Tag Archives: Insurance Institute for Highway Safety

Suddenly, Driverless Cars Hit Bumps

Recent tests by The Insurance Institute for Highway Safety on two key ADAS capabilities cast doubt on the efficacy of these technologies and thus on how soon full autonomy is likely to affect auto insurance premium.

Anyone insuring automobiles is paying a lot of attention to the development of ADAS (advanced driver assistance systems) and of fully autonomous vehicles.

Many of the underlying technolgies used in ADAS (e.g. cameras, radar, lidar, AI) will also be used in fully autonomous vehicles. However, the demands that a fully autonomous vehicle places on these technologies are quite different than the demands of an ADAS-equipped vehicle. ADAS-equipped vehicles will pass control to and from human drivers (or send warnings to human drivers) in various circumstances. Fully autonomous vehicles will have no hand-offs and no warnings because there are no human drivers to receive them.

The Insurance Institute for Highway Safety (IIHS) recently ran a series of tests of two key ADAS capabilities: adaptive cruise control (ACC) and active lane keeping. ACC maintains a set speed and a specified distance from a car in front of the car with ACC. Active lane keeping automatically maintains the car within its current lane.

See also: Autonomous Vehicles: Truly Imminent?  

Vehicles with ACC and active lane keeping are at Level 2 on the SAE International scale. This is a widely recognized framework demarcating degrees of autonomy — ranging from Level 0 (no automation) to Level 5 (fully autonomous).

Source: NHTSA https://www.nhtsa.gov/technology-innovation/automated-vehicles-safety

Notice that Level 2 is a long way from Level 5.

The IIHS tested five well-regarded vehicles:

  • A 2017 BMW 5-series with “Driving Assistant Plus”
  • A 2017 Mercedes-Benz E Class with “Drive Pilot”
  • A 2018 Tesla Model 3 and a 2016 Model S with “Autopilot” (software versions 8.1 and 7.1, respectively)
  • A 2018 Volvo S90 with “Pilot Assist.”

The results of these tests were reported in IIHS and HLDI publication, Status Report (Aug. 7, 2018).

The results were not pretty.

  • In one test on a public roadway, the Mercedes was aware of a stationary vehicle in front of it but continued without reducing speed, until the human driver applied the brakes.
  • In a 180-mile test drive, the Tesla Model 3 slowed without an appropriate cause 12 times (including seven instances of tree shadows on the road).
  • In testing active lane keeping on curves; the BMW, the Mercedes and the Volvo were unable to stay in their lane without the driver providing steering assistance.
  • The vehicles’ active lane keeping capability was also tested when they reached the top of hills. At the top, some cars’ technologies essentially lost sight of the lane markings on the road. The BMW failed to stay in its proper lane (without driver intervention) in all 14 tests. The Volvo stayed in the lane in nine of 16 tests. The Tesla Model S swerved right and left as it attempted to locate the appropriate lane. Sometimes it also entered an adjacent lane or drove onto the shoulder.

There is evidence that ADAS technologies do reduce accidents and insured losses—here and here.

See also: Autonomous Vehicles: ‘The Trolley Problem’  

However, the real world test results of Level 2 technology in these five highly regarded models were certainly disappointing. Level 2 autonomy requires the driver to remain engaged and constantly monitor the environment. The key words are “remain engaged.” People, while driving, often do many things other than remaining engaged.


The shared responsibility between less-than-perfect humans and less-than-perfect technologies of Level 2 implies that either the technologies have to become intrinsically better — or they must find ways to compensate for imperfect humans.

As mentioned, you cannot make a straight-line projection of elapsed time from the current state of Level 2 ADAS technology to the arrival of ready-for-prime-time Level 5 fully autonomous technology.

