New Technology For Car Safety Leaves Insurers In The Dark

Insurance companies are warning consumers to be cautious with discounts on new technology from automakers, like collision-avoiding brakes or automated cruise control.

The global market for advanced driver assistance systems -- known in the industry as ADAS -- is expected to reach almost $100 billion by 2025, growing more than 10 percent each year.

A group of 20 carmakers has pledged to outfit almost every new vehicle with forward collision warning and city-speed automatic emergency braking by 2020.

Government mandates to install technology such as collision avoiding automatic brake systems are driving the market, as is the promise of profits for these higher-margin vehicles.

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“Anybody that has been in a car with advanced safety solutions is not going to go back,” Kevin Clark, chief executive of auto technology supplier Aptiv PLC told Reuters.

The cost for advanced safety systems -- automatic braking, lane keeping and automated cruise control -- can be relatively low to the automaker, between $700 to $1500 per vehicle, Clark said.

“The (manufacturer) can price for it and consumers will pay for it,” he said.

Aptiv expects to book up to $6 billion in new ADAS business this year. “We have gone from five customers just a few years ago, to I think we’ll have north of 20 in a couple of years from now,” Clark said.

The insurance industry’s perspective is different.

Personal auto insurance, while traditionally a low-margin business, provides the largest amount of liquidity to insurers. Motor insurance is also seen as a way for insurance companies to cross-sell other, more lucrative products to customers.

Philip Floyd, a senior engineering technician, demonstrates a pedestrian crash prevention test on a 2019 Subaru Forester in July 2019. Image: REUTERS/Amanda Voisard

According to Swiss Re AG, the world’s largest auto reinsurer, and mapping company HERE, ADAS has the potential to reduce motor accident frequencies by up to 25 percent, cutting global insurance premiums for fully ADAS-equipped cars by $29 billion by 2020.

But insurers said they currently do not have sufficient data to validate auto industry promises of safety benefits from automated driving systems.

They cite car manufacturers’ reluctance to provide detailed information on models sold with those features, a lack of consistent standards, drivers’ unpredictable use of the systems and higher repair costs.

“We’re not going to go against the data and create any type of false discounts for the purposes of marketing at this point. We just want to make sure the rate is reflective of the risk that it brings,” said Steve Armstrong, a vice president of Allstate Corp’s pricing department, one of America’s largest insurers.

Insurers pointed to higher repair costs as a risk. Sensors and cameras central to automatic driving systems are mostly installed in a car’s bumper or windshield. Research has shown repair costs for even minor collisions can double if such sensors are damaged.

The self-parking feature of a 2019 BMW 3 series. Image: REUTERS/Amanda Voisard

With new automated driving features being released on a rolling basis, insurers said it is difficult to keep up.

Forward collision warning with automatic braking has been found to have one of the greatest safety benefits among various driver assistance systems. The Insurance Institute for Highway Safety concluded in a recent study that automatic braking could reduce front-to-rear crashes with injuries by 56 percent.

But most ADAS features are still sold as optional equipment, making it impossible for insurance companies to validate which features ultimately end up on a specific car. Insurers are reluctant to trust car buyers to correctly identify what technology their vehicle has on board.

Swiss Re is leading efforts to develop a global ADAS risk score and a mechanism allowing carmakers to supply data to Swiss Re, which in turn will recommend discounts to auto insurers.

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“If we say these cars are safer, insurers are more prone to believe us as we take part of the risk” as a re-insurer for consumer-facing auto policy writers, said Sebastiaan Bongers, Swiss Re’s head of products and technology.

Bongers believes reductions in accident frequency and severity will eventually offset higher repair costs. But he said lower premiums could result in temporary liquidity problems in the insurance sector in about 10 years.

Swiss Re so far has partnered with Germany’s BMW and is in talks with more auto manufacturers to develop a comprehensive system.