Future of insurers depends on approach to driverless cars, Central Bank says

The future of general insurance firms will depend on how they handle the advent of driverless cars and other technology developments, deputy Central Bank governor Ed Sibley has warned.

"If one looks at the motor industry, some of the world's largest technology companies and the world's leading car manufacturers are all investing heavily in the development of autonomous systems that will change the very nature of driving and, therefore, of motor insurance," Mr Sibley said at an event hosted by Insurance Ireland for members on Tuesday.

The introduction of such cars will raise questions around who will be insured, who will own data generated by vehicles, how data will be shared and can the owner of the information better understand the risk profile of a vehicle and be able to offer more tailored coverage, he said.

“Future viability is dependent on answering these questions and the successful adaptation of business models to meet these challenges,” Mr Sibley added.

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Laws

Audi already offers a level of self-driving technology on its new flagship A8 luxury saloon and other brands are following suit. However, the technology cannot be deployed on public roads until changes are made to EU and national laws.

In an interview with The Irish Times earlier this year, Volvo chief executive Hakan Samuelsson explained that when a car is operating autonomously, the liability will rest with the manufacturer.

“Either it’s a very normal car and you drive it, you’re responsible, or you are driven by the car and liability will have to be on the car producer. We have to take that.

“I think it’s correct you have to do that, because if you are not ready to take responsibility for the technology then you shouldn’t be in this game,” said Mr Samuelsson, who has promised Volvo will offer self-driving features as an option on its cars from 2021.

Convergence

Meanwhile, Mr Sibley called for greater convergence across the EU in relation to recovery and resolution of ailing insurers.

“The Central Bank does not operate a zero failure regime. All firms can face difficulty. Where failure does occur, it should happen in an orderly manner without significant financial stability or consumer protection issues,” he said.

“An appropriate framework is necessary to ensure failure is managed in a manner that minimises the impacts of financial stability, policyholders and beneficiaries in both home and host member states.”

The European Insurance and Occupational Pensions Authority (EIOPA) called during the summer to be given the authority to act more intrusively when it detected signals of risks of cross-border failures. However, the proposal does not go so far as to seek to harmonise insurance guarantee schemes or funding of the cost of winding up ailing insurers.

EIOPA will start to assess the need for harmonisation of guarantee schemes next year, Mr Sibley noted, adding that he is “supportive of these efforts”.

Malta-based Setanta, which wrote business in Ireland only, collapsed in 2014, leaving a bill of €90 million of outstanding claims. Uncertainty over who would carry the tab was resolved only in May when the Supreme Court rejected a lower court’s ruling last year that the Motor Insurers’ Bureau of Ireland carry the cost. The Supreme Court ruled that the State’s Insurance Compensation Fund pick up the bill, capped at 65 per cent of the outstanding claims.

Mr Sibley also highlighted concerns in his speech about how insurers move risk off their balance sheets through reinsurance deals with other firms, which serves to lower the amount of capital they need to hold on their balance sheets to withstand surprise losses.

Legitimate

“This is clearly a legitimate and common risk management technique. However, the elevated use of reinsurance and associated capital relief and counterparty exposure risk raises questions regarding the true financial strength of a firm,” he said.

“Unfortunately, we are also dealing with isolated examples of deficiencies in the calculation of technical provisions, which is clearly of critical importance to the financial strength of an insurance firm.”