Novel Solution for Driverless Risk

The route to a fully autonomous vehicle market seems long and fitful in the eyes of many. But it is likely to become a reality faster than many are prepared to accept. Like IBM, Kodak and many other companies once confronted with a rapidly changing market, we, too, now face disruptions in the auto market, perhaps unlike any since the invention of the auto. As liability increasingly shifts from the human driver to systems and software – a trend highlighted by recent reports of the first autonomous fatality – original equipment manufacturers (OEM) will come to the forefront as primary holders of automobile-related insurance risk. How they manage this risk will help determine the success and acceptance of the autonomous vehicle market in the years to come.

A new age

Skeptics of an early adoption of fully autonomous vehicles have a point. In their short history, autonomous vehicles have faced a wide array of challenges including skittish maneuvering ability in wet weather, gaps in infrastructure, regulatory and legal shortcomings, market acceptance, risk of hacking, consumers’ privacy and ethical choices. The list goes on, but so do advances in technology.

There are dozens of advances such as braking assistance, blind spot detection, pre-collision warning systems, electronic stability control and vehicle-to-vehicle communication that have been adopted over the years or are now making their way into the latest models. These technologies have been largely accepted and often embraced by consumers who have come to view them as something more than just a convenience.

See also: Connected Vehicles Can Improve Claims  

In fact, few dispute the potential safety advantages of fully self-driving cars. Active safety systems that eliminate the human element from the driving equation have already been shown to prevent accidents. According to the Insurance Institute for Highway Safety (IIHS), automatic braking can reduce rear-end crashes by 40%, and front collision warning systems can lower rear-end accidents by 23%.1 But this is just the tip of the iceberg: 94% of auto accidents are caused by human errors such as speeding, driving under the influence and driver inattention, according to a 2015 survey by the National Highway Transportation Safety Administration.2

The U.S. market is expected to see several thousand autonomous vehicles sold in 2020, which will grow to nearly 4.5 million vehicles sold in 2035, according to IHS Automotive forecasts, an industry research firm.3 The slow methodical 11-year turnover in U.S. car ownership is likely to fall by the wayside as convenience or safety features entice consumers to purchase a self-driving car sooner than they would otherwise do. These early purchasers could be setting up a cycle of more rapid adoption as car buyers decide to forgo the thrill or pleasure of driving for the safety of their families and the ability to be more productive (or just catch up on sleep and social media). Further, there may be no need for car ownership at all in a new shared economy including on-demand autonomous shuttles.

Shifting responsibilities

Assessing liability in the near future will admittedly be a tricky matter as a mix of driving modes, ranging from no autonomy to full autonomy, populate the roadways. Accidents that involve human driver to human driver will morph into dozens of combinations of human drivers with various levels of semi-autonomous drivers and eventually fully autonomous cars. Questions of liability will need to sort out not only the comparative negligence of a human operator’s actions but also the capability of software and sensors. As the ever-diminishing role of human drivers gives way to the rise of autonomous vehicles, the importance of personal auto insurance will likewise be replaced by product liability.

Google, Mercedes and Volvo have already said they will accept responsibility for accidents that are caused by malfunctions in the technology in their cars, a move welcomed by federal regulators that see the commitment as a way to smooth the introduction of vehicles with these new technologies. While these carmakers’ pledges may, in fact, be redundant, they are a harbinger of the shift in demand for product liability.

But carmakers’ step up in accountability is only one link in the manufacture of autonomous vehicles, which can involve dozens of suppliers for software, systems and devices which enable the positioning data and predictive response algorithms to be accurate and effective. Enhanced sensing and response time capabilities will drive new demands on hardware and software performance. How will liability be spread among potentially dozens of interlocking but legally separate entities?

See also: Plunging Costs for Autonomous Vehicles  

Currently, as part of the general purchasing conditions, the supplier will indemnify and hold the manufacturer harmless from and against any and all loss, liability, cost and expense arising out of a claim that a defect in the design or manufacture of the product caused personal injury or damage to property. However, suppliers are not always completely responsible for the design or validation of the components they provide, but rather can be directed by the carmaker to either model or test the component according to the carmaker’s predetermined specifications. Thus, the parties may have a shared financial burden of failure and need to negotiate the consequences at project inception. The process of assigning responsibility and managing indemnification often involves a team of resources that do not contribute to the carmakers’ underlying business function of making people mobile.

