How driverless cars could wreck our car insurance systems
Personal injury insurers are at risk of crashing in the transport systems of tomorrow, as the University of Melbourne's Jason Thompson explains.
Between 1955 and 1976, Australian private vehicle ownership more than tripled. This period produced improved population mobility. However, it also created a continuing human and financial toll generated by road trauma.
In response, Australia developed a series of transport injury insurance, compensation and rehabilitation schemes funded by compulsory third-party premiums attached to vehicle registrations.
Since then, schemes such as the TAC have played a crucial role in ensuring Australia's transport and health systems continue to function while effectively mopping up the more than A$5 billion in annual injury costs generated by road crashes.
However, the time for Australia's personal injury insurance schemes to start preparing for change is now. Here's why.
What are these schemes for?
Injury insurance, compensation and rehabilitation schemes pay for emergency services, trauma and hospital care, psychological care, GP visits, medications, wage replacement, and a host of other supports to injured people and their families.
In some circumstances, they also allow injured road-users to sue at-fault drivers for common law damages.
Through continued investment in administrative efficiencies and injury prevention, schemes also attempt to keep a lid on the cost of premiums paid for by motorists. Therefore, while exact design differs between jurisdictions, broadly, each scheme promotes an emphasis on:
- maintaining reasonable cost of premiums for motorists;
- responding to clients' non-medical expectations of service; and
- improving health outcomes for injured clients.
However, achieving multiple performance goals is challenging – especially in the face of rapid external social and technological change.
For example, in 1986, the failure of Victoria's Motor Accident Board to adjust to the "era of mass motor vehicle usage" brought about its collapse. At closure, the board experienced widespread fraud, provided poor support for injured people, held outstanding liabilities of $2.6 billion, and had revenue shortfalls of more than $200 per registered vehicle.
Similarly, the New South Wales government recently invited comment on the redesign of its compulsory third-party insurance scheme. It cited significant challenges including increased injury claim volumes, fraudulent and exaggerated claims, inefficient distribution of funds to injured people, and lengthy claim resolution processes.
NSW is attempting to redesign its scheme to optimise affordability, health outcomes, and system responsiveness in the face of an uncertain, dynamic and complex transportation and legal environment.
As these examples illustrate, schemes must have confidence in predicting levels of road trauma produced by the transport system, and the costs of rehabilitation and common law cases associated with claims.
Against this, expected revenue gathered from insurance premiums and investment returns must be balanced. However, the predictability of these equations may be about to change radically.
The need for change
Australia's transport system finds itself on the precipice of a technological and social revolution. The combined rise of autonomous vehicles and the sharing economy is coalescing into a potentially positive – yet uncertain – future for transport system design.
In turn, this should ring alarm bells for injury insurance, compensation and rehabilitation schemes whose operational models reflect current, rather than future, transport system structures. The former are based on human drivers, private car use, private car ownership, registration-linked premium collection, and personal liability for the consequences of road crashes.
In future, though, there may be the introduction of autonomous vehicles not "driven" by owners or no longer "owned" by individuals at all. This could lead to a reduction in the total vehicle road-going fleet, and a decrease in the amount of compulsory third-party premium revenues.
Finally, this could lead to the hiking of premiums for those left in the system without access to autonomous vehicles. These would potentially be people on low-incomes or motorcycles, creating a virtually uninsurable "self-driving" population.
And, in the case of common law damages, who would be the target of litigation? The manufacturer? The autonomous vehicle user?
It is hard to imagine users agreeing to accept liability on behalf of an autonomous vehicle manufacturer any more than you would take on risk for your taxi driver.
However, autonomous vehicles are often hailed for their potential safety benefits – which may yet prove correct. If a future containing autonomous vehicles no longer contains road crashes, then personal injury insurers may no longer be required. But the road to that utopia contains many twists and turns, not all of which we can foresee.
What we do know is that around 1,300 people still die, and tens of thousands more are injured, on Australian roads every year. Australians pay around $700 per vehicle per year to ensure their medical bills and rehabilitation costs will be looked after in the event of a crash.
It is unclear how autonomous vehicles will reshape the transportation sector. It is therefore unclear how this will affect the operational model of the multi-billion-dollar personal injury insurance industry that underpins it. But if schemes cannot adapt to the transition, the functionality of the whole transport system is at risk.