The future of motor liability insurance – after a hundred years, what lies ahead?

"Justice and reasonableness demand that the owner of a motor vehicle who benefits from traffic is also held liable for the harmful consequences arising from traffic." These words were used to justify the enactment of the first mandatory law on motor liability insurance, which entered into force on 1 September 1925. In a hundred years, the basics have not changed. Motor vehicles still cause tens of thousands of traffic accidents every year, even though the development of vehicle safety technology and changes in the traffic environment have significantly reduced the number of accidents. What happens when the steering wheel is removed from human hands and the car is driven by an artificial intelligence? In what direction will motor liability insurance develop over the next hundred years?

In 1925, the brand-new Rolls-Royce Phantom I appeared on the market. Those sitting in the back seat certainly considered it the pinnacle of the car's development. What could get any better? In the same way, it is impossible for us to predict the future of mobility and motor liability insurance a hundred years from now. Today, electric cars, advanced vehicle technology and driverless vehicles are revolutionizing the way we use cars. The technological revolution will inevitably also have an impact on motor liability insurance, especially the assessment of risk, the amount of damage and the pricing of insurance.

Autonomous driving brings new kinds of risks

In 2014, I gave my first lecture on autonomous driving and its impact on motor liability insurance. At the time, I predicted that significant effects would begin to be seen in the 2030s and that the insurance system would not change properly until 50 years from now, i.e. in the 2060s. Is my assessment still relevant – and what has changed along the way?

Insurance companies collect insurance premiums to finance the costs of traffic accidents. Based on statistics, the insurance company predicts what kind of accident risk is associated with the vehicle and its driver, and how much damage is likely to result. If autonomous vehicles become more common, the risks and their assessment will also change.

The decisive moment is when the driver completely relinquishes control of the car, and the vehicle travels without human supervision. At the same time, the risks associated with human drivers, such as human error, fatigue or substance abuse, are eliminated. They are replaced by technological risks: software errors, sensor or communication failures, and cyberattacks. Insurance companies need to develop new methods for assessing them.

Today's cars are mobile computers, and this raises new questions of responsibility. Who is responsible, for example, if the owner has not updated the vehicle's software to the latest version? The intermediate phase of mixed traffic may also become problematic, as there are both human-driven and autonomous cars on the road. Can humans predict the operation of a robot car – and vice versa?

It is often said that 90% of traffic accidents are caused by human error. An easy follow-up to this would be that in the new autonomous world, only 10% of the damage would occur. Unfortunately, the idea is too straightforward, because even though human error is often named as the cause of an accident, it is not always the ultimate root cause.

However, autonomous vehicles are expected to significantly reduce the number of road accidents because they strictly follow traffic rules, react more quickly to other road users, and communicate with each other. As stated, they also never drive when tired or intoxicated. In addition, AI enables autonomous cars to intelligently navigate, react quickly to traffic situations, and continuously learn about new risks, allowing them to assess and anticipate dangerous situations in real time, reducing the likelihood of accidents.

Although artificial intelligence reduces accidents, it can also create new types of risks. When automatic software updates are applied to a certain type of car at the same time, a software error can also quickly spread widely and multiply the damage before the error is noticed and repaired. It has also been estimated that autonomous cars will cause new types of damage, which means that the number of accidents will not decrease as expected.

Who is responsible if there is no driver?

In the case of autonomous vehicles, it is often claimed that product liability replaces motor liability insurance. In other words, the damage caused by the vehicle would be caused by a defect in the product, in which case the manufacturer or importer would be obliged to compensate for the damage.

A system based on product liability would be expensive, slow and complicated, at least with the current amount of damage. Over the past hundred years, motor liability insurance has adapted to changes in society and is now a comprehensive and functional safety net for compensation for damages. The injured party receives statutory compensation, and it is the responsibility of the insurance company to determine whether it can recover the compensation paid from another party.

In Finland, driving autonomy was already taken into account in the comprehensive reform of the Motor Liability Insurance Act in 2017. At that time, motor liability insurance companies were allowed to recover the costs of accidents from the manufacturer or importer. The payment obligation also brings a great interest to autonomous vehicle manufacturers in improving the traffic safety of their own products.

In connection with the same reform, it was noted that our legislation related to motor liability insurance is well prepared for compensating for damage caused by autonomous driving in the next few decades. In the Finnish system, damages are compensated without having to consider who was responsible for the damage or made the mistake. In this system based on strict liability, there is no need to prove that anyone has acted negligently or carelessly – not even the machine, even when there is no driver. In addition, we also compensate for personal injuries to the person in the driver's seat, which is rare internationally.

It is difficult to see that there is a change in sight to the current system in Finland, even in the long term.  On the other hand, the departure of the driver causes problems in those countries where liability is based on the driver's negligence. Who is responsible if there is no driver?

The future is full of surprises

In the near future, the number of autonomous vehicles is likely to increase gradually. Ten years ago, it was estimated that the first applications, i.e. small robot buses, would be seen in public transport.  We are still a long way from an autonomous car being able to drive anywhere on its own, but they already manage a certain area or a controlled traffic environment quite well.

Global politics also affect transport - geopolitical considerations and trade wars may lead to vehicles developed by certain actors not even being able or willing to be used elsewhere.

As autonomous vehicles enter the market, insurance companies will have to develop new products that take into account new technological risks and cybersecurity. Pricing places more emphasis on the vehicle's technology and less on the driver's characteristics.

In the medium term, the number of autonomous vehicles in transport will increase significantly, whether they are robot taxis, public transport, professional goods transport or privately owned vehicles. There may also be changes in vehicle ownership and forms of transport, which should be anticipated. Do people own the cars they use themselves? Ownership can also be transferred to multinational operators who manage not only the fleet but also the costs of any damage to their vehicles. What is the role of the motor liability insurance company in this case?

Ten years ago, we could not predict the rapid emergence of small robots used for transporting goods, not to mention the boom of rental electric scooters. The development of autonomous cars, on the other hand, has been slower than expected. In 2019, the conference on the future of transport in Vienna focused on the next stage of development, which was supposed to be a flying car. We are still a long way from that.

Even though we can imagine different paths of the future, reality always surprises us. At the moment, the changes in traffic are so rapid that I am looking forward to seeing what kind of development will take place in the next few years.

Janne Jumppanen

The writer is the Director of the Finnish Motor Insurers' Centre.