Motor: Challenges on the road ahead

The capping of Motor TPBI (third party bodily injury) liability remains a wishful thinking for most insurers. If and when in place will it really resolve all the barriers and challenges in the path to the third party portfolio profitability? Are we in a time warp? Do we need to recognise motor in context of evolution of mobility and the attendant risks as they unfold? Perhaps we need to evaluate this in the short to medium and medium to long term perspectives.

Motor must be seen as a part and parcel of our roads which reflect the socio-economic reality. We have multiple modes of transportation, ranging from animal driven to most modern automobiles. At the turn of the last century when all major brands were queuing up for India entry, the big question was – where are the roads? Today they all co-exist. This will only get more complex with newer forms of mobility descending upon the same infrastructure. The growing prosperity will only further segment the options. Insurers need to anticipate how the mid-term will unfold in the long-term.

Is capping the way forward?

Just over two plus decades ago the severity of Chan Pui Ki versus Kowloon Motor Bus Company Limited triggered a legislation leading to the capping of third party bodily injury in the then British colony of Hong Kong. The build-up was perceptible as the longevity of the residents, inflation and per capita income kept rising above those applicable in the UK. Two of the three Indian insurers with presence in HK were compelled into a runoff and shut shop, as an aftermath. The debate on applying multipliers in line with the recent trends in inflation continues to threaten the cap applicable to the TPBI coverage for vehicle owners in HK.

Given the developments across many common law jurisdictions, it would be no different here as and when limited liability comes into play. Disciplining the men on steering wheels, efficiency and transparency in the processes extraneous to insurers - call for greater attention.

As the country embarks upon ambitious mobility projects and imminent high paced urbanisation, seamless mobility should ideally call for seamless risk treatment. A uniform ‘’multimodal’’ cover rather a standalone Motor TP liability ought to be the need of the hour. Even in today’s fragmented environment, imagine the variance in the passenger liability when onboard a drop bus to the aircraft versus whilst in a flight mode. Needless to mention that we must at all times be vigilant against blind-spots. The Motor Third Party Pool was a rude shock in the recent past. UK insurers and reinsurers are currently dealing with the Ogden rate changing.

Environment risks:

The fundamental problem with mankind’s hundred plus year old obsession with the motor car is that it is a mobile source of air pollution difficult, although not impossible, to pinpoint. The pollution originates in both direct tailpipe emissions and in the mechanical wear of different parts of the vehicle. In 2006 California’s Attorney General Bill Lockyear filed a lawsuit against leading US and Japanese car manufacturers, alleging their vehicles’ emissions contributed significantly to global warming, harmed the resources, infrastructure and environmental health of California. It cost the State million of dollars to address current and future effects.

Vehicle emissions for long have been recognised as the single most rapidly growing source of carbon emissions contributing to global warming and known to be the origin of about half of the air pollution in the US. Bill Lockyear was trying to hold these companies responsible for their contribution to this crisis. It did not succeed then.

Could Motor insurers become liable?

Greenhouse effect is just one of a series of complications that our century plus old toy contributes to. Motor vehicles emit carbon monoxide (CO). This is a colourless, odourless gas that causes serious, possibly fatal, health problems. Ninety percent of CO in the urban areas originates from cars. Hydrocarbon emissions have serious health implications. So do nitrous oxides, volatile organic compounds, lead and particulate matters.

Starting from eye irritation, wheezing, asthma, cancer, acid rain, ozone formation and the resulting greenhouse effect, the evils of motor car emissions constitute a horrendous list. The concern for motor insurers getting drawn in sooner or later arose from the fact that technology could possibly enable measuring individual car’s toxic contribution. Hence the responsibility of each unit could be quantifiable. It is only a matter of time that the stage would be set beyond the greenhouse to health effects.

If tobacco companies could be sued for negligence, how long can car producers avoid legal action for impairing the overall environment and human health? Has the threat from pollution charges for vehicles gone away? Since then China has dethroned the US in terms of number of cars sold per annum. It has completely transformed the landscape there. The battle against smog goes on. However, the Chinese are rapidly moving towards electric cars. They have their own version of Tesla. Given that Tort law is of only recent origin – will we see any action like in California? Indeed a question mark. Could we see some action in our own land? Perhaps, thanks to the class action proviso under Companies Act rather than a pure motor cover. Activism against tobacco is already perceptible.

The Volkswagen defeat device opened another front in many jurisdictions – The US, Europe and Australia in particular. Still developing, this is yet another manifestation for pinning down auto pollution. Could technology be able to pinpoint damage by each and every vehicle, indeed it is getting closer – thereby potentially claimable under respective motor policy?

Mid to long-term: Technology ahead of regulation!

The transition from catalytic converters to hybrids and electric cars seems within sight. Apart from the climate degradation the implications otherwise are not far reaching. It is the self-driving technology that could really bring about the paradigm shift. “If they make the world safer it’s going to be a very good thing, but it won’t be a good thing for auto insurers”, believes Mr Warren Buffett. Being safer, as they are expected to be, would bring down the overall economic cost of auto-related losses, thereby driving down the premiums – reports Business insider on concerns of Mr Buffett.

It is one thing to have driverless cars in place but what is critical is a legislative framework to determine who is liable in the event of an accident with a driverless car. In the UK for instance, while the insurers still need to figure out the responsibility for an accident – the government has proposed to extend compulsory motor insurance requirements to include coverage for losses where autonomous vehicle is at fault. As a result, motor insurers will pay claims in the first instance – irrespective of whose fault it is. Where the vehicle is at fault, the insurer will then be able to recover costs from liable manufacturer.

There ought to be a framework for insurers to be able to recover damages from vehicle manufacturers when the data confirms an accident is the fault of driverless technology. Without this, insurance customers and shareholders could end up footing the bill for the failings of other parties. David Powell of the Lloyd’s Market Association (LMA) was recently quoted by Rebecca Hancock.

The Economist resonates what could mid to long-term translate into. “It could take a decade or two before AVs can transport people anywhere, at any time, in any condition – and do so more reliably and safely than human drivers.” It also articulates prerequisites for a car to metamorphose from Level 0 to a fully autonomous vehicle at Level 5. Whereby a Light Detection and Ranging (LIDAR) would make it happen. This would entail - an AV friendly road infrastructure; Vehicle to Vehicle (V2V) and Vehicle to Infrastructure (V2I) wireless networking; a reliable protocol for road sharing with unpredictable human drivers; ability to pin the responsibility once an accident happens: on the AV owner; manufacturer, software supplier. And last but not the least, protecting an AV from cyber attack.

In conclusion:

The motor portfolio will witness interplay of several dominant forces and undercurrents. Anyone managing it ought to reconcile with the fact that stability is the last thing they should expect. The portfolio could churn from a pure motor to elements of casualty class. As the nucleus of auto industry migrates from Detroit to Silicon Valley – metaphorically moving to a tectonically active terrestrial reality – it bodes ongoing disruption. As one of the larger motor market, we need to be prepared for all the potential ramifications. A recent IBM survey reveals that 74% of Indians who responded were in favour of autonomous vehicles. The AVs could arrive on our roads sooner than we might like to believe! Are we ready?

(Published in the IRDAI Journal: September-January, 2018)