From the January 2013 issue of Claims Magazine •Subscribe!

Risk on Autopilot?

Claims and Risk Implications of Driverless Cars

Editor's Note: This article was written by Kevin Quinley, principal of Quinley Risk Associates.

NFL quarterback Peyton Manning gushes about his OnStar system—and his Buick Verano—in a recent TV commercial. He calls audibles from the comfort of his car’s driver seat. Many consumers love what such systems can do to enhance the driving experience. To take it a step further, what if your car could drive itself

Technological advances are bringing this futuristic vision closer and closer. German engineers have developed a prototype called the Lux. Nissan has a version of the Leaf, which it may roll out in 2015. Reportedly, BMW, Toyota, and Ford are all working on versions of driverless cars. 

Such cars may offer potential safety advantages. Software can be immune to fatigue, intoxication, and distracted driving. Driverless cars may enhance automobile safety. Personal productivity may receive a boost, since drivers enduring long commutes can fill that time with work or more productive pastimes. Still, the prospect of driverless cars has many implications for adjusters.  

For starters, when collisions occur and the inevitable claims and lawsuits follow, where are the deep pockets? Nowadays if you have a car wreck, typically there will be a lawsuit against one or more drivers. When driverless cars collide, who do claimants sue?

How do adjusters apportion liability? In this case, there will be a rise in product-liability actions from collisions. Allegations may arise that software failure occurred, proximately causing an accident. Of course, if one of the vehicles is driverless and the other has a human driver, lawsuits against flesh-and-blood drivers may still allege human error. However, the more prevalent driverless cars become, the more prominent product-liability actions may target car manufacturers and/or software-component manufacturers integrated into a car’s electronic system.

Murphy’s Law at Work
While it is tempting to think that everything will be safe and fine with software governing the operation of cars and trucks, Murphy’s Law always lurks. Software errors and malfunctions do occur. It is one thing if your desktop PC fails, though, and another to motor along I-40 at 60 miles per hour and have a software malfunction. The flesh and blood consequences are vastly different. In addition, subrogation opportunities will open against car manufacturers and/or software-component manufacturers. Again, such claims may become rooted in product liability.

From a risk-management standpoint, we must weigh the risk of driverless cars against the risk of human error that drives current automobile-accident statistics. Just because the software in driverless cars may be fallible is no reason to say that such vehicles are more hazardous than having humans behind the wheel. Currently, insufficient experience and statistics inhibit a comparison of accident rates between driverless cars and those with human operators. 

Going Mobile with Cyber Risks
While car technology has had cruise-control for years, this has not produced significant risks. One area of concern for driverless cars, however, is cyber risk. Monkeying with software could ground a fleet of cars or disable brakes. Or it could lead to applying brakes in inopportune situations. These scenarios could create interesting bodily injury claims conundrums.

For example, kidnapping-by-wire is one risk. Theoretically, if you hacked a celebrity’s vehicle, you could drive it to a remote location and leave them locked in while you waited for the ransom. You would not necessarily have to go anywhere near the celebrity/vehicle.

Terrorism by car is another peril. It’s one thing to have your e-mail account hacked; it is quite another to have the software controlling your car’s operation compromised. In an age of terrorism, one could envision malefactors tinkering with vehicle software to cause collisions and accidents. In such cases, product-liability claims against car manufacturers and software-components suppliers may increase. The theory of liability would be defect in manufacturing or design, by not making the navigational software more impregnable to outside meddling.

Heightened Product-Liability Risks
Product-liability risks heighten with driverless cars. To be sure, they also exist in current vehicles—that is, lawsuits against Toyotas because of sudden acceleration, suits against car companies based on lack of crashworthiness, SUV tip-over instability suits from high centers of gravity, and so on. One can imagine electronics igniting and causing fires, or foresee product-liability claims by plaintiffs alleging software errors when a car collides with another vehicle, object or pedestrian.

In seeking deep pockets and financially responsible parties, plaintiffs would likely target car manufacturers and assert various theories of liability to get at them and software subcomponent makers. Cause and origin investigations would shift from controversies such as “Who had the green light?” or “Who ran the STOP sign?” to questions of whether a software glitch or collision avoidance system malfunction caused the mishap. 

New coverage questions would also arise. Consider, for example, the possibility of multiple cars crashing at one time with a downloaded virus. Then, as a corporate risk manager overseeing a fleet of company cars, you discover that your electronic data exclusion precludes coverage for the peril.  

Other risk-intensive scenarios are foreseeable. Say that you drink too much, confident that your driverless car will take you home. Because of road conditions or other factors, however, the vehicle switches to manual mode in icy or other impaired-road conditions. It reverts control of the car to you when you are intoxicated, fatigued, or otherwise unfit to drive. If you take the wheel and an accident results, then how do claim adjusters or courts apportion liability? 

A fallacy of “driverless” cars is that they are not strictly or purely driverless. A human being is still in the vehicle. Even the most advanced designs incorporate “fail safes,” letting occupants override and manually take over in cases of sudden occurrences. Nevertheless, disputes (and thus claims) will still arise regarding how quick the reflexes must be on the occupant’s part versus the type and timing of the vehicle’s response to the occurrence. 

Fewer Adjuster Jobs? 
Certainly one of the biggest niches in the insurance P&C claims industry is the legions of adjusters currently dedicated to handling automobile-liability claims. If driverless cars produce safer roads and fewer accidents, then there will be less need to employ as many claims adjusters. 

On the other hand, the demand for adjusters with product-liability claims expertise might spike. Still, if enhanced safety accompanies driverless cars, this will impact employment, staffing, and career paths for adjusters. Insurance infrastructure devoted to managing, handling, and processing automobile claims will shrink if driverless cars deliver on the vaunted promise of reduced accidents and enhanced safety. While companies might redeploy some infrastructure into handling product-liability claims, it would likely be a fraction of what the automotive claims sector currently consumes. Employment prospects within the claims arena might shrink.

Despite the Jetsons vision of driverless cars, some are wary of this transportation mode becoming prevalent. Think of the cab, chauffeur, and livery service industry. Moreover, if a driverless car cuts you off in traffic, at whom do you shake your fist? Calling audibles as an NFL quarterback is often necessary to address changing circumstances. The risks of driverless cars may cause some consumers and adjusters to call “Time out!” instead.

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