Autonomous car insurance drives new opportunities

In 2017, Kyle Vogt, the founder of GM-backed autonomous car company Cruise, promised that the startup would begin testing driverless vehicles in New York City by 2019. That didn’t come to pass — Cruise put the brakes on the pilot in August 2018 — but driverless cars have scaled significantly in the years since Vogt’s pronouncement. Last month, Ford and Argo AI announced they would work together to launch self-driving cars on Lyft’s ride-hailing network in Miami and Austin, Texas. Motional, a joint venture of Aptiv and Hyundai, plans to start testing autonomous vehicles in Los Angeles following a deployment in Downtown Las Vegas. And Intel’s Mobileye recently became among the first to pilot self-driving cars in New York City, beating rival Cruise to the punch.

As driverless cars inch toward reality — experts predict it could be as little as a decade before they’re widely available — figuring out how to insure them remains an unsolved challenge. One fundamental question is whether the individual owners of autonomous vehicles will need insurance at all. Liability could lie with manufacturers if accidents are determined to be caused by a flaw in self-driving cars’ designs.

Emerging market

Startups with new business models are emerging in anticipation of the challenge. Koop Technologies, which is based in Pittsburgh, Pennsylvania, is developing what it calls an “API-powered” insurance platform for autonomous vehicles, robotics, and “machine-centric” risks. Koop collects data from autonomous vehicle and robotics companies and uses it for insurance underwriting, cost of risk, and claims handling, enabling developers, operators, and insurers to make potentially more informed risk transfer and pricing decisions.

“Koop handles one of the unintended consequences of using AI and machine learning to drive our cars: How do we insure these self-driving cars when no one is behind the wheel to ensure? What’s fascinating about our approach is that we have a product that allows us to collect autonomous vehicle data at scale with no extra hardware needed versus traditional telematics approaches,” Koop cofounder and CEO Sergey Litvinenko told VentureBeat via email. “With such a massive data collection, we’re able to aggregate collected datasets and deploy our machine learning model to dynamically price the cost of risk for autonomous vehicles while taking into account new risk factors attributable to those machines vs. human drivers.”

Koop claims it’s already partnered with large insurance carriers to develop special programs for autonomous vehicle and robotics clients. The momentum caught the eye of venture capital firm Ubiquity Ventures, which led the company’s $2.5 million seed funding found.

“We are able to price robotics risks better with the manufacturer- and operator-level data we collect through the platform. Additionally, it helps to significantly speed up the claims handling process since the platform takes advantage of the connected sensor hardware for certain use cases (e.g. autonomous trucks, robotaxis),” Litvinenko added. “We’re seeing an increasing shift to automation across many verticals: transportation, drones, warehousing, agriculture, construction.  This opens a lot of opportunities for our business.”

Avinew, a Westlake Village, California-based insurtech company, took a different approach with its platform. Founded by former Aon assistant VP Dan Peate, Avinew offers coverage to drivers and fleet operators who own cars equipped with autonomous safety features.

After completing proof-of-concept pilots with two insurers, the startup raised $5 million in seed funding and brought on Jeremy Snyder, who previously served as Tesla’s head of global business development and special projects. “The advanced safety features in today’s cars are changing the way we drive. It’s both an opportunity and a necessity that the auto insurance market changes as well,” Peate said in a statement. “We believe that if drivers use safety features responsibly, they should be rewarded with insurance cost savings for helping make the roads safer for all of us.”

Avinew’s usage-based insurance program employs a mobile app to collect telematics data and detect when semi-autonomous or autonomous features are “responsibly” engaged. These features largely fall under the category of advanced driver-assistance systems (ADAS) like Tesla’s Autopilot, GM’s Super Cruise, Ford’s Co-Pilot 360 and BlueCruise, and Nissan’s ProPILOT Assist. From this data, Avinew determines whether policyholders are eligible for a discount on their plan premiums.

Of course, like all usage-based schemes, Avinew’s insurance requires that drivers sacrifice some privacy in exchange for discounts. The company’s privacy policy discloses that it may partner with other companies to analyze and process driving data. Moreover, it indicates that if Avinew becomes involved in an acquisition, customer information could be transferred to the purchaser.

Data from Nationwide shows more than 60% of consumers have privacy concerns about telematics — i.e., remote vehicle monitoring — despite the fact that interest in telematics is on the rise. The insurance segment of vehicle telematics market is expected to grow at a 24.8% compound annual growth rate by 2025, according to Adroit Market Research.

