autonomous cars 20160307 - 1insurer · 2016-03-10 · 1insurer autonomous cars – rewriting the...

AUTONOMOUS CARS – REWRITING THE INSURANCE SATNAV

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OLDER THAN YOU THINKThe fascination associated with autonomous vehicles is not new. In 1925 the Linrrican Wonder travelled the streets of New York City with crowds amazed at the appearance of a car that appeared to be driving itself. In fact it was radio controlled from a separate vehicle that accompanied it on its journey.

“Any sufficiently advanced technology is indistinguishable from magic.”Arthur C Clarke

From our contemporary position we shouldn’t lose sight of the fact that radio in itself was relatively new and wireless control would have been a novel, if not jaw-dropping experience. Radio was the cutting-edge technology of its day having an almost magical feel. A driverless vehicle in any form was extraordinary, however it was achieved, and the fact that this test took place almost 100 years ago is itself surprising. The schematic in

Figure 1 provides a selective picture of key developments in autonomous vehicles since. Like any ‘recent’ technology, autonomous vehicles have had a longer history than many would realize, have been through many ‘false starts’ or iterations (depending on your view) and have an accelerating pace of development after a slow beginning.

Figure 1 – Development Milestones – Autonomous Vehicles


The next significant shif t took place in 1958 Nebraska and a joint initiative involving the State, RCA Labs and General Motors. This particular experiment with autonomy actually involved wires and lights – infrastructure outside the vehicle embedded in the surroundings used to impart control. At this stage public highways officials were helping to shape the emerging systems and so the external environment became an intrinsic part of any solution (in-road or roadside systems were seen as key to control and safety). While General Motors hypothesized an ‘electronic guide system’ in vehicle, during the 1960s, highway infrastructure was seen to work together with any system and the road systems essentially controlled the car. In the UK embedded cables were used in a test system run by the Transport Research Laboratory (TRL) and resembled something like the toy slot car race tracks popular at the time. Such initiatives were driven by potential public service benefits with the TRL project envisioning an increase in road capacity of 50% and a reduction of around 40% in accidents.

The baton for research was carried by governmental and academic institutions for the remainder of the century. Preliminary research into the intelligent automated logic needed for autonomous cars was conducted at the University of Illinois in the early part of the 1970s; in Europe, EUREKA conducted the €749 million Prometheus Project on autonomous vehicles from 1987 to 1995; In the US the off-road ALV was developed

and used neural networks in the computer logic required to navigate complex, unpredictable terrain. Between 1991 and 1997 the US Department of Transportation aimed to develop standardized commercially viable technologies and ran both segregated and non-segregated (i.e. mixed autonomous/non-autonomous traffic) trials. Projects ‘went military’ in the 2000s as off-road and group-based capabilities were tested in a series of sponsored US Army challenges. By now, technologies had moved primarily ‘in car’.

So, there have been many periodic trials driven primarily by public project work with the aim of generating significant public benefits (as highlighted above) or military enhancement; and the expansion of driverless tech in the fields of public transport (e.g. Docklands Light Railway in London or the Parkside Shuttle Bus in Netherlands) and commerce (e.g. mining) has pointed to a tantalizing future vision of a more efficient, cleaner, de-risked world.


SHIFTING GEARA significant ‘sea change’ took place around the start of the 2010s. At this point, with significant falls in hardware costs and increases in processing power, established commercial manufacturers had woken up to the possible business benefits of intelligent technologies.

• In the United States, the Insurance Institute for Highway Safety found that ESC could help avoid 41 per cent of single-vehicle collisions while a study by the US National Highway Traffic Safety Administration shows that ESC could cut down the number of single-car collisions by 35% (source – www.tc.gc.ca).

• A Department for Transport study in the UK concluded that vehicles equipped with ESC are 25% less likely to be involved in a fatal accident than those without (source – www.theaa.com).

