By FintechOS · August 16, 2021
9 minute read

What the future of cars means for motor insurance

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Advances in security, lane tracking, and autonomous driving will change insurance. Here is the next wave of tech set to reshape policies and premiums. 

Clearly, cars in 2021 are far more sophisticated and safe machines than what our parents (or grandparents) were driving when they first passed their tests. But is insurance keeping up with the pace of change in motoring, both technologically and in terms of driving patterns? In our previous article about new tech in the home and its implications for insurance, we explored how a wealth of data from hundreds of thousands of households will significantly reshape how policies are designed and personalized. As new tech continues to change cars and driving, we expect similar disruptive effects in the motor insurance world. 

The connected car  

Cars are now mobile data centers. The information collected and transmitted by the vehicle can give insurers deep insights into driving patterns. For example, Tesla sells insurance to its drivers at what it claims is “up to 20% lower rates, and in some cases, as much as 30%”. The logic behind the reduction: “Tesla uniquely understands its vehicles, technology, safety, and repair costs, and eliminates fees taken by traditional insurance carriers.” 

The motivation for Tesla is clear – its vehicles are notoriously expensive to insure via traditional methods. The Tesla Model 3 is the most expensive car in its category to insure in the US.

Data can be used to improve security. Connected cars are harder to steal, especially with GPS and remote disabling. Again, Tesla is a pioneer. It took four years for the first Tesla to be stolen, and with good reason. Permanent connectivity means the car’s location and software are accessible. Between 2011 and 2018, of 115 Teslas stolen in the US all but three were recovered, due to GPS tracking. The industry average was 58.4%  

The insurance industry is already harnessing telematics. For example, Jooycar, based in Santiago, Chile, offers insurers behavior-based policies and pay-per-mile via a device and app, which in turn provides drivers feedback on how to improve. As the comprehensiveness of data grows over time, the opportunity is to create more precise premiums based on real-world driver-specific information.  

Escalating security features  

Theft is a nightmare for drivers, and a huge factor behind high premiums. In the UK in 2020 a total of 74,759 cars were stolen – over 200 a day. The most stolen was the Ford Fiesta – also the most popular car in British roads. The second most stolen was the Land Rover Range Rover. Gangs are so brazen they are reported to use WhatsApp groups to share lists of models vulnerable to tracker removal and keyless relay attacks.  

The car of the future will be locked in an arms race with thieves. Jaguar Land Rover is implementing ultra-wide band radio technology, which transmits over a variety of frequencies to make signal cloning harder. Motion-detecting key fobs foil casual hackers: Audi, BMW, Mercedes, Ford and Volkswagen introduced fobs which “sleep” when stationary, to prevent thieves remotely picking up the device’s signal.  

There is progress being made across new areas such as cabin cameras, PIN-to-drive, and “sentry mode” – the idea of using the car’s existing sensors to foil attempted theft. Faraday cage boxes in the house protect keyless fobs from radio attack. Concepts such as a Ghost Immobilizer, allow drivers to enter a numerical sequence via existing dashboard buttons to unlock the vehicle – a wired security backup currently extremely hard to crack. Insurers must both forecast the impact of these security features. 

However, theft remains high, and gangs are becoming increasingly organized. Dr Ken German, former head of the Metropolitan Police’s stolen vehicle squad, said recently “There are clever gangs coming here from Eastern Europe. Criminals can take cars to the docks and put them in a container and they will be in West Africa very quickly.” The thief of the future, equipped with lorries equipped with signal-jamming exteriors, will be hard to defeat. 

Advanced Driver Assistance Systems (ADAS) 

The global market for Advanced Driver Assistance Systems (ADAS) is set to increase from $27 billion in 2020 to $83 billion a decade later 

ADAS features include:  

  • Lane-Keeping Assist 
  • Automatic Emergency Braking 
  • Adaptive Cruise Control 
  • Traffic Jam Assist 
  • Reversing Assist  

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Research suggests ADAS devices can cut bodily injury claims by 27% and damage frequency by 19%. Even if a car has just one of these features, it can make a huge difference. The Insurance Institute for Highway Safety reported that in a single year 40% of fatal crashes in the US were caused by a vehicle departing from its lane. Drivers who lane-drift are commonly asleep, suffering a medical emergency, or blacked out due to drug or alcohol use, according to the IIHS. Of lane-drift crashes, incapacitation played a role in 34% of collisions and 42% of fatal or serious injuries. 

The car of the future will incorporate more ADAS features to cut accident frequency and severity. The deployment of ADAS features is already soaring. SBD Automotive claims that across Europe the average number of ADA features on a car increased from 4.2 in 2017 to 7.1 in 2020.  

