Technology is changing the way we interact with the world, whether it is newer and smarter vehicles, a greater ease of communication, or an increase in the data available to help companies better target their marketing towards consumers. The rewards of these technological leaps, however, also come with some rather large risks, or at the very least create issues that have yet to be addressed.
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 likely to 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 others still in the imaginations of the world's top creative engineers. The concept of autonomous cars is constantly evolving and has not reached full automation. However, further development of automated functionalities is inevitable.
While there are many benefits to automation, 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 major benefits of automated vehicle technology is its ability to reduce the frequency and severity of auto accidents. This benefit will impact both the need for liability insurance and the number of claims submitted under insurance policies. As these technologies become mainstream, the personal lines auto insurance industry is projected to shrink by as much as 60 percent. A wholesale reevaluation of what is covered under auto insurance policies will be needed long-term. More immediately, insurers will be forced to address how automated technologies impact discounts, underwriting, apportionment of liability and claims handling procedures.
Another concern involves its propensity to be hacked. New technology creates unique cyber vulnerabilities that are unprecedented in the auto industry. The data connections and sensors critical to automated driving technology open the door for hackers to conduct cyberattacks 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 safety operations pose a significant risk to personal safety, but interception of the data collected by the vehicles presents an equally significant economic risk. Who is responsible for accidents that are caused when a vehicle is hacked? Is it the driver, the manufacturer of the vehicle, or just the hacker? Will insurance coverage be modified to cover cyberattacks? If so, under what circumstances? These hypothetical questions are largely unanswered at the moment, but as the technology emerges, insurance companies will be forced to address them.
Technology is not just affecting the automotive 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 moment, approximately 660,000 drivers are using cell phones or electronic devices while driving, drawing greater attention to distracted driving.
Plaintiffs in personal injury claims arising from auto accidents have sought to place blame for distracted driving on the deeper-pocket cell phone manufacturers and app developers. Although many of these cases have had little success, some are gaining traction. For example, a car accident victim sued Snapchat, alleging it was liable for an accident caused by a driver who was using the app's “speed filter,” which allows a driver to include a speed along with the driver's picture. The plaintiff alleged that the “speed filter” not only distracted the driver, but also encouraged her to speed. The outcome of the case remains unclear, but if the plaintiff is successful, the decision could harken a wave of lawsuits against cell phone manufacturers and mobile app developers for damage caused by distracted drivers.
Insurance companies should pay attention to how the law develops on this topic since it could provide insurers with a mechanism for seeking contribution or indemnification from larger entities like cell phone manufacturers or mobile app developers.
Insurers’ reliance on big data
Although not a new trend, 2016 showed a continuing reliance on “big data,” or large amounts of consumer information culled from various locations and compiled into a neat package. Insurance companies use big data to engage in predictive modeling, particularly in underwriting, pricing and claims handling.
Big data can help with price optimization by being able to drill down into more specific segments of the population, or even marketing to particular individuals based on their consumer activity.
However, the downside for insurance companies is the potential for discrimination claims as demographics are used to drive pricing of certain insurance products and the claims arising under those policies. In particular, regulators are concerned that certain 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 price optimization going forward.
Each of these risks will affect how insurers write auto coverage going forward. Considering their impacts today though, will allow them to develop products that continue to protect policyholders well into the future.
Kymberly Kochis, Esq., (email@example.com) is a partner based in the New York office of Sutherland Asbill & Brennan LLP. She counsels insurers on a wide range of litigation and corporate governance matters. Brittany Cambre, Esq., (firstname.lastname@example.org) is an associate based in the Atlanta office of Sutherland Asbill & Brennan LLP. She focuses her practice on complex business litigation for corporate clients and insurance litigation.