Q: How important is it to develop insurance for driverless cars? Will the development of them be slowed down if the insurance does not develop well?

A: Very important – anyone wanting to own a driverless car will need and most likely want insurance. (And when I use the term “driverless” I would tend to focus more on highly autonomous as opposed to fully autonomous vehicles – the former are being tested in the UK now and will reach our streets commercially pretty soon, the latter are, in my view, some way off.) Firstly, it is illegal to drive a car on UK roads without at least third party insurance (and I can’t see that law being waived for driverless cars). Secondly, we are very much a culture which wants to protect ourselves against risk. We know that driving a car holds inherent risks, both for us, passengers and other road users, but insurance gives us protection against the financial elements of those risks. 

But, if insurance hasn’t developed sufficiently to accommodate the different liability positions that driverless cars present, and so doesn’t provide the level of insurance protection that potential owners of driverless cars need and expect, that may act as a blocker to the uptake of people purchasing these types of vehicles. One of the first things many people do when buying a car is obtain an insurance quote: if insurance is unobtainable for a car, then it is unlikely to be an appealing investment.

That said, my view is the insurance industry is very attuned to this issue and has already invested a lot of thought and energy in understanding the risks so that it can properly insure – both in terms of setting the correct premiums and ensuring adequacy of cover whilst limiting financial exposure.

Q: What kind of legal issues would be involved?

A: I don’t believe that the way an insurance policy looks to an owner of a driverless car will change dramatically from how existing motor insurance policies look. Largely similar outcomes will be desired in terms of the level and range of cover e.g. compensation in case of personal injury suffered in an accident, repairs or replacement of the damaged vehicle, legal fees cover and so on. Although, we might see some extensions to the range of cover to accommodate new risks posed by advancing technology.  The type of risk that springs immediately to mind is personal data theft – with the driverless cars of the future looking set to rely on frequent and sometimes permanent internet connection, this opens up the potential for personal data theft.

However, I think we can expect to see a change in the way premiums are calculated – with a very different factual basis being used to assess the level of risk.  With the owner becoming less involved in driving the vehicle, because technology is taking their place, previously determinative facts such as age, driving experience, previous convictions will become less relevant (although not totally irrelevant for highly autonomous as opposed to fully autonomous vehicles) in deciding what level of risk an owner presents in driving their vehicle. Human error is currently thought to account for around 90% of the UK’s road accidents - so if human error is removed, there will need to be another way of calculating risk. Instead, there will be a stronger focus on the technology that is incorporated into the vehicle to make it driverless, and whether or not it is proven as reliable or not.  The causes of road accidents for driverless vehicles are more likely to be system malfunctions, so reliability of technology becomes especially relevant.

An area of increased complexity for insurance companies to deal with will be working out who is liable in driverless situations. Legally, the law works on the assumption that there is a human driver, someone who is in control of the car.  But as the control of the car starts to migrate from traditional human driver to computers, then we will see a change from humans being held responsible, to products – so a move from personal liability to product liability. But then, which product is to blame? As these cars become increasingly complex and sophisticated, so to we may see an increase in the number of different products being placed into a car as a single unit – leading to complex liability claims perhaps with multiple parties responsible for accidents.

Q: Will the insurance need to develop worldwide or could it just develop as and when needed country by country?

A: As this is such a new area, I anticipate that insurers will evaluate each country on a case by case basis. If the law and regulations are evolving relatively uniformly worldwide (although Europe wide is more relevant as you are more likely to drive between European countries as opposed to between UK and US or India and Australia in the same vehicle) then the insurance industry can consider policies which apply cross jurisdiction. But if different countries take very different approaches -  having more stringent rules, or roads less suited to driverless cars - then I anticipate that insurers would take a different approach.  Perhaps adjusting premiums accordingly - relating to increased risk - or policies will be limited to certain countries, or owners will have to accept different levels of cover in different countries. As such, different rules could definitely make a difference to how vehicles are currently insured.

Q: How fast will driverless cars take off? Where will we be in 5 years?

A: I think it is useful to distinguish here between highly and fully autonomous vehicles here. Highly autonomous vehicles, which will still have a driver present to take control, are currently being tested in the UK and I think we could see them on the roads commercially by late 2016 / early 2017. Currently, they are very expensive but, as they become more commercially available, we can expect to see that price drop. As such, we should probably see there being a noticeable interest in buying these vehicles over the next 18 – 24 months.  However, bearing in mind that new cars typically make up 10% of the cars on the road at any one time, and not everyone will want to buy a driverless car, we shouldn’t expect a dramatic sea change overnight to driverless vehicles. Also, we can’t forget that some people actually really enjoy driving!

Fully autonomous vehicles are much further off. My view is that society isn’t fully ready for the “living room on wheels” concept from a safety perspective, and also the law doesn’t currently provide for vehicles with no driver.

Respondent: Claire Temple is an Associate Director in Osborne Clarke’s commercial and regulatory disputes team.