• ESC is expected to prevent c3,000 fatalities (-14%), and c50,000 injuries (-6%) per year. Speed Alert (with active gas pedal) (-5%), eCall (-4%) and Lane Keeping Support (-3%) also deliver projected reductions in fatalities. In parallel these applications also have the potential to reduce congestion, as around 15% of all congestion in Europe is due to accidents (source – www. ec.europa.eu).

Figure 2 - US Fatalities and Lives Saved

Most earmarked specific budgets for ‘connected’ and autonomous technologies as the development of on-board computer management and its potential for future application entered mainstream commercial thinking. They were joined by ‘pure tech’ Google already extensively using GPS and data processing technologies as part of its street-view-imaging initiatives (more of this later).

Much of the car technology we now take for granted has emerged from these and related projects under the generic title

of advanced driver assist systems (ADAS) – this would include such innovations as Adaptive Cruise Control, Autonomous Emergency Braking, Parking Assist, Lane Changing Support and Blind Spot Monitoring.

The benefits of Electronic Stability Control (ESC) has proved compelling. Initial data for 2007 – 2009 demonstrated a correlation between the adoption of ESC and the % Lives Saved (see Figure 2 below) and ESC is now compulsory in new US and EU vehicles. Consider the following figures: -

Whichever figures you accept, the impact of selected intelligent technologies is significant and driving much of the components (and thinking) that underpin autonomy.

Alongside the development of the core engineering, the application of data and the wider proliferation of on-board computing has spurred the introduction and maturing of connectivity leading to, initially, Telematics technologies and, latterly, a significant contribution to the emergence of the ‘Internet of Things’.

Telematics appeared on Gartner’s Hype-cycle reports towards the end of the 2000s as one of the few potentially ‘transformative’ technologies of the time (but a timeline of 10 years or more to

reach potential). Initially driven by commercial fleet operators, with the accelerating pace of change, Telematics has now developed into the wider concept of the ‘connected vehicle’ and underpins Usage Based Insurance (UBI) initiatives such as pay as you drive (PAYD) pay how you drive (PHYD) programs in personal auto. These programs are driven by two key objectives:

• Risk assessment/management – taking on higher risks in a controlled manner

• Claims reduction – education and feedback to improve driver perception and on-road behavior


Commercially, in personal auto, some consumers are attracted to the potential of lower premiums for categorized standards of driver behavior. For some higher-risk groups it is the only way they can access insurance from selected carriers. The growth of smart-phone apps in this area (and other portable technologies) have also reduced supply-side costs providing greater access as the need for a fixed in-car solution is removed. Examples include UK-based Insure the Box, now owned by Toyota and cited as a potential move by manufacturers to secure a greater share of the insurance market (source – www.postonline.co.uk) and US-based Progressive who use the technology to demonstrate potential savings as a means to generate quote enquiries via their Snapshot program (note - one of the pioneers in the UK, Aviva, now adopt a similar approach through app gamification, Aviva Drive – source – www.telegraph.co.uk).

In the EU, the eCall emergency alert system is now a legislative requirement for manufacturers, extending the ‘reach’ of UBI into mainstream use (albeit for a specific non-commercial purpose).

Telematics featured as one of the top 10 technologies ‘with the greatest impact’ in 2012 with a prediction that 10% of the market would be written through PAYD by end of 2014 (Gartner, 2012). While the pace of growth has not been as fast as envisaged, Gartner still view Telematics (and its related technologies) as ‘Transformative’ with up to 20% of business ultimately conducted in this manner, but observe that it has now developed into an ‘Emerging’ technology with tangible applications. This is consistent with its original timeline to maturity of 10 years.

More nascent, is the Internet of Things, where a wider web of connected machines is envisaged. Recent research concludes that ‘digital ecosystems’ could reduce combined operating ratios by as much as 21%, from a mixture of claims and non-claims

cost reductions (Source – Morgan Stanley/BCG, September 2014). Furthermore, the reduction in losses will feed through to lower premiums, estimated to be between 10- 20%. These are significant potential benefits and fundamentally enabled through technology and the emergence of The Internet of Things (IoT).

