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Holborn ViewPoint | Autonomous Vehicles

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Two years after Connecticut became  the first state  to offer auto insurance in 1925, the practice of insuring automobiles became mandatory nationwide. In the years since, the auto insurance industry endured  several challenges, including the Great Depression, World War II (with the restricted use of private automobiles), and recent safety advancements. Each caused the auto insurance industry to rethink its approach. However, insurance is an ever-evolving and resilient industry. Today and in the future, self–driving cars will test the market.

On the Road

Features to increase the safety and efficiency of cars has become standard in today’s vehicles, many of which automatically respond to unsafe hazards quicker than human reaction time.  These features naturally led to the advent of increasing sophistication of transportation, ultimately culminating in autonomous vehicles. All vehicles fall into one of six levels, based on their technological features:

  • Level 0: No autonomous features.
  • Level 1: Driver assistance for main functions, but 1 or more intervening systems (i.e., braking).
  • Level 2: Control steering and speed for short amounts of time and in certain conditions; driver attention needed.
  • Level 3: Full autonomous features in all driving conditions, but some attention is needed.
  • Level 4: Only entry of destination needed by driver; if systems fail, the car safely stops and driver can take over.
  • Level 5: No human attention needed and not intended to be actively driven—largely still in development.

Predictions vary as to how quickly these vehicles will populate the roads. Mordor Intelligence anticipates 10 million active self-driving cars (Level 3/4) by 2020 worldwide, together with another 250 million smart cars—vehicles connected to high-tech networks. By 2030, the prediction is 20.8 million autonomous vehicles in the U.S. That being said, auto manufacturers tend to focus on Level 4  technology, where some level of control is still possible.

General Motors is investing in self-driving cars, with the expectation of rolling out these vehicles as part of a ride-sharing partnership with Lyft. In 2016, GM invested $500Mn in Lyft to collaborate the use of GM autonomous vehicles with their service.

Similarly, Ford hopes to enter the ride-sharing business with a $1Bn investment in Argo AI, a robotics company. Ford has targeted 2021 for the availability of Level 4 vehicles. Rival car companies note similar timelines with varied partnerships and expectations.

Much like the established partnerships between automakers and technology companies, some insurance companies are similarly teaming up with automakers to prepare for these inevitable industry changes.

State Farm is collaborating with Ford and the University of Michigan to create a new self-driving Ford Fusion, with varying high-tech features, such as automatic emergency braking, a Lane-Keeping System, blind spot warning, and parking assistance. The symbiotic relationship will have State Farm sharing claims data and driver behavior statistics with Ford—while, in turn, being at the forefront of understanding the new auto technology and becoming a preferred insurance partner.

Google’s Waymo is similarly developing and testing fully autonomous vehicles in Austin, Atlanta, Detroit, and various locations in California and Arizona. The company worked with various auto manufacturers to test the technology, including Toyota, Lexus, Chrysler, and Jaguar. Waymo One launched in 2018 as an autonomous taxi service in Phoenix. In addition, Waymo is exploring Class 8 trucks (tractor-trailers).

Claims Implications

The National Highway & Transportation Safety Administration (NHTSA) estimates that 94% of automobile related liability claims are caused by human error. With increased autonomy, industry experts anticipate the lower accident frequency, by removing or reducing the influence of human error.

Conversely, claims severity will likely increase due to:

  • Higher costs of repair for more sophisticated automobiles;
  • Potential judicial, legislative, and social changes influencing jury awards; and
  • Legal fees associated with determining at-fault party in accidents (i.e., manufacturers vs. operators).

Risk that is understood, managed, and clearly communicated in a way that is consumable to everyone in your organization encourages a strong risk culture. Governance, training strategies, metrics & controls, and capital allocation are techniques to ensure day-to-today adherence to your ERM program and corporate strategy. Leveraging Holborn’s comprehensive tool suite, we help tailor an ERM framework that supports managing your risks. 

One of the key objectives of an insurer’s operating strategy is to maintain an acceptable target financial strength rating. Holborn has extensive experience in helping clients balance the sometimes-conflicting objectives of growth, profitability, portfolio optimization, capital adequacy, and multiple return metrics. Our robust financial analytics enable our clients to assess multiple key performance measures and analyze how various strategic decisions could be expected to impact the company’s financials and underlying qualitative and quantitative rating factors. 

By their very nature, catastrophic property losses can wreak havoc on businesses and personal property, as well as the balance sheet. Media coverage of the devastation from a hurricane or tornado often makes these events seem “unexpected.” Even though recorded weather history is relatively limited (on a geologic scale), it’s clear that outliers, storms of extraordinary magnitude, have occurred before and will again. 

It shouldn’t be a surprise that some of the largest insured events we see are not property, but liability-driven. Losses stemming from workers’ compensation, mass tort, clash, runaway defense costs, product liability, and punitive damage judgments can quickly add up to amounts greater than most weather or fire damages. Holborn monitors the litigious US landscape, tracking the latest judicial rulings and regional and local hotspots.

Contract wordings are continuously evolving to stay on top of emerging risks such as cyber, intellectual property, and labor laws. Working together, we ensure that the proper coverage and limits are maintained.  

Holborn’s Reinsurance Security Committee (a select group of our senior managers across multiple disciplines) meets regularly to review the financial condition of each reinsurer. Each entity is closely monitored for financial and operational performance through meetings with management, rating agency activity and news releases. Our monthly newsletters keep clients informed of any noteworthy changes. 

Holborn can provide clients with access to RiskRater®, a proprietary reinsurance pricing engine designed (but not limited) to manage portfolios of mutual insurers. RiskRater® employs a systematic approach to pricing that is consistent across client companies. Smaller companies with sparse rating histories are rated with the support of defined cohorts and compared with industry information to enable a more informed view of risk. Developed to be nimble and flexible without proprietary software installations, RiskRater® requires only a connection to a centralized database, where all data (present and historical) is stored and archived, allowing access to detailed information for year over year pricing. 

Our Vision

Our way includes giving the client peace of mind of knowing they can “shake the same hand” again and again over time, and that our team is uniquely positioned to represent their interests in the marketplace, given our in-depth knowledge of their operations, business plans and issues, nuances, history, and the way they like to receive service from us and from their reinsurers. This is how we define our “client intimacy strategy.”

Our Mission

The mission of Holborn Corporation is to provide efficient tailored risk assessment and reinsurance solutions to US insurance organizations, using markets of appropriate quality. Services include risk analytics, contract and claims management, and the maintenance of trading relationships with high-quality reinsurance markets throughout the world.