Technology is changing the way we interact with the world,whether it is newer and smarter vehicles, a greater ease ofcommunication, or an increase in the data available to helpcompanies better target their marketing towards consumers. Therewards of these technological leaps, however, also come with somerather large risks, or at the very least create issues that haveyet to be addressed.

The auto insurance industry is as vulnerable to these risks asany other industry. However, here are three major trends in theauto insurance industry likely to be of concern in the comingmonths. Technology has the potential to disrupt the insuranceindustry in a short period of time and companies must determine howbest to adapt to the ever-changing technological landscape and useit to their advantage.

Automated vehicle technology

Automated driving is a broad concept, encompassing a myriad oftechnologies, some currently in production and others still in theimaginations of the world's top creative engineers. The concept ofautonomous cars is constantly evolving and has not reached fullautomation. However, further development of automatedfunctionalities is inevitable.

While there are many benefits to automation, the technology isadvancing faster than the legal and regulatory environments thatgovern it. Are insurers prepared for the impact of automateddriving technology on the auto insurance industry?

One of the major benefits of automated vehicle technology is itsability to reduce the frequency and severity of auto accidents.This benefit will impact both the need for liability insurance andthe number of claims submitted under insurance policies. As thesetechnologies become mainstream, the personal lines auto insuranceindustry is projected to shrink by as much as 60 percent. Awholesale reevaluation of what is covered under auto insurancepolicies will be needed long-term. More immediately, insurers willbe forced to address how automated technologies impact discounts,underwriting, apportionment of liability and claims handlingprocedures.

Another concern involves its propensity to be hacked. Newtechnology creates unique cyber vulnerabilities that areunprecedented in the auto industry. The data connections andsensors critical to automated driving technology open the door forhackers to conduct cyberattacks that can compromise the security ofthe data collected, as well as the safety and operation of thevehicle itself.

Attacks that threaten the integrity of a vehicle's safetyoperations pose a significant risk to personal safety, butinterception of the data collected by the vehicles presents anequally significant economic risk. Who is responsible for accidentsthat are caused when a vehicle is hacked? Is it the driver, themanufacturer of the vehicle, or just the hacker? Will insurancecoverage be modified to cover cyberattacks? If so, under whatcircumstances? These hypothetical questions are largely unansweredat the moment, but as the technology emerges, insurance companieswill be forced to address them.

(Photo: Shutterstock)

Distracted driving

Technology is not just affecting the automotive industry, butvirtually every facet of our modern economy, and no consumertechnology is more ubiquitous in American culture than thesmartphone. At any given moment, approximately 660,000 drivers areusing cell phones or electronic devices while driving, drawinggreater attention to distracted driving.

Plaintiffs in personal injury claims arising from auto accidentshave sought to place blame for distracted driving on thedeeper-pocket cell phone manufacturers and app developers. Althoughmany of these cases have had little success, some are gainingtraction. For example, a car accident victim sued Snapchat,alleging it was liable for an accident caused by a driver who wasusing the app's "speed filter," which allows a driver to include aspeed along with the driver's picture. The plaintiff alleged thatthe "speed filter" not only distracted the driver, but alsoencouraged her to speed. The outcome of the case remains unclear,but if the plaintiff is successful, the decision could harken awave of lawsuits against cell phone manufacturers and mobile appdevelopers for damage caused by distracted drivers.

Insurance companies should pay attention to how the law developson this topic since it could provide insurers with a mechanism forseeking contribution or indemnification from larger entities likecell 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 fromvarious locations and compiled into a neat package. Insurancecompanies 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 drilldown into more specific segments of the population, or evenmarketing to particular individuals based on their consumeractivity.

However, the downside for insurance companies is the potentialfor discrimination claims as demographics are used to drive pricingof certain insurance products and the claims arising under thosepolicies. In particular, regulators are concerned that certain bigdata modeling factors may be correlated with prohibited ratingfactors. Insurance regulators will continue to focus on regulatingthe use of big data and price optimization going forward.

Each of these risks will affect how insurers write auto coveragegoing forward. Considering their impacts today though, will allowthem to develop products that continue to protect policyholderswell into the future.

Kymberly Kochis, Esq., ([email protected])is a partner based in the New York office of Sutherland Asbill& Brennan LLP. She counsels insurers on a wide range oflitigation and corporate governance matters. Brittany Cambre, Esq.,([email protected])is an associate based in the Atlanta office of Sutherland Asbill& Brennan LLP. She focuses her practice on complex businesslitigation for corporate clients and insurance litigation.

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