New frontiers in risk management for the auto industry

IBIS San Diego’s third session of the day was titled ‘new frontiers in risk management for the auto industry,’ presented by Dr Barry Sheehan from Kemmy Business School, University of Limerick.

Barry kicked off the session by discussing the impact of ADAS and autonomous vehicle (AV) technology on the insurance industry. 

‘Autonomy will change the world,’ Barry stated. He further explained that autonomy and AVs will fundamentally change how the world moves people and goods over the next 20 years. AVs will save lives, increase mobility and transform the performance of existing public services and businesses.

However, autonomy does not end with cars. Barry explained that the insurance market will also see an effect from AVs, including the decline of premium incomes, the increase of business to business, the value of the private market declining and the growth of new lines of business.

Within the market there are clear trends towards that of automation, but the timing and extent of this development remains uncertain.

Barry stated there has been a shift in the ADAS market. In 2016 the ADAS market was worth $11bn. By 2026, it is estimated to be worth $132bn. However, there are other market Barry predicts to be affected by AVs. Motor repair, taxi drivers, logistics and city infrastructure are just a few that he lists.

There are barriers to AVs and ADAS in the world of insurance, stated Barry. These limitations include public policies, lack of data and benchmarks for risk pricing, barriers to shifting liability from owner to manufacturer, and the new risk to the value change which is subrogation.

With the rise of AVs, responsibility for accident causation shifts to the manufacturer. However, Barry claims that the possible shift in liability is not directly and comprehensively correct. The shift of liability costs depends on legal frameworks regarding product liability.

Barry, however, does forsee a problem: different levels of fault of keeper and the driver or product‘s liability. ´Therefore, I suggest ongoing legal discussions about liability, taking into respect: strict liability of the driver remains and is generally adequate even of autonomous vehicles, reflection of responsibility for failures within allocation of liability, if need be, adjustment of product‘s liability reflecting the progressing capability of automated systems and insurance system which insures protection of claimants and ensures efficient claims processes.‘

With changes in market configuration looking at private motor insurance alone is not enough, explained Barry. Motor insurance, product liability insurance, product recall insurance and cyber liability insurance must all be taken into account.

Interdependencies between motor insurance premium volume and product liability insurance is dependent on allocation of legal liability. There is legal obligation to be liable for damages and losses arising from defective products, but within motor insurance losses, it does not play a significant role due to different degrees of fault.

Barry’s forecast of increased product recall activity supports the hypothesis that software contributes to a significant amount of safety recalls due to increased software and electronics within the vehicle, he explained.

Lastly, Barry spoke about assessing the cyber-risk of connected and autonomous vehicles. He explained that it has been projected that the adjustment to autonomous vehicles will generate at least $81bn in new insurance revenues in the US between 2020 and 2025, with cyber-risk and product liability presenting the greatest opportunity generating $12bn and $2.5bn, respectively, in 2025.

Cyber risk and cyber liability are a key emerging risk for insurance companies and, by extension, their industry clients, explained Barry. Cyber risk for AVs is an even more complex problem because of the multiple means in which a breach can occur.

IBIS USA partner were 3M, Axalta, Solera Audatex, BETAG Innovation, Symach, Enterprise Rent-A-Car, Fix Network World, Mitchell International, PPG, RSG, Verifacts, CARSTAR, Caliber Collision, Chief Automotive, I-CAR, OE Connection, and PartsTrader LLC.