Implications of Automated Vehicles for the Insurance Industry

1. Implications of Automated Vehicles for the Insurance Industry R. Dale hall, FSA, mAAA, CERA, CFA Managing Director of Research Society of Actuaries Chicago Actuarial Association March 26, 2019

2. Society of ActuariesStrategic Research Programs

3. Actuarial Innovation and Technology Highlights the evolution of technology as it applies to the actuarial profession and industry trends.

4. Implications of Automated Vehicles for the Insurance Industry

5. Society of Actuaries Study Goals • Define a new framework – one that is not engineering-based, but business (and insurance) oriented • Focus on those technologies, developments, and issues that merit attention by the insurance industry • Prepare a framework (including trigger points) that will • help actuaries and the insurance industry to track developments and risks and • identify possible responses • Co-authors • Dr. Richard Mudge, Compass Transportation and Technology • Dr. Alain Kornhauser, Princeton University • Mr. Matthew Hardison, WMATA

6. Change is constant • Light Duty • Private Vehicles • Shared Vehicles CRS, based on "Autonomous Vehicles" fact sheet, Center for Sustainable Systems, University of Michigan.

7. Change is constant • Bus • City Transportation • Truck • Delivery Services Curbed, “Can self-driving technology save the bus?”, July 2019

8. “What’s in a name?” • Automated Emergency Braking • 20 Automakers • 20 different answers • Important to understand for evaluation of insurance risk Road and Track, 20 Automakers Will Make Automatic Braking Standard In The U.S. by 2022”, March 2016

9. Manufacturers / Tech firms planning • All moving from… • Safety technology • Blind Spot Detection, Forward Collision Warning, Lane Departure Warning, Rearview Video / Traffic Alert • To Self-Driving Tech…. • Collision avoidance, Automatic Emergency Braking, Automated Lane Keeping, Parking Assist • To Driverless Tech… • No human involvement, all roads, all the time

10. The World Keeps Turning • Uber / Pedestrian Accident, March 2018, Tempe AZ • Believed to be the first pedestrian death associated with self-driving technology https://www.digitaltrends.com/cool-tech/most-significant-self-driving-car-crashes/ New York Times, “Self-Driving Uber Car Kills Pedestrian in Arizona, Where Robots Roam”, March 2018

11. The World Keeps Turning • Tesla Autopilot Fatal Accident, March 2018, Redwood City, CA • Autopilot system radar data on stationary objects https://www.digitaltrends.com/cool-tech/most-significant-self-driving-car-crashes/ Wired, “TESLA'S AUTOPILOT WAS INVOLVED IN ANOTHER DEADLY CAR CRASH”, March 2018

12. Society of Actuaries Report Summary A framework built on market-based views of technology Market-Based Vehicle Automation Classes

13. Society of Actuaries Report Summary Market Context • Automotive and related tech industries are evolving rapidly • Exact trajectory and long-term impacts are not yet known • Breathless articles and research may overstate impacts in some areas and understate in others • Rapid change and complex, overlapping jargon has confused market direction and impacts • Engineers defining tech framework to guide technical work • Marketers develop unique product names confuses customers – and researchers

14. Society of Actuaries Report Summary Market Context • Secrecy and competitive forces have further clouded understanding of practical impacts • Manufacturers are developing similar system capabilities, but with varying efficacy • Data on vehicle performance now clearly central to industry – and closely guarded • Very little information on market penetration by technology or safety benefits • Differing technical solutions coupled with a lack of market data mean that specific or even “typical” safety impacts are difficult to predict • No one is yet defining market implications in systematic way

15. Society of Actuaries Report Summary What’s New? • For “Driverless:” economic forces are really great and not abating • SoftBank's $2.2B investment in GM/Cruise plus GM’s $1.2 B • Ford separating its AV initiative into a separate entity • Adam Jonas "values" Waymo @ $175B while BMW's market cap is $54B • Waymo sitting on an "option to purchase" 82,000 cars • Waymo and Cruise “interviewing” cities for 2019-2020 deployment

16. Society of Actuaries Report Summary What’s New? • In the "Self-driving" space:      • Tesla is continuing strong with AutoPilot and IIHS "says" that it works • GM is out the with SuperCruise in higher end CT6s • Volvo has theirs as "standard equipment" in many models • Mercedes has "997 package" available on many models • BMW tested well in IIHS test • Subaru is continuing with its EyeSight System 

17. Society of Actuaries Report Summary What’s New? • In the Safe Driving Car space • Standard in many models of Toyota and other brands  -- including some low-priced models • BUT how much is jargon and how much really works as claimed? • Also in the past year: • Uber had a crash and possibly lost >$10B in valuation • Waymo didn't and had a number of “firsts” and their "Jonas Valuation" gained $100B

18. Society of Actuaries Trigger Points • Policy • Regulatory approval of specific technologies • Will speed deployment • Clarify state versus federal regulatory responsibilities • Inconsistent regulations could add to costs • Risk of too much detail too early • Require technology information in VIN number • Could encourage deployment and support data collection • Technology • Automatic emergency braking • Standardization in terms and effectiveness could speed deployment • Drop in price of Lidar • Expand market, perhaps including retro-fits • Will new competition speed this process? • Reduce costs of other sensors • Cybersecurity – a major risk • Technical advances and/or cyber insurance could help

19. Society of Actuaries Trigger Points • Vehicles and Vehicle Use • Fraction of private vehicles with “safe” systems • Improves vehicle safety – depends on specific technologies • Gains vary by driver • largest gains for poor drivers who drive in tough locations; • smaller for good drivers in safe places • Fraction of private vehicles with “self-driving” systems • Uncertain implications for overall safety • Increased ride sharing • Indication of likely use of shared-ride driverless vehicles • Track market share for driverless vehicles • Ten percent of vehicles viewed as key for noticeable gains in safety and roadway capacity • Track based on passenger miles and not just vehicle miles • Likely variation by region • Track market share for driverless trucks • Partial automation (peloton) and full automation • Will vary by region and road class (interstate versus urban)

20. Society of Actuaries Report Summary Likely Outcomes • Safety will improve quickly, but incrementally. Driverless vehicles will help, but “safe-class” vehicles important; • State and federal regulatory agencies have been helpful; • Encourage innovation • But federal legislation stalled • Vehicle communications will migrate towards 5G and away from public-sector specifications (DSRC); • Data ownership increasingly important; • Early deployment will focus on specific locations with attractive characteristics: good weather, medium density etc. • Cybersecurity a key technical concern; • Travel (passengers, vehicles, and freight) will increase as per-mile prices decline

21. Society of Actuaries Next Steps • Track trigger points • Link with more specific changes in market size and characteristics • And develop new ones