Gartner highlight that the insurance industry has been both a ‘slow and fast adopter’ of IoT, depending on what technologies are being discussed.

The drivers for the above developments are now largely commercial. Where these overlap with public service considerations then a collaborative agenda emerges. However, commercial providers are now ‘on the offensive’ actively lobbying for Governmental support as a global market for the technologies involved begins to take shape. This is a significant shif t from the projects undertaken in previous decades.

Numerous, incremental changes in on-board technology and machine connectivity are aggregating to the point where autonomy is seen as a realistic commercial proposition.


PRESENT STATEAnalysts Celent, outline 5 principal stages of development on the evolution to a truly autonomous vehicle (1 - Manual, 2 - Emergency Alert and Intervention, 3 - Simple Autonomous, 4 - On Demand Autonomous and 5 - Autonomous Only). The leap from stage 2 to 3 (and in some trials, Stage 4, where the car largely drives itself) is where the current technology places this evolution.

By illustration, in October 2014, Tesla launched its Autopilot system in its Model S, with many elements of a truly autonomous experience (lane control, autonomous steering, braking and speed limit adjustment based on signals image recognition) through the use of radar, 12 long-range sensors and forward view cameras. This pushes the boundaries of Stage 4 above, with largely autonomous driving on a selected area around San Francisco/Seattle.

In July 2015 the UK government launched a £20 million competitive fund for collaborative research and development into driverless/autonomous vehicles, along with a code of practice for testing (source – www.gov.uk). The project will involve an examination of the Highway Code and adjustments

to vehicle test guidelines, potentially taking into account whether a higher standard should be demanded of automated vehicles, who would be responsible in the event of a collision and how to ensure the safety of drivers and pedestrians. Bidders have been encouraged to put forward proposals in areas such as safety, reliability, how vehicles can communicate with each other and the environment around them and how such vehicles can help give an ageing population greater independence. Successful bidders will match fund projects with their own money and the government expect the intelligent mobility market to be worth £900 billion by 2025, so significant sums of money are at stake and trails are designed to place the UK at the forefront of what the legislators believe to be key technology of the future.

WHY IT MATTERSAutonomous vehicles will become more prevalent following patterns of development seen in past ‘jumps’ in innovation. This will fundamentally change the way carriers relate to customers and other road users. Issues of liability will shift, providing challenges for the processes and systems used to manage claims. Data, video and voice will expand exponentially requiring new tools and skills to manage and make sense of the information. The protection of information embedded in the process needs to be addressed – cyber-crime has a new opportunity without adequate system controls.

The Lutz Pathfinder self-drive pod (a two-seater, electric-powered vehicle that is packed with 19 sensors, cameras, radar and laser-guidance) will be tested in Milton Keynes and Coventry; Bristol will host the Venturer consortium, which includes the insurance group AXA; Greenwich will run the Gateway scheme, focused on automated passenger shuttle vehicles as well as autonomous valet parking for adapted cars - led by the Transport Research Laboratory and also involving General Motors, as well as the AA and RAC motoring associations.

As well as the legal and insurance implications of its introduction, the UK trials will assess the public’s reaction to the technology – recent research undertaken by Virgin suggested that 43% of the British public wouldn’t feel comfortable with the presence of driverless cars on the roads. A quarter of those surveyed said that they would not get inside such a car. (source – www.virgin.com)

And these consumer issues go some way to explaining why initiatives have been muted elsewhere.

