Driverless cars may still seem the stuff of science fiction, along with what that means for insurance claims and, ultimately, premium. However, the next stage in the transformation of auto insurance isn’t transportation without human error but rather human error mitigated by technology. Two recent studies, one on collision avoidance systems (CAS) and another on video-based analysis of driver behavior suggest that in the near future the impact of these technology-based approaches on auto claims will be significant.
Collision avoidance could be said to include capabilities as simple as video screens that allow drivers to see behind them while reversing. The term CAS typically refers to systems that use radar, laser and camera sensors to detect an imminent crash. The systems either warn the driver or act autonomously without driver input by braking, steering or both – an important capability when accidents develop in less time than a driver can react.
Last year the Israeli government commissioned Ron Actuarial Intelligence, an Israel-based consultancy and manager of motor bodily injury (MBI) insurance data, to study the effectiveness of CAS by measuring the influence of a forward collision warning system (FCW) and a lane departure warning system, developed by Amsterdam-based Mobileye, on the expected claim cost in Israel. The study, which used software by business analytics vendor SAS, found that insurance claim frequency dropped by approximately 44 percent for privately owned vehicles equipped with CAS compared to those without the technology.
“Ron-AI’s study is a great empirical proof point of where we are on the road to the end of auto insurance,” comments Donald Light, director of Celent’s Americas Property/Casualty Practice and author of the firm’s report “A Scenario: The End of Auto Insurance. “As collision frequency drops, losses drop, and competition will force premiums down.”
The emergence of CAS has roots in government initiatives such as a 2009 initiative by the U.S. National Highway Traffic Safety Administration (NHTSA) to study whether to make frontal collision warning systems and lane departure warning systems mandatory. A similar inquiry was launched within the European Commission in 2011, the result of which was mandatory installation of advanced emergency braking systems in commercial vehicles as of November 2013 for new vehicle types and November 2015 for all new vehicles in the European Union. Justification for the mandate was based on a finding that it could prevent approximately 5,000 deaths and 50,000 serious injuries annually within the EU.
Most prominent auto manufacturers have begun to include CAS capabilities, beginning with higher-end automobile models. However, notes Celent’s Light, “In the US auto manufacturers are offering collision avoidance technologies in all price ranges. It will still take years to reach a tipping point in terms of the total fleet on the road, but the trend is clear.”
A new study conducted by the Virginia Tech Transportation Institute (VTTI) suggests that video-based analysis of driver behavior could also have significant impact on commercial auto claims. The study found that the use of a driver safety program that combined human observation of driver behavior with predictive analytics and statistical machine learning technologies could reduce the incidence of collisions and injuries by about 35 percent and reduce fatalities by about 20 percent.
The VTTI study observed the effects of the Lytx DriveCam system and safety program on fleets of heavy trucks and buses. The Lytx device is installed in vehicles to capture signals from accelerometers, GPS systems, engine control units, video, microphones and advanced safety systems. The inputs are interpreted by real-time decision algorithms that determine the likelihood of risky driving behaviors, according to a Lytx statement.
If driver behavior is the primary reason for traffic crashes, then approaches that pinpoint and focus on reducing risky behavior are likely to be the most fruitful approach to reducing their incidence, according to Jeffrey S. Hickman, PhD, group leader for the Behavior Analysis and Applications Group within the center for Truck and Bus Safety at VTTI.
“Motor vehicle crashes are often predictable and preventable, yet many drivers choose to behave in ways that put themselves and others at risk for a vehicle crash and serious injuries,” Hickman observes. “The most efficacious onboard safety monitoring systems use in-vehicle video technology to gather driving behaviors that can be addressed and corrected, thereby reducing future crash risk.”
The proliferation of technologies that are demonstrated to reduce the frequency and severity of collisions can be expected to change the economics of auto insurance, suggests Chad Hersh, managing director, Novarica.
“Simply put, these technologies are quite effective; and while they can’t prevent all accidents, research indicates they can prevent a meaningful percentage of them, and reduce the severity of others,” Hersh relates. “With reductions in frequency and severity of collisions comes reduced liability exposure as well, all of which will likely lead to fewer claims and lower premiums in time. It also serves as a stark reminder that autonomous vehicles and all of the accompanying implications are just a few years down the road – as little as six years if Nissan’s estimate is accurate.”