to products. However, it doesn’t provide cover if a vehicle runs out of fuel. Likewise, it would not provide cover if it ran out of electricity. Cover would have to be extended but insurers could charge more on the basis that it’s harder to find an electricity point than a petrol station.”
Hybrid Cars and Insurance
Hybrid cars are becoming increasingly common on our roads.
“Calculating insurance premiums for hybrids is done on a case-by-case basis. If a hybrid car performs better than petrol, it will get a better rating. And, there are different types of hybrids - non-chargeable and chargeable. But the type of car is one rating factor; there are many more. Insuring a huge car will be dearer than a small one. However, there are more risks associated with the driver- they have the accident, not the car,” Says Morrison.
Fully automated cars are still decades away. Electric and hybrid cars will likely become more common on our roads as incentives increase and prices fall. These developments are opportunities for insurance companies which are quick to adapt. The smoothest road ahead will be one where insurers and car manufacturers each have a hand on the wheel.
This guidance is for general information purposes only. Allianz is not affiliated with any car manufacturer.
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