This relationship is likely to evolve as the importance of the car’s electronic control unit (ECU) grows ever more critical as the brain center for programming features that ultimately determine how the car responds. Even now, validating software code – a function paramount in detecting errors – is less defined as compared with hardware. How the validation process will evolve under all possible control scenarios is extremely difficult to imagine. But one change in the process is becoming clear: As the software algorithms become more integral to the success and failure of autonomous vehicles, carmakers have started to keep a tight rein on the integration of software and hardware. As willing as carmakers may be to absolve consumers of the responsibility for accidents that stem from the fault of their technology, they are unlikely to extend a similar courtesy to their suppliers. And why should they if the cause of the accident can be traced to a supplier’s defective sensor or software?

Nevertheless, untangling the web of responsibility can be a distraction from the business focus and could become an impediment to progress. What is a relatively well-established practice in other fields for passing the liability down the supply chain to the source of the failure is likely to become much more complicated and nuanced in the realm of autonomous vehicles as cars become increasingly dependent on an integration of sophisticated technologies.

Likewise, the ways in which risk is shared under product liability are likely to be increasingly difficult to manage. In an autonomous world, the insurance program would ideally be structured such that suppliers not only have skin in the game but also have a more transparent line of sight to the cost they are contributing to the potential liability. The question the industry needs to ask is: Is there a better way to share the cost of risk among the carmaker and its suppliers reflecting the shifted responsibility?

Enter a SPLASh pool

One option is to create an insurance pool for each autonomous carmaker. Under a Supplier Product Liability Autonomous Share (SPLASh) pool, the carmaker would assume all the product liability risk for accidents stemming from the autonomous technology and cede the risk to the SPLASh pool. To be viable, all suppliers – or “swimmers” – along with the carmaker would need to participate in the pool, which would operate as a funding vehicle for the risk. Each year, the pool would be funded commensurate with the expected losses, and losses would be paid directly from the fund, eliminating the manufacturer’s role of managing indemnification from the suppliers.

Like more traditional risk pools used by a range of organizations from public entities that share their law enforcement exposure to a group of hospital systems that manage their professional liability risk, a SPLASh pool would also have a management function, presumably overseen by the manufacturer, as well as various insurance-type functions from actuaries, to calculate the premium and reserves; claims handlers (internal or outsourced) to pay and manage claims; and lawyers to interpret coverage, among others. In this way, autonomous technology may be paving a new road but with the experience and insight of well-traveled insurance professionals who understand the different approaches to managing risk.

Funding would reflect the supplier’s risk profile with low risk suppliers like those that provide cameras for parallel parking – the minnows of the pool – paying less than high risk “whale” suppliers such as a software developer. The pool can be structured according to frequency and severity of risk. Such an arrangement could consist of all pool members participating in a structure where more frequent, low-severity claims are grouped (Fund A) separately from less frequent, high-severity claims (Fund B), both meeting risk transfer.

Each fund would have per occurrence loss limits and require member contributions based on actuarial projections, perhaps at first based on fault rates from engineering systems output, until credible loss data develop. Various features such as aggregate limits, loss ratio caps, overflow between funds and member assessments can be used to tailor the insurance coverage with a clear desired outcome – to motivate innovators to develop quality products.

See also: Here Comes Robotic Process Automation  

The arrangement builds in a high level of transparency as suppliers with bad loss performance would be required to contribute more to Fund B than others. Moreover, consistently poor swimmers could be replaced by suppliers with better performance.

This concept blends well with the current warranty programs offered by car manufacturers. Like those programs offered today, dealers provide details of new and used warranty programs available to the consumer, covering defects in material or workmanship for 48 months or 50,000 miles, whichever comes first, for example. The carmaker would budget a certain amount of costs toward warranty replacement and then track the records and claims to more accurately predict future replacement costs as well as pinpoint components that are failing, assuming that the problem can be isolated. If costs are higher than expected (outside of the normal failure rate), the manufacturer can push further costs to the supplier at the source or remove them from the assembly line altogether.