The trend is to move from “nudge” technologies, such as lane assist, to semi-autonomous control mechanisms, able to actively maneuver the vehicle of an incapacitated driver. Jessica Cicchino, Vice President For Research at IIHS, said: “If drivers are letting their vehicles drift from the lane because they are momentarily distracted, lane-keeping assist could help. However, if drivers are physically unable to control the vehicle, it’s not enough to only nudge the car back into the lane. In such cases, a crash avoidance system would need to bring the vehicle to a stop on the side of the road.” 

The challenge for insurers is to identify the ADAS features on each vehicle and tailor quotes accordingly. This is not easy. ADAS features may change on a model multiple times a year.  Each manufacturer may use proprietary definitions and naming structures for technologies, making it hard for insurers to understand the features deployed. Furthermore, there are over-the-air updates which upgrade the performance of each unit. Third-party data providers are likely to fill the gap in the market, by providing insurers with rich information on unique build of the cars driven by customers.  

The cost of EV battery fires 

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New risks around diverse, emerging EV battery technologies pose complex challenges for insurers.

What’s a car worth? The future value of petrol and diesel cars is affected by both taxes (emissions related road licenses, city congestion charges) and plans for phasing out fossil fuels. The UK in July announced plans to ban all new diesel and petrol heavy goods vehicles from 2040. The goal is to achieve net zero by mid-century. Smaller diesel trucks will be banned by 2035. Denmark, a pioneer in the field, is proposing to ban the sale of all new fossil fuel cars by 2030, with a full prohibition on usage by 2035. 

The challenge for insurers is to forecast the impact of government policy on car valuations. As prohibition looms closer, and policies limit the cost-effectiveness and road access of petrol and diesel cars, valuations may fall significantly during the course of a year. An annual premium will need to reflect car value price volatility. 

It will also be necessary for insurers to determine the premiums for new vehicles – electric and potentially hydrogen vehicles. A key issue is the combustibility of EV batteries. A typical combustion engine fire can be extinguished with 300 gallons of water, below the limit of a single fire wagon. An EV burns for significantly longer. In Brede, Netherlands, firefighters dropped a burning BMW i8 into a large water container to limit the damage it could do. 

In June, Chevrolet asked owners of the Bolt EV to charge only outside and “not leave their vehicles charging overnight” due to the risk of batteries catching fire.  

Fire crews remain unsure how to tackle EV fires. The US National Transportation Safety Board published a report stating the “inadequacy” of all manufacturers first responder guides: “The instructions in most manufacturers’ emergency response guides for fighting high-voltage lithium-ion battery fires lack necessary, vehicle-specific details on suppressing the fires.”   

In general, EVs come with their own, unique, parameters, which insurers must model in order to accurately price. This is a complex task for insurers.  

Daphne Ricken, Senior Underwriter at AGCS in a report for Allianz on the insurance issues of EVs, concluded: “From supply chain networks to production processes to the product itself — the automotive industry will have to respond to many emerging risks to make e-mobility happen, including data quality, weather issues and cyber risks, to name just a few”.  

Can we blame an Autonomous Vehicle? 

Level 5 self-driving vehicles (full autonomy) remain a distant prospect for now. But lower levels of autonomy are already going mainstream, such as auto-parking and motorway cruising.  

Vehicle autonomy raises multiple questions for insurers. Who is to blame in the event of an accident caused by a self-driving car? There are ethics questions too: should an AI be empowered to make decisions over which pedestrians to avoid, and which to swerve towards, in the event of an accident? Insurers will need to liaise with car markers to determine the ethical standards enforced by an AI.   

Autonomous vehicles may also herald a change in ownership. Summoning a self-driving car will mean rental is an attractive prospect: the dependence on a human chauffeur is ended, slashing taxi costs. How will insurers cope with the loss of annual vehicle premiums, as ownership falls out of fashion? 

The reliability of autonomous vehicles will remain uncertain for some years after introduction. Current datasets for human-controlled vehicles are decades old. In a sense, the AV insurance industry will be one starting from scratch – requiring frequent updating of policies to reflect market data as it emerges.  

In conclusion, the plethora of new technologies that we can see implemented in cars today is already changing significantly both the nature of the vehicles and the way we drive. The implications for risk, economics, and insurance are still playing out. Insurers which can anticipate the second-order effects of particular technologies, and create more relevant, accurate, up-to-date policies in the light of new trends and data, will be the ones to win from these technology-driven market shifts. 

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