Car insurance must evolve for autonomous vehicles

The insurance industry will have to work closely with manufacturers and others in the mobility sector to ensure that insurance regimes and policies are fit for purpose as the sector and its business models continue to be disrupted by developing technologies and new market entrants. A consistent approach across Europe is desirable although unlikely, given the likely impact of Brexit on how closely aligned the UK insurance regime will be with others across Europe in future.

More than 90% of car accidents result from human error. The optimistic scenario is that the shift to automation will decrease the number of accidents dramatically, reducing risk all round. Manufacturers and their product liability insurers may face an increase in the proportion of claims they see relating to accidents – but should benefit from a fall in the overall number of claims as the risk of accidents decreases.

The challenge for insurers

The personal traits and behaviours of customers are currently critical factors when insurers set premiums. Insurers use a wide range of data including customer age, where they live and their history of accidents. Increasingly, insurers are also able to use information about individual usage gained through telematics or 'black box' technology. This provides insurers with a more accurate assessment of the risk, although it requires them to have systems and processes in place that are able to analyse and manage high volumes of data as well as ensuring compliance with data protection laws.

Some manufacturers have said that they will take full liability for any accidents caused by their autonomous vehicles. However, the legal position is set out in the 2018 Automated and Electric Vehicles Act. The Act prescribes compulsory insurance for autonomous vehicles via a 'single insurer' model, as follows:

• following an accident, insurers of an automated vehicle will be liable for damage caused to the insured or any other person when the vehicle was driving itself;
• where the vehicle was driving itself and was not insured, the owner will be liable for the damage caused by the accident;
• the insurer or owner of the automated vehicle will not be liable to the person in charge of that vehicle where the accident caused was wholly due to the person's negligence in allowing the vehicle to drive itself when it was not appropriate to do so;
• an insurer may exclude or limit its liability for damage suffered by an insured where the accident occurs directly as a result of software alterations that are prohibited under the policy, or a failure to install software updates which the insured knew or ought to have known were 'safety critical'.

A changing landscape for product liability insurers

Where the manufacturer of the vehicle, or another third party, is responsible for the damage or injury, the insurer or vehicle owner will still have a liability to the injured party - but it will be entitled to recover against that manufacturer under relevant existing laws, including product liability laws.

The government considered making changes to product liability law, but concluded that this was not a proportionate response as there would be only a small number of automated vehicles on the roads in the near future. This may of course change in the longer term, when automated vehicles become a common feature on public roads.

In October 2019, the UK's Department for Transport (DfT) announced a new safety regime called CAV PASS. This new assurance system is intended to ensure that autonomous vehicles are safe and secure-by-design and to minimise defects prior to testing. Testing will take place at locations like the Autonomous Village, a self-driving vehicle test facility opened in September 2019. The site will be part of a network of self-driving vehicle test facilities across the country.

The shift in liability for damages being directly recoverable from manufacturers is more likely to take place once technology advances to the stage of fully automated vehicles. If the risk of accidents is significantly lower for autonomous vehicles – and some calculations suggest it could be 50 times lower than for conventional cars – manufacturers would only have to make a very modest increase in the purchase price to cover the cost of the risk they are taking on.

The UK's developing framework

First Law Commission consultation

The Law Commission published its first consultation on automated vehicles, which sought to examine any legal obstacles to the widespread introduction of self-driving vehicles and the accompanying need for regulatory reforms, in November 2018.

The first consultation sought input on whether further guidance or clarification was required in respect of contributory negligence, causation, data retention, secondary claims against manufacturers and software sold without a physical medium, amongst other regulatory issues.

The Association of British Insurers (ABI) submitted its views to the Law Commission as part of this consultation, noting that drivers should not be liable when the autonomous vehicle itself is in control. However, the ABI also suggested that vehicles should not be classified as autonomous if the vehicle continues to require driver intervention in the case of an emergency. The ABI suggested that the driver should therefore remain fully responsible for an autonomous vehicle until such time that the autonomous vehicle can remain in control of itself in emergency scenarios.