Some industry experts in the US have challenged the legal status of autonomous driving. The Tesla Model S has, in particular has raised questions around California state regulations when using the autopilot function. While the US was the first country to introduce legislation to permit testing of automated vehicles and 4 US states have done so, 15 have rejected bills related to automated driving. And elsewhere in Europe, only Germany and Sweden have reviewed their

legislation in this area (source – www.bbc.co.uk). Research (Celent, 2015) has highlighted a number of issues slowing the pace of adoption, grouped broadly into two areas: -

• Technological concerns – cost and complexity of cars and repair supply-chain

• Attitudinal – mistrust, misuse and misunderstanding of what ‘autonomous’ means in practice

The move to fully autonomous is a technological challenge that manufacturers appear confident they can overcome with Volvo recently announcing that the company will accept full liability whenever one of its cars is in autonomous mode. A clear statement of intent that removes one of the key barriers to adoption. However, the legal issues around liability extend beyond manufacturers to the supporting supply-chain (who is responsible when the quality of maintenance falls short and


triggers an incident that leads to injury or loss of life?) So, it is likely that test cases in the courts will be needed to fully disentangle this issue and apportion legal responsibility.

Ford has publically stated that their cars are ready for the challenge of autonomy. The company views customer reluctance as the key barrier to adoption (source - gigaom.com). Ford’s research and Innovation team have stated “There is no technology barrier from going where we are now to the autonomous car. There are affordability issues, but the big barrier to overcome is customer acceptance.” Tellingly, Ford are now pushing previously ‘high-end’ technologies down into mainstream models. The current view is that acceptance of autonomy will come through the gradual acceptance of ADAS components in the mass-market.

Consumer concerns are being tackled head-on by Google, with the announcement of the expansion of trial activity in London during 2016 (source – bbc news). Both sides of the debate have been keen to examine Google’s incident data from its US trials and, predictably, view the statistics in dif ferent ways.

In July 2015, Google announced that its test vehicles had been involved in 14 ‘minor’ accidents since the project’s inception in 2009. Chris Urmson, the project leader, said that all of the accidents were caused by humans driving other cars, and that 11 of the mishaps were rear-end collisions. "Our self-driving cars are being hit surprisingly often by other drivers who are distracted and not paying attention to the road. That’s a big motivator for us." Over the six years of the project’s existence the test vehicles had logged nearly 2 million miles on the road (source – www.nytimes).

However, in January 2016, Google’s incident reporting (mandated by the California Department of Motor Vehicles) was published. According to this data, between September 2014 and November 2015, Google’s autonomous vehicles experienced 272 failures and would have crashed at least 13 times if their human test drivers had not intervened (source – www.guardian.com). The company is reporting only 69 incidents where the human driver took control of the car on their

own initiative, as it believes that the regulations require it only to report disengagements where drivers were justified in taking over, and not those where the car would have coped on its own. It decides whether this is the case through post incident simulation. Consumer Watchdog, a California-based campaign group, said the report shows that self-driving cars still need a human driver behind the wheel

This touches on age-old ethical debates over choice. Can a car make ethical decisions in life or death situations and which value-system do you apply? Research by the University of Alabama concludes that “the entire auto industry will have to try and come up with a solution that will be acceptable for all automakers, so that all autonomous vehicles react the same way when faced with scenarios involving unavoidable accidents” – (source – www.dmv.com).

So, whichever side of the debate over safety you believe will determine if you feel progress is too slow or too fast. The trials of the 60s in Italy and Germany outlined earlier had stated rates of ‘autonomy’ of 94/95%. Trials in North America in 1980s/90s pushed this to 99%. No auto-based activity is 100% risk-free, as the fatality statistics prove, and so the attitudinal debate really rests on a judgement of ‘when is it safe enough’ or, more accurately, ‘when will consumers believe it is safe enough?’


DIMENSION KEY FACTORS CAUSE/EFFECT

Technology alignment • Commoditization or removal of conscious task through technology

• Proliferation of standards and methods

• Continued rise of ADAS technology

• Connectivity standards

Customers look increasingly for “on demand” technology and technology enables them to interact flexibly with vehicle to common behavior patterns

Consumer perception • Perception of ‘safety debate’

• Positivity towards technology in general

• Willingness to forsake driving for pleasure

• Increasingly ‘opt in’ by default as Generation Y are an increasing % of driving population

Consumers accept risks as acceptable and pass control to machines; increasing % of autonomous vehicles make ‘non-acceptance’ the exception; Generation Y leverage new tech as status symbol (as with smartphones)

END-STATE DIMENSIONAL SUMMARY

DESCRIPTION

Full throttle Technology Simplifies / Consumers Experiment

Alignment of consumer desire to experiment and Provider ability to articulate a viable solution. Consumers largely divest themselves of control as concerns over safety and cost evaporate. Providers are able to build a constructive relationship with consumers through a transparent and beneficial delivery of services. Generation Y in particular are provided with on-demand autonomy that meet their needs for flexibility and responsiveness.