“The automotive industry is moving full-steam ahead with adding semi-autonomous and autonomous features to vehicles,” Michael Stankard, automotive practice leader at Aon and Peate’s former colleague, said. “There is a tremendous opportunity for insurers to embrace this technology and create new insurance programs that reward vehicle owners in the autonomous era.”

Then there’s Trov, a startup headquartered in Danville, California, which insures the ride-hailing customers of Alphabet-owned driverless car company Waymo. Passengers don’t have to pay for coverage, which is underwritten by an affiliate of reinsurer Munich Re. Lost and damaged property and trip-related medical expenses fall under the policy.

“Our software engineers adapted Trov’s ‘human-triggered’ insurance to be software triggered, creating a more precise cover for passengers in an intelligent driverless car,” Trov CEO Scott Walchek explained in a blog post. “Our insurance [experts] huddled with our innovative underwriting partner Munich Re to develop the most comprehensive protections, from lost items to medical well-being, that could be offered to any passenger in a Waymo-equipped vehicle on a trip-by-trip, mile-by-mile basis.”

A 2018 J.D. Power Pulse survey found that 40% of consumers are willing to switch to insurance carriers who offer discounts for semi-autonomous features. Moreover, nearly 70% expect carriers to offer discounts for cars with advanced safety features.

Incumbents have taken note. In late 2020, State Farm and Ford said that they completed a yearlong pilot to better understand how collision avoidance, adaptive cruise control, automatic emergency braking, blind spot detection, lane departure warning, and other semi-autonomous capabilities impact the frequency and severity of auto claims. As a result, State Farm made insurance rate adjustments in the first half of 2021, which it expects will eventually expand to owners of certain Ford, Lincoln, or Mercury products dating back to 2010.

Electric vehicle manufacturer Rivian, too, plans to offer discounted insurance — underwritten by Nationwide — for customers who use the semi-autonomous systems built into its R1T Truck and R1S SUV. The company says it’ll lower the rates further for owners who consistently use its hands-off, eyes-on Active Driving Assistance feature, which handles steering, lane changes, and acceleration.

And several years ago, Direct Line, Britain’s largest auto insurance company, enticed Tesla owners to turn on their Autopilot with a 5% discount. Root, a Columbus, Ohio-based insurer, also extends price reductions to Tesla owners with Autopilot systems.

Car reinsurer Swiss Re and mapping company Here estimate that semi-autonomous systems could potentially cut the frequency of car accidents by up to 25%, reducing insurance premiums cars by $20 billion. According to a KPMG report, within 25 years, autonomous safety technologies could shrink the personal auto insurance sector — worth $244 billion in the U.S. — to 40% of its current size.

Challenges and opportunities

But not all insurers are ready to place their trust in driverless cars. Many say that they lack sufficient data to validate the car and tech industries’ promises of safety benefits from automated systems. They also cite a lack of consistent standards and drivers’ unpredictable use of the systems as reasons they’ve refrained from fully endorsing the technologies.

Another blocker is self-driving vehicle systems’ reliance on expensive components that can be difficult to repair and replace. The AAA estimates that the necessary sensors could increase the price of a repair bill by $3,000.

“ADAS-equipped vehicles are … the most expensive in terms of capital cost, maintenance, and repair. Plus, they introduce a raft of complications for maintenance management. Previously simple repairs come with new complexities, such as calibration of the ADAS system,” Alison Pittaway wrote for Global Fleet. “Clearly the business case for and against ADAS cannot include cheaper insurance premiums. Reductions in accident frequency and severity could eventually offset higher repair costs and insurance rates may reflect this.”

Legislation may dictate the path that some insurers take, impelled in part by crashes involving Tesla cars and the death of a pedestrian struck by an Uber test car in 2018. In 2018, the U.K. passed the Automated and Electric Vehicles Act, which prescribes compulsory insurance for autonomous vehicles via what the law describes as a “single insurer” model. Following an accident, insurers will be held liable for damage caused when the vehicle was driving itself, but the insurer or car owner won’t be held liable if the accident was caused is due to negligence. Here, “negligence” means allowing the vehicle to drive itself where it wasn’t appropriate or failing to install a critical software update.

The liability question has held up autonomous vehicle legislation in the U.S., at least at the federal level. But while the debate rages on, the increasing rollout of driverless vehicles is already forcing changes in the insurance market — regulatory frameworks be damned.