AUTONOMOUS VEHICLE TECHNOLOGY: CONSIDERATIONS FOR THE AUTO INSURANCE INDUSTRY 2013 Intelligent Transportation Systems (ITS) Technical Meeting Monmouth College John P. Friedman Vice President State Government Relations USAA June 26, 2013 Good afternoon. I am pleased and honor to be here to talk about our industry s commitment to driver and highway safety and to talk about the role of new technologies, in particular collision avoidance systems will play in making our roads and highways safer in the future. First about USAA. I lead USAA s State Government Relations team. USAA stands for United Services Automobile Association which is a provider of financial services, including car insurance to members of the US military and their families. USAA was formed in 1922 by army officers who also flew airplanes and had trouble getting car insurance because flying was then considered to be a risky occupation. USAA now serves more than 9 million members and provides a complete array of financial products for the military and their families. USAA and the entire insurance industry have long been supporters of driver safety initiatives. We were early supporters of mandatory seat belt
laws, we support various initiatives to improve driver safety, including child passenger safety, reducing teen driving incidents, combatting driving under the influence, improving road awareness through model-driving simulators and challenging motorists to take no texting pledges. Most recently, USAA, launched a nationwide tour to more than 10 military installations and events to demonstrate how texting while driving impairs a person's ability behind the wheel and increases their risk of a collision. The tour, an extension of AT&T's "It Can Wait" initiative, supports the military community's "101 Critical Days of Safety" program, which focuses on safety education during the summer months between Memorial Day and Labor Day. These are some of the examples of our commitment to our policyholders and represent programs that stem from a long history of motor vehicle safety. An important part of this history includes the Insurance Institute of Highway Safety where our chief actuary serves on the Board of Directors.. The Insurance Institute of Highway Safety (IIHS) is an independent, nonprofit research and communications organization. Established in the 1950s, the IIHS has been a leader in finding out what works and doesn't work to prevent motor vehicle crashes in the first place and reduce injuries in the crashes that still occur. The Institute's research focuses on counter measures aimed at all three factors in motor vehicle crashes (human, vehicular, and environmental) and on interventions that can occur before, during, and after crashes to reduce losses. In 1992 the IIHS Vehicle Research Center opened, including a state-of-the-art crash test facility. (They crash cars!!) The Institute's affiliate organization, the Highway Loss
Data Institute (HLDI), gathers, processes, and publishes data on the ways in which insurance losses vary among different kinds of vehicles. The basic tenant of auto insurance is to insure people against personal injury and property damage. This contract naturally lends itself to focusing on vehicle safety improvements. Developing insurance products that recognize the utilization of new technologies is an organic approach to how the industry participates in the emerging trends in vehicle automation. WHAT S HAPPENING NOW A number of companies companies doing business in New Jersey and elsewhere are on the forefront of using telematics technology. The data from these devices has resulted in pay-as-you-drive insurance that allows a policyholder to earn a performance discount based on their driving habits. The transmission of accurate driving data lets insurers match the price of their coverage to the actual risk posed by drivers. Factors such as acceleration, breaking, speed, swerving, cornering and mileage help to determine risk, but also allow for a more fair way of evaluating driver ability. For example, an 18-year-old male typically will have a high premium by virtue of being lumped in with teenagers who speed and swerve. However, if he is a cautious driver, driving a car equipped with a telematics device might result in a lower rate based on his actual driving pattern. I m sure you have all seen Flo on TV encouraging drivers to enroll in Progressive Insurance Company s Snap Shot program, or perhaps have met Brendon, who is a shining example of an Allstate customer using the
Drive Wise program. Possibly you re familiar with the recent partnership between Ford and State Farm, where a policyholder driving a vehicle equipped with the Ford SYNC on-board car connectivity system can upload information directly to the insurer. At USAA, we have learned that while parents are not so interested in pay as you go they are very much interested in monitoring the driving activities of teen drivers and we are piloting a program where a free GPS device is placed into the teen s car and the device transmits data about vehicle speed, acceleration, braking and, yes, location to a secure website so Mom and Dad can keep an eye n their new driver. All of these initiatives represent an industry trend that will soon become more readily accepted. In fact, analysts reporting to the HLDI predict that the 2 million customers using telematics-based insurance today could rise as high as 100 million by 2020. Looking to the next level is the inclusion of collision avoidance technology which provides limited automated control of safety functions (e.g. brakes). Car makers are promoting these safety features more each year. The Highway Loss Data Institute s recent study of Volvos outfitted with City Safety concludes a measurable mitigation of frontal crashes. The analysis looks at insurance loss data, noting that claims filed for property damage liability coverage the insurance that pays for damage to vehicles struck by an at-fault driver were filed 16% less often for the S60s than other midsize luxury cars. For bodily injury liability claims the coverage that pays for injuries to people in the crash other than the insured at-fault driver -- the S60 had 18% fewer claims. Similarly, collision coverage that pays for damage to the at-fault driver s vehicle, 9% fewer claims were made. This is a very general overview of the study s findings. Nevertheless, the data
demonstrates that safety-equipped vehicles are reducing the frequency and severity of accidents, which ultimately may lead to lower insurance premiums. Of important note, however, as pointed out by the IIHS, forward collision systems vary in efficacy because drivers may ignore alarms, they disable the system because they find it annoying, or the system only works in conjunction with adaptive cruise control. Volvo's City Safety doesn't alert drivers before it steps in and brakes and you can't permanently disable the feature. The human factor in all of this remains the critical challenge for all involved with the evolution of this technology. And there lies the test for autonomous, self-driving vehicles. Overall, the insurance industry supports the research of this advancement, but right now we are in learning mode as students of the technology. Companies already consider various risk factors when underwriting premium criteria, including driver experience, vehicle model-year and road usage. Anyone who has bought a vehicle recently knows that you need to provide the VIN number when you buy your policy. That allows for tracking by make and model year and it is that will provide the hard data that will demonstrate the impact for insurers. And driving a Smart car is just another risk factor. If the smart cars become the prime target for car thieves, what you pay for comprehensive coverage for these vehicles will be effected. In addition, there is uncertainty about how these vehicles will change legal liability standards. So, today, if I am driving, I am responsible and will be held accountable in civil or in bad cases criminal court for my behavior. But, if the vehicle drives itself or responds automatically and the accident
occurs, who is at fault? Whose insurance pays? Is the manufacturer liable? The owner of the car? As these technologies emerge, another issue will be the ability of drivers to transfer from driver control to vehicle control and back. Will these technologies further enable distracted driving habits, already a major problem on our roads? How will older drivers adapt to these new technologies? These are long-term considerations, but what about now, as we enter into a transition period where our roadways consist of both smart and nonsmart cars? Our transportation system infrastructure is pacing with its own technology with systems such as red light cameras, speed cameras, EZ- Pass toll collections and electronic highway message boards. These measures also focus on human driver behavior with the goal of improving safety. However, they, too, are being challenged for their efficiency and pose liability uncertainties. So now we have roads with a semi-smart infrastructure being traversed by a mix of vehicles with varying capabilities. And have humans behind the wheels. This scenario makes for a cocktail of consideration for insurance actuaries and underwriters alike. There is no doubt in my mind that the benefits of emerging vehicle technology are playing a key role in minimizing accidents. There are numerous incentives for drivers to own such vehicles, including the prospect of paying less for auto insurance. As all parties involved move forward to further enhance and develop the technology, it is critical for the
auto insurance industry to be at the table because we, too, share the ultimate goal of saving lives.