Buckle up

A SPLASh pool can pave the way to managing carmakers’ risk in the future. The product liability exposure from autonomous vehicles shouldn’t be a roadblock to the increased safety and mobility that self-driving cars can bring to millions of people. The insurance industry will need to demonstrate its creativity and foresight in managing risk to keep innovation on the right track.

Assisted Driving Is Taking Over

The power of 35.

The Insurance Institute for Highway Safety (IIHS) estimates that automatic emergency braking and forward-collision warning features could curtail injury claims by as much as 35%. The California Department of Motor Vehicles estimates that in 35% of crashes the brakes were not applied. It is striking that these two numbers match.

These savings are not surprising. Automatic braking will avoid some accidents altogether. When an accident nevertheless occurs, automatic braking may greatly reduce the speed on impact. As a matter of simple physics, a reduction in speed results in an exponential reduction in the kinetic energy that must be absorbed in a collision. The formula, for those interested, is Kinetic Energy = 1/2mv2, where “m” is the mass of the vehicle and “v” is the vehicle’s velocity. Thus, a vehicle that collides at 30 mph has only one-fourth the kinetic energy of a vehicle that collides at 60 mph.

While automatic emergency braking and forward-collision warning are standard in some luxury cars and are available as options in many others, 10 automakers have agreed with the National Highway Traffic Administration and the IIHS to establish a time frame for making assisted driving features standard in all cars.

These are significant developments for insurers and for public policy makers.

For insurers, a 35% decrease in injury claims will result in a significant reduction in premium. This may be offset, at least in part, by an increase in the cost of repair for more sophisticated vehicles and the continuing increase in healthcare costs.

Public policy makers should contemplate the potential benefits of a 35% reduction in injuries and deaths because of assisted driving. At present, highway deaths in the U.S. account for 33,000 to 35,000 deaths per year (depending on how one correlates deaths to auto accidents). Over 10 years this is the equivalent to the population of some major cities-St. Louis, Minneapolis, Des Moines or the city of your choice. A 35% reduction would reduce deaths from 33,000 to 21,450. Every year, 11,550 more people would continue to go about their lives. Add a similar reduction in the more than 2.5 million injuries per year, and the public benefit is overwhelming.

These benefits only accrue as assisted driving features find their way into the fleet. This can be a slow process. It is estimated that electronic stability control, which has been available as an option for many years and has been mandatory since 2012, will not reach 95% penetration until 2029. This is because the average age of automobiles is a bit more than 11 years. Thus, anything that can hasten the adoption of these safety features (and others that are to come) benefits everyone.

Encouraging adoption directly implicates insurance. Auto insurance is one of the more expensive costs of owning a car. The cost of these safety features, either as an option or as a standard feature, is also an expense of owning a car. It is critical that savings from the lower frequency and severity of accidents be rapidly passed on to car owners in lower insurance rates, which will help offset the added cost and promote more rapid adoption.

Even when assisted driving features become standard, which will be some years in the future, the majority of the existing fleet may still be on the road for another 11 years or so. Passing substantial insurance savings to potential purchasers will make retiring the old heap more palatable.

Policy makers and regulators can play an important part in facilitating adoption of these safer cars. Laws and regulations that may impede the rapid distribution of insurance savings to insureds should be streamlined. Likewise, some driver-centric rating systems that may distort rates by artificially depressing the weight given to the safety of the vehicle should be reviewed.

Self-driving vehicles of the future have captured the attention of the public and the insurance industry. While many have been looking toward that day, enormous improvements in safety-critical technology are taking place right now. In a sense, the future is already here. Cars are taking over many safety-critical functions from their more fallible drivers. Insurers and policy makers must adjust.

Those interested in a lengthier treatment of this topic can read this article by Thomas Gage and Richard Bishop. And here is a Bloomberg article on a Boston Consulting Group study of the issue.