Technology is changing the way we interact with the world, whether it’s newer, smarter vehicles, greater ease of communication, or an increase in the data available to help businesses better target their marketing to consumers. The rewards of these technological leaps, however, also come with some pretty significant risks, or at the very least create problems that have yet to be resolved.
The auto insurance industry is as vulnerable to these risks as any other industry. However, here are three major trends in the auto insurance industry that may be of concern in the coming months. Technology has the potential to disrupt the insurance industry in a short period of time and companies must determine how best to adapt to the ever-changing technological landscape and use it to their advantage.
Automated vehicle technology
Automated driving is a broad concept, encompassing a myriad of technologies, some currently in production and still others in the imagination of the world’s best creative engineers. The concept of self-driving cars is constantly evolving and has not yet reached full automation. However, further development of automated features is inevitable.
While automation has many benefits, the technology is advancing faster than the legal and regulatory environments that govern it. Are insurers prepared for the impact of automated driving technology on the auto insurance industry?
One of the main advantages of automated vehicle technology is its ability to reduce the frequency and severity of traffic accidents. This benefit will affect both the need for liability insurance and the number of claims submitted under insurance policies. As these technologies become mainstream, the personal auto insurance industry is expected to contract by up to 60%. A comprehensive reassessment of what is covered by auto insurance policies will be necessary in the long run. In the immediate term, insurers will be forced to consider the impact of automated technologies on discounts, underwriting, distribution of liability and claims handling procedures.
Another concern is its propensity to be hacked. New technologies are creating unique cyber vulnerabilities unprecedented in the automotive industry. Data connections and sensors essential to automated driving technology open the door for hackers to carry out cyber attacks that can compromise the security of the data collected, as well as the safety and operation of the vehicle itself.
Attacks that threaten the integrity of a vehicle’s security operations pose a significant risk to personal security, but the interception of data collected by vehicles poses an equally significant economic risk. Who is responsible for accidents caused by hacking a vehicle? Is it the driver, the vehicle manufacturer, or just the hacker? Will insurance coverage be changed to cover cyber attacks? If so, under what circumstances? These hypothetical questions are largely unanswered at this time, but as technology emerges, insurance companies will be forced to answer them.
Technology not only affects the auto industry, but virtually every facet of our modern economy, and no consumer technology is more ubiquitous in American culture than the smartphone. At any given time, approximately 660,000 drivers are using cell phones or electronic devices while driving, drawing more attention to distracted driving.
Plaintiffs in auto accident personal injury claims have sought to blame distracted driving on cell phone makers and app developers with deeper pockets. While many of these cases have had little success, some are gaining ground. For example, a car accident victim sued Snapchat, alleging he was responsible for an accident caused by a driver using the app’s ‘speed filter’, which allows a driver to include a speed with the driver’s photo. The plaintiff alleged that the “speed filter” not only distracted the driver, but also encouraged her to speed up. The outcome of the case remains uncertain, but if the plaintiff succeeds, the ruling could spark a wave of lawsuits against cellphone makers and mobile app developers for damage caused by distracted drivers.
Insurance companies should pay attention to changes in the law on this subject, as it could provide insurers with a mechanism to seek contribution or compensation from larger entities such as cell phone manufacturers or developers. mobile applications.
Big data dependence of insurers
While not a new trend, 2016 showed an ongoing reliance on “big data” or large amounts of consumer information gathered from various places and compiled into a neat package. Insurance companies use big data to engage in predictive modeling, especially underwriting, pricing and claims handling.
Big data can help optimize pricing by allowing more specific segments of the population to be explored, or even marketed to particular individuals based on their consuming activity.
However, the downside for insurance companies is the potential for discrimination claims, as demographics are used to determine the prices of certain insurance products and the claims arising from those policies. In particular, regulators are concerned that some big data modeling factors may be correlated with prohibited rating factors. Insurance regulators will continue to focus on regulating the use of big data and optimizing prices in the future.
Each of these risks will affect how insurers write auto coverage in the future. Given their impacts today, this will allow them to develop products that will continue to protect policyholders in the future.
Kymberly Kochis, Esq., ([email protected]) is a partner based in the New York office of Sutherland Asbill & Brennan LLP. She advises insurers on a wide range of litigation and corporate governance issues. Brittany Cambre, Esq., ([email protected]) is a partner based in the Atlanta office of Sutherland Asbill & Brennan LLP. She focuses her practice on complex commercial litigation for corporate clients and insurance litigation.
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