HDI Gerling first insurance company to insure a driverless car

Liability is often seen as one of the Achilles heels for driverless cars: Even if they are vastly safer than human-driven cars, any accident could lead to huge claims. Many fear that this may make it difficult for obtaining an insurance policy for autonomous vehicles.

Current autonomous car prototypes already operate in various countries in test mode and for them the issue of obtaining appropriate insurance is very real. We have just learned that the German MIG (‘Made In Germany’) prototype driverless vehicle which currently roams the roads of Berlin is being insured by HDI Gerling Industrial Insurance for damages of up to 100 Mio Euros. HDI Gerling, a subsidiary of the European Talanx insurance conglomerate, may thus have become the first insurer worldwide to insure a driverless vehicle.

Of course this policy is for test driving only and requires a backup driver behind the wheel who is able to take over from autonomous mode at any time. Nevertheless, the policy shows that insurance companies are beginning to take notice and marks another step forward in the push to market for driverless vehicles.

The fact that the Autonomo team (directed by Raúl Rojas) developing the prototype was able to secure a policy for its car shows that the huge claims problem may be over-rated: Insurers world wide are experts at calculating risk. They will not shrink from insuring autonomous cars. Once their safety has been tested and certified they will most likely be glad to insure autonomous cars. The cars will pose  much lower risks than human driven vehicles but – at least initially – the insurers will be able to over-emphasize the huge claims problem and command very healthy premiums, making this a very profitable business.

Paths to adoption of driverless vehicles

How will autonomous vehicle technology enter our lives? The discussion has not yet really begun, but here are the main lines of thought:

  • Gradual evolution: Autonomous technology will evolve functionally, first assisting the driver with singular tasks (lane control, collision warning, adaptive cruise control). More and more functions will be integrated until the car is able to drive autonomously in all situations. This is the currently dominant view, but it ignores much of the economic implications and transformation potentials of the technology.
  • Mobility service provider: Driverless cars will be introduced in high density urban centers where the percentage of non-car owners is already high, parking space is at a premium and most trips are relatively short-distance. They will be operated by mobility (car-sharing) providers. These networks will quickly spread nationwide, profit from economies of scale, and be able to offer personal mobility at significantly reduced total costs (our estimate is that a factor of 2 should be attainable from the start). For economic reasons alone, more and more people will dispense with their cars and switch to car-sharing.
  • Avalanche: Driverless car technology will gradually mature to a point where its economic and transformative potential becomes obvious. Decision makers realize that this technology will switch a large part of the mobility market from individual ownership to a mobility service provider / car-sharing model. Now the market players race to secure their position in the new market structure. Given the size of the mobility market at stake, enormous amounts of capital will be moved by current auto makers, governments and new entrants. Auto makers may be hardest hit as the volume demand for cars may shrink by a factor of 10 because of the much higher efficiency of the mobility service provider / car sharing model.

Some older or more specialized ideas:

  • Dedicated lanes: Autonomous technology will be introduced on dedicated lanes on highways or in the city. This is one of the oldest models. It has already been realized for low-intelligence autonomous pods in various locations (Heathrow Airport, Rotterdam). But this model can not lead to high adoption rates because of the high infrastructure costs for dedicated lanes. Furthermore, current autonomous technology can safely operate in mixed traffic without dedicated lanes.
  • Platoons of cars or trucks: Autonomous cars can use road capacity more efficiently by keeping shorter distances. This reduces fuel consumption and congestion. However, there are legal hurdles and problems of operating such platoons in mixed autonomous and non-autonomous traffic.