Driverless cars and insurance – Bank of England enters debate

The Bank of England (BoE), a somewhat unusual voice in the driverless car debate, recently entered the fray when it published a post on its new Bank Underground blog exploring the topic of driverless cars and insurance.

The post – 'Driverless Cars: Insurers Cannot be Asleep at the Wheel' – looks at the likely impact of self-driving vehicles on UK insurers. The BoE notes that while the arrival of self-driving cars is likely to reduce the number of car accidents by up to 90%, such a drop will also affect the insurance industry. This, in turn, could raise questions for the Bank's Prudential Regulation Authority, which regulates insurers in the UK.

The BoE points to figures from Thatcham Research that show almost a quarter of current UK car insurance claims result from parking incidents. Nearly three-quarters of these take place when a vehicle is reversing.

Insurers stand to benefit from fewer claims as driverless technologies start to reduce (and even eliminate) such accidents. But, as the Bank points out, such a shift could also cause insurance premiums to plummet; estimates suggest a fall of as much as 50% by 2025, rising to 80% by 2040, according to the BoE.

 
 

What are the implications of self-driving cars for insurers?

As the advent of self-driving vehicles starts to negate the traditional risk factors that see younger drivers pay higher premiums than more experienced motorists, the Bank thinks that vehicles themselves may soon be used to determine insurance risk.

Liability has long been seen as one of the most challenging issues when it comes to driverless cars and insurance. As policy-makers explore how to regulate self-driving vehicles, which reduce the risk of driver error, the BoE sees one possible shift as being a change from driver responsibility to manufacturer responsibility. Such a move could lead to direct tie-ups between car-makers and insurers, suggests the Bank, with manufacturers drawing on insurers' expertise. The BoE also suggests that communal or pooled insurance schemes may work for shared fleets of autonomous cars in cities or dedicated 'driverless zones'.

New insurance risks for driverless cars

A switch to driverless technologies may also lead to profitability challenges as insurers see premiums fall to reflect a drop in claims. The BoE explores ways in which insurers may be able to embrace these challenges.

For example, the risk of cyber-attacks against driverless technology points to a potential need for cyber insurance, says the Bank. And, as passengers turn to iPads, TVs and computers to keep them entertained while the car does the driving, it notes that there may be scope for new or enhanced vehicle contents insurance policies.

The BoE also points out that some incidents – such as a falling tree landing on a car – may not be avoided by self-driving technologies. Instead, it points to a study that suggests the resulting injuries or damage could end up being covered under health insurance or even household contents insurance policies.

The debate continues...

The debate over who should be responsible in the event of an accident involving a self-driving car is likely to continue. As new driverless technologies are developed and different levels of automation introduced, self-driving vehicles will have to contend with a mix of both human and autonomous drivers on the roads – adding complexity for insurers.

The Bank's voice in the debate over driverless cars and insurance boosts the number of public bodies exploring the wider policy issues raised by self-driving vehicles. The economic case will be a particularly important one in gaining broader support for the introduction of autonomous cars. And, by demonstrating the need for new insurance and risk models, the BoE highlights the variety of challenges facing those developing driverless vehicle regulations.

Perhaps most importantly, the Bank's involvement shows that the issues often cited as hurdles to the roll-out of driverless technologies are already being addressed. As an ever-greater range of organisations join the debate, momentum will continue to build – and the arrival of driverless cars should start to seem even closer.