Second Law Commission consultation

The second consultation, published in October 2019, focused on the provision of completely automated trips where the vehicle travels empty or with passengers only, and no driver or user-in-charge – so-called highly automated road passenger services (HARPS).

The responses to the second consultation were published in May 2020. Policies that attracted support included adopting a single system of national licensing for operators of HARPS; flexible regulation that encourages innovation; and regulating accessibility of HARPS to ensure that they meet the needs of disabled and older people.

Views were divided on who should administer the operator licensing scheme and what powers local authorities would need to manage HARPS. There was general agreement that digital traffic regulation orders would help enormously; but other policies like road pricing, parking charges and quantity controls generated very mixed views.

Third Law Commission consultation

A third consultation, due by the end of 2020, will draw on responses to both previous papers to formulate overarching proposals on the way forward. The Law Commission will publish its final recommendations in 2021.

In August 2020, the DfT announced a call for evidence in relation to an upcoming consultation on an automated lane keeping system that will be capable of taking vehicle control to make driving safer and easier. As the journey towards full automation continues, insurers and manufacturers will no doubt be keen to take an active and vocal role in these consultations.

The current German model

Responsibility for damage

The German insurance model includes protection for the traffic accident victim in cases where damage is caused by partly automated vehicles. This is because the owner of every vehicle whose use is allowed by the German Road Traffic Law is required to insure its liability and the liability of its drivers.

The car owner is liable towards the party that incurred damage regardless of whether the accident happened because of a driver error or because of a vehicle fault, unless they can prove that they did not cause the resulting damage. The motor vehicle liability insurance regime also regulates dangers arising from the operation of the vehicle irrespective of driving mistakes - for example, if a broken parking sensor causes the car to land in a neighbour's hedge or a defective proximity cruise control system causes a rear-end collision.

In these sorts of cases, the motor vehicle liability insurance regime would compensate the accident victim, but would also check who is ultimately liable and can possibly be subject to recourse claims. This could be, for example, the driver, for driving errors in self-propelled vehicles up to level 4; the fleet operator, for driving errors caused by robot taxis at level 5; the car manufacturer, for design errors; the supplier, for defective individual parts; the software programmer, for errors in updates; or the hacker who has manipulated the car. If third party fault can be proven, it is easier for the motor vehicle insurance company to take recourse against the responsible party than for private individuals.

Fully automated vehicles will be covered by the existing regime when allowed for use on public roads

The obligation to insure liability only applies to vehicles allowed by the German Road Traffic Law. In July 2017, Germany amended its Road Traffic Act to permit the use of vehicles with automated driving functions on public roads. The Act defines what constitutes a highly or fully automated vehicle. The system must, amongst other things, be able to comply with traffic rules; recognise situations that require human input; and allow override by the driver at any time. It does not cover automated vehicles that do not need any driver or that do not have a steering wheel and pedals.

Drivers must only operate automated vehicles within manufacturers' instructions on the "intended use" of such function and the vehicle itself must be able to inform the driver if they are using it outside the limits of its intended use. The new laws do not require drivers to remain focused on the road at all times, but they must be able to react "without undue delay" if the system prompts them to do so or they themselves realise it is needed. Under the new laws, automated vehicle manufacturers will be required to install a 'black box' that can identify whether the human driver had control of the car at the time of any accident in order to identify liability.

Criticism of the German regime

The amendment to the Road Traffic Act was heavily criticised for not providing for a new liability regime for automated vehicles that included direct liability of manufacturers. Instead, lawmakers kept to the principle that the driver and registered owner of the vehicle are primarily and directly liable, instead of providing for a new direct route through to the manufacturer when incidents have occurred during automated mode.

German lawmakers are currently discussing further amendments with regard to autonomous driving, however these do not include changes to the existing liability regime.