By David Kidman, Partner, BLM.
A road map has been set out for driverless technology trials to commence in Greenwich, Milton Keynes, Coventry and Bristol from May 2015, for a code of conduct to be published by that time, and a review and redraft of existing regulations by 2017. Millions of pounds are being spent on the technology by traditional car manufacturers such as Mercedes, Audi, Nissan and Volvo, plus technology companies such as Google. Driverless technology will become a reality. Indeed some of the technology has already been integrated (e.g. ABS, satellite navigation, cruise control, automated parking).
Will it steer us towards fewer accidents, will it change the way that risk is insured and how will claims manifest?
Benefits
PWC reports that there are 1.3 million motor fatalities per year globally, and 40 million injuries. Analytics companies, insurers, manufacturers and government bodies share a consensus that at least 90% of car accidents are caused by driver error. Matthew Avery, Safety Research Director at Thatcham Research, a key body in the motor industry whose data is used by the insurance industry to determine car insurance groupings, stated that he has seen a “20% reduction in crashes with vehicles fitted with (Autonomous Emergency Breaking)…and a slightly greater reduction in personal injury claims”.
In conjunction with the safety benefits, driverless car technology is expected to help reduce congestion and emissions, increase social mobility for those with disabilities, and free up our valuable time.
Risk
Presently, the majority of car accidents are caused by driver error and the risk is mostly insured by individual drivers, via motor insurance policies. As a result, the risk is de-aggregated amongst millions of people. Relative to this, a modest degree of risk is insured on behalf of, or directly assumed by, vehicle producers, distributors and retailers, and other parties such as component producers, in the event that an accident occurs due to product failure.
Thatcham Research envisages a three stage shift in the insurance industry, starting with risk ‘reduction’ where accidents caused by human error decrease, then risk ‘slicing’ where there is a shift away from traditional motor policies and towards product liability policies, as the role and responsibility of the driver gradually diminishes and the technology takes over. Finally, risk ‘elimination’, whereby accidents on the road are vanishingly small.
Swiss Re foresees three opportunities, and three threats, to insurers. It predicts new customers, such as manufacturers, who may seek increased cover. It forecasts new ancillary services requiring insurance e.g. a navigation software producer. Finally, it sees an uptake in novel insurance products, such as cyber risks.
Turning to threats, Swiss Re anticipates fewer accidents, although it anticipates that the accidents that do occur will be of greater severity. It also sees a reduction in losses and premiums in the traditional motor insurance market, and finally it envisages an increase in car manufacturers pooling and sharing their risks, effectively self-insuring.
Liability
With an anticipated shift towards product liability, it is important to consider the type of claims that might arise. In a 2014 consultation by the DfT, it was envisaged that “the regime of strict manufacturer liability would continue to apply”. Many claims of this nature are likely to be pursued under the Consumer Protection Act 1987, which provides that there is a ‘defect’ if “the safety of the product is not such as persons generally are entitled to expect”.
The notion of ‘strict liability’ comes from the fact that the court’s enquiry into defect relates to the safety of the product and it is (arguably, but not entirely) irrelevant what steps the producer took or failed to take.
Product liability cases can be split into 3 broad types: manufacturing defects, design defects and failure to warn. Assuming that a driverless vehicle is heavily reliant on sensors, there may be a manufacturing defect when a rogue batch of sensors is poorly manufactured and fails to detect oncoming traffic, perhaps because the circuit boards were badly soldered. A design defect may occur where all sensors fail in certain weather conditions, perhaps above a certain level of humidity, in circumstances where they were expected to perform.
Failure to warn is potentially the most complicated case, since it touches upon a contentious issue, namely the division of responsibility between driver and technology. If there is an attempt to implement numerous individual driverless features, each with its own limitations and warnings, and combine them together, there is the risk that the driver will not properly understand the extent to which he can take his eyes off the road and rely on each individual feature.
There are many legal, regulatory and ethical issues for the industry to address before the technology is accepted by the general public, but the overriding point to note is that driverless cars are already here and use will grow.
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