Why is this technology so exciting?
The National Highway Traffic Safety Administration (NHTSA) has noted that 94% of auto accidents are attributed to some form of human error on the part of drivers. In 2014, there were an estimated 1.25 million deaths worldwide due to vehicle crashes. There is a potential for autonomous vehicle technology to dramatically re-shape these statistics. The Insurance Institute for Highway Safety anticipates that there will be 3.5 million self-driving vehicles on US roads by 2025 and 4.5 million by 2030.
The Society of Automotive Engineers (SAE) created a six-level scale describing the different levels of vehicle automation. This scale was adopted by NHTSA. Starting with level zero (no automation), and ending at level 5 (full automation), the degree of required driver interface diminishes.
While the advances in technology will serve to decrease accidents, the risks for autonomous vehicle businesses will not disappear, but rather, will shift as those advancements move the market from level to level.
What are the emerging risks?
The insurance industry itself has estimated that by 2025, there will be a decline of $25 billion in auto insurance premiums. But insurers also predict that new lines of coverage relating to the shifting targets of liability will generate $81 billion in premiums—substantially more than the loss from the personal auto insurance market. (See Accenture, “Insuring Autonomous Vehicles—an $81 Billion Opportunity between now and 2025” (2017). https://www.accenture.com/us-en/insight-autonomous-vehicles-opportunity-insurers
Here are the issues insurers see driving insurance related to autonomous vehicles in the future:
First, cyber security issues will be increasingly important. This includes auto theft by hacking or the failure of smart technology. The recent case against Jeep is an illustration. See Flynn et al. v. FCA US LLC et al., Case No. 15-00855 (S.D. Ill. Aug. 4, 2015). In 2015, a class of 220,000 Jeep owners was certified by a federal court in Illinois. Hackers remotely took the wheel of a Jeep in a controlled test, and the plaintiffs in the lawsuit alleged that they overpaid for their vehicle because it could be hacked through the infotainment system. The takeaway here is that even though technology and security will improve, so will the sophistication of hackers.
Second, the industry anticipates more complex and sophisticated forms of product liability claims arising from the technology, including claims relating to disruption in communications and internet connections, algorithm defects, lidar/radar failure, and camera-vision failure. In Lommatzsch v. Tesla, Case No. 18-00775 (D. Utah, Sept. 4, 2018), for example, a lawsuit was filed in 2018 after the plaintiff’s Tesla collided with cars stopped on a highway after the autopilot system apparently failed to brake. The plaintiff sued not only Tesla but also a third-party service center on grounds that the center negligently serviced the car when it replaced a sensor prior to the crash.
Third, insurers expect risks arising from new forms of infrastructure investment needed for vehicle-to-vehicle and vehicle-to-infrastructure communication failures, cloud issues, satellite issues, and/or disruption. As cities invest in smart technology to improve traffic logistics and safety, there will be tremendous opportunities for autonomous vehicle businesses, but also shifting risks, particularly with respect to cyber issues.
The bottom line is that if you are a software developer, manufacturer of component parts, or the owner of a fleet of autonomous vehicles, more of the liability in future damage claims will be allocated to you along with the end-product manufacturer.
How does a business in the autonomous vehicle space protect against these emerging risks?
Here are some suggestions:
- Pay careful attention to warnings, labels and instructions—particularly for manufacturers—as well as to statements within your marketing materials.
- Broadly use of indemnification agreements from vendors and subcontractors, including dealerships, repair/installation facilities, etc. Such agreements are invaluable, but only go so far, as an indemnity is only as strong as the financial well-being of the company making the promise.
- Require vendors to carry robust forms of insurance and insisting that you be included as an additional insured where possible. Insist on highly rated insurance carriers, and make sure to obtain a copy of the applicable endorsement as well as the certificate of insurance, both showing that you are protected.
- Obtain state-of-the-art insurance that addresses the emerging risks, and pay careful attention to new endorsements that may provide additional protection as they are developed (and equally to endorsements that may limit coverage in those emerging gray areas). Cyber insurance, enhanced product liability insurance, technology errors & omissions coverage, as well as contingent business interruption protection will each be important, depending upon your business and where your business fits into the autonomous vehicle space.
Note also that even though liability risks created by autonomous vehicle systems will shift liability away from drivers to manufacturers, (see, e.g., Munich Re, “Autonomous Vehicles,” at 7) https://www.munichre.com/us/property-casualty/knowledge/expertise/knowledge-publications/autonomous-vehicles/index.html, ultimately, regulations and legislation in this space will also have a significant potential impact on how risk will be allocated. For example, in the UK, legislation in the form of the Automated and Electric Vehicle Act makes the owner of an autonomous car responsible for certain risks—for example, requiring owners to keep vehicle software up to date and well maintained. It will be essential to track the rules and guidelines for both testing and commercial deployment of autonomous vehicles that are being considered in the US by the Department of Transportation and NHTSA, as well as the legislation being enacted on a state-by-state basis.