Near miss Technology Confuses / Consumers Experiment

Consumers drawn to high-levels of experimentation due to promises of significant savings in time, hassle and quality of service levels; However, projects are slow to deliver benefit and ultimately founder on confusion around the structure and clarity of solution delivery and safety concerns. Bad press arises forcing more and more of sector to turn back on technology. Consumers retreat to what they know and abandon experimentation leaving some Providers ‘high and dry’.

Blind spot Technology Simplifies / Consumers Ignore

Providers push a reasonably clear vision of the future but Consumers are slow to respond, largely due to concerns over control and data ownership/security issues. Providers are frustrated and friction builds between parties. Some low-scale projects emerge (mainly due to Generation Y with higher threshold to experimentation) but potential benefits remain largely unrealized.

Parking lot Technology Confuses / Consumers Ignore

Complete misalignment as confusion over solution delivery leads Consumers to discount possible benefits after some initial experimentation. Instead Consumers rely on adaptations of ADAS and Providers are left to pick up the pieces. Providers reluctantly exit to reassess future market state.

Figure 3 – Scenario Analysis – Autonomous Cars

THE ROAD AHEADTechnical issues of liability and manufacture will progress within the control of providers and legislators. Future progress really relies on the interplay between two behavioral dimensions: -

For Technology Alignment, these factors will either simplify the process of accessing functionality, enabling customers to devolve/assume control easily as mood dictates or develop into a confusing set of options and methods of application, perhaps competing options that act as a barrier rather than an enabler.

For Consumer Perception, these factors will either act as a spur to action, encouraging consumers to experiment with emerging options or they will act as an inhibitor as consumers retreat to what they already know.

From the analysis above the following End-States emerge: -

Figure 4 – Autonomous Vehicles Scenario Analysis – End-state Summary


Figure 5 below represents this analysis diagrammatically: -

Figure 5 – Autonomous Cars Scenario Map

Whenever a new technology is introduced that fundamentally challenges accepted behavior then similar concerns arise (as those who remember email or, more recently, gesture-based interfaces, will remember). Manufacturers have gradually introduced more and more ‘intelligent’ components that ‘think’ for the driver (automated braking, parking assist, automatic handbrake, automatic headlights, electronic stabilization control and so on). The same road space now shares ‘old’ and ‘new’ tech cars. Small, frequent, iterative changes tend to gradually shif t the balance over time and the Generation Y ultimately feel more comfortable with technology; so many commentators feel it is more a question of ‘when’ rather than ‘if’ these attitudinal factors can be overcome, but progress is unlikely to be fast-paced.


IMPACT ASSESSMENTIn the medium-term the connectivity of vehicles and the technology (and business opportunities) that fall out of this are more likely to drive innovation.

Insurers are one set of stakeholders that are essentially reacting to market development in related sectors. There are some limiting factors (inhibitors) that prevent a flexible, proactive approach at present that include: -

• The Legacy System inhibitor – prevent the integration of processes and assimilation of data generated from UBI and connected technology

• The Product/Rating inhibitor – similarly, the ability to process, segment and apply information to build and issue new product and/or rating structures is limited by the underlying transactional system and the absence of workable underwriting models

• The Data inhibitor – the relatively unstructured nature of ‘connected data’ prevents its easy categorization and subsequent use

• The Privacy inhibitor – data ownership and fears over possible exploitation through cyber-crime act as a barrier to share usable information

