Assessing risk on the road to full autonomy
With the proven potential to improve road safety and save lives, Advanced Driver Assistance Systems (ADAS) have undoubtable benefits for both the insurance industry and society in general.
Yet there are also a number of challenges to consider as the adoption of these systems become more widespread. How can insurers harness the data that they offer up and how will this change the profile of motor risk as we know it? How can we ensure that motor insurance products stay ahead of the curve and offer consumers a fair price without factoring in a margin for the 'unknown'?
Put simply, ADAS perform a number of tasks that enrich the lives of drivers. Think of driving now without cruise control or the reassurance of tire pressure monitoring. The very necessity of these systems for drivers is why the global market for ADAS is expected to reach more than $67bn by 2025, growing more than 10% each year. A group of 20 carmakers has pledged to outfit almost every new vehicle with forward collision warning and city-speed automatic emergency braking by 2020 (Reuters, 2019).
There are also signs, however, that the adoption of ADAS is unequal across different demographics. The UK government recently concluded that ADAS could improve the lives of older drivers by increasing safety, helping keep on top of maintenance and, ultimately, keep those drivers driving for longer. In turn, it could help offset the negative consequences of poor mobility in older age including isolation and depression.
Clearly, the potential advantages for this group alone cannot be overstated, yet there are also signs of unequal adoption between different age groups and genders more generally.
Creating motor insurance products that are more cost effective for consumers could be the key to addressing this disparity.
Are we there for full autonomy?
There is still a lot of ground to cover on the road to full autonomy and there have certainly been challenges along the way.
As a pioneer of several such autonomous technologies, Tesla, for example, has made headlines on a number of occasions due to accidents involving cars with ‘Autopilot’ activated; and the UK government recently reminded drivers that the feature is not for legal use on UK roads.
Nevertheless, there is significant evidence to show that certain ADAS features are improving safety overall.
Research we conducted in conjunction with the BMW Group revealed that Emergency Brake Assist alone has the potential to reduce rear-end accident frequencies by more than 30%.
Likewise, other basic ADAS technologies like forward collision or lane departure warnings could reduce accidents by 16.3% on motorways and 11.6% on other roads. More sophisticated ADAS technology like AEB and lane-keeping assistance could have an even greater impact, reducing accidents by 25.7% on motorways and 27.5% on other roads.
Calculating premiums to meet the needs of ADAS
In this way, the rapid introduction of ADAS is proving its potential to keep drivers safer on the road, but in order to achieve this, the technology needs to be managed correctly and safely.
As these technologies become more prevalent across the UK car market, the process of calculating insurance premiums becomes more complicated. Whilst the correct use and maintenance of these systems by an accredited technician should result in fewer insurance claims, the knock-on effect is a rise in claims costs for insurers, as repair work requires more complex technology.
To remedy this situation, insurers must work closely with motor manufacturers to secure the higher level of detail they need on ADAS technology, allowing them to price car insurance premiums more accurately.
To help tackle this problem, we have created our own proprietary ADAS Risk Score, which uses hist oric datasets to compare the accident frequencies and claims severities of individual vehicles with and without certain ADAS technologies.
We also conduct advanced simulations, which enhance the score by providing greater insight on the most frequently claimed incidents.
Finally, we perform live tests of ADAS technologies in a variety of real conditions, such as testing the effectiveness of AEBs and other ADAS on the test track.
Contextual data as the next frontier for insurers
Notwithstanding the emergence of new risks around data and software security within the car, we expect that the growth of car connectivity and ADAS in the long run will reduce the overall risk and the frequency of accidents.
The big opportunity for insurers lies in harnessing data from vehicles and other sources to more accurately price the risks of insuring drivers. How rapidly data-driven models can be deployed of course depends on our ability to capture, process and harness that data.
We also observe the abundance of data sources and the rush to monetise it as quickly as possible. Efforts are underway to change this fragmented picture. As a first critical step, the automotive industry is already working to agree on a standard way for vehicle sensor data to be transmitted to the cloud for aggregation and analysis.
This will enable the entire industry to benefit from the processing of data at scale and to create more accurate and precise traffic services and road hazard warning systems.
In the meantime, newer entrants to the vehicle technology market, such as Tesla and Daimler, are already having much success. Usage based insurance models will continue to improve and perhaps become more prevalent both in the personal and commercial vehicle space. And we will continuously expand our understanding of the most recent vehicle technologies.
Some are moving faster than others in building the capabilities needed to assess these automated features and to develop data-driven approaches to risk calculation. But without a doubt, going forward, differentiation and embedding new technologies will be key for insurers to prosper amid this change.