WHY IT MATTERSConnectivity is already here and has been developing with ever more sophistication for the last 10 years.The ‘smartphone generation’ will view this as the accepted norm. Having a connected car will be seen as essential. As this generation explore connected services they will increasingly expect insurers to become proactive in how they deal with service issues.The removal of inhibitors (largely system-based) and the ability to develop attractive connected products and services that leverage new capabilities will become key to competitive advantage

As these inhibitors are removed or eroded the ability to re-shape the relationship insurers have with their customers shif ts, particularly in two key areas: -

• Risk profiling and Micro-insurance - Why shouldn’t an insurance premium be calculated based on ever shorter periods of time, linked to on-going changes in risk?

• Claims process enhancement and cost reduction – Why shouldn’t an insurer provide a proactive service driven from data collected and transmitted in near real-time by the claimant – deploying preferred suppliers who guarantee costs and quality standards and evaluating liability and circumstances with greater accuracy.

As Telematics/UBI and the Internet of Things merge and Generation Y start to demand services in dif ferent ways, ‘connectivity’ is increasingly likely to drive the agenda. How quickly this then morphs into an autonomous world is the $64,000 question.


REFERENCESCelent, April 2015, Insurers beware: speedbumps on the road to autonomous vehicles

Gartner, July 2014, Hype Cycle for P&C Insurance, 2014

Gartner, December 2012, Top Industry Predicts 2013: The Nexus of Forces Will Drive Massive Transformation in Many Industries, 2012

Gartner, March 2012, Top 10 Technologies with the Greatest Impact for the Property and Casualty Insurance Industry, 2012

Estimating Lives Saved Annually by Electronic Stability Control, December 2011, Traffic Safety Facts – Research Note, US Department of Transportation, NHTSA, 2011

Insurance and Technology: Evolution and Revolution in a Digital World. Morgan Stanley and Boston Consulting Group Blue Paper, 8 September 2014.

http://www.bbc.co.uk/news/uk-england-london-35511980

http://www.computerhistory.org/atchm/where-to-a-history-of-autonomous-vehicles/

http://www.dmv.com/blog/will-self-driving-cars-be-able-to-make-ethical-decisions-522213

http://ec.europa.eu/transport/themes/its/road/application_areas/vehicle_safety_systems_en.htm

http://gigaom.com/2012/04/09/ford-is-ready-for-the-autonomous-car-are-drivers/

http://www.nytimes.com/2015/09/02/technology/personaltech/google-says-its-not-the-driverless-cars-fault-its-other-drivers.html?_r=0

http://www.postonline.co.uk/post/news/2390819/insure-the-box-sale-highlights-threat-of-manufacturers-to-motor-insurers

https://www.tc.gc.ca/eng/motorvehiclesafety/tp-tp14651-vs200701-faq-742.htm

http://www.telegraph.co.uk/motoring/news/10110097/Smartphone-apps-that-monitor-how-you-drive.html

http://www.theaa.com/motoring_advice/electronic-stability-control.html

http://www.theguardian.com/technology/2016/jan/12/google-self-driving-cars-mistakes-data-reports

https://uk.news.yahoo.com/how-the-first--driverless-car--was-invented-in-britain-in-1960-093127757.html#TAIMeVa

http://www.virgin.com/disruptors/driverless-cars-face-backlash-from-uk-public

http://www.wired.com/2012/02/autonomous-vehicle-history

ABOUT 1INSURER1insurer is a global provider of software-led solutions to insurers for more effective policy and claims management. Part of Carlyle Group, a global alternative asset manager with $188 billion of assets under management, the 1insurer Suite is operating in 8 of the top 10 global insurance markets across 4 continents. In every market, 1Insurer’s technology empowers Insurers to deliver better, faster results, making us the global partner of choice for locally delivered insurance solutions.

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autonomous cars 20160307 - 1insurer · 2016-03-10 · 1insurer autonomous cars – rewriting the...

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