Automated Vehicles and Insurance Companies

B.C. law perspective

Automated Vehicles and Insurance Companies

The rapid advancement of artificial intelligence has paved the way for the imminent dominance of automated vehicles (AVs) on our roads. While this technological evolution promises to make life easier, it also raises critical considerations for the insurance industry, prompting a re-evaluation of current vehicle insurance and liability frameworks.

AVs are generally safer than the conventional vehicles because of their advanced precautionary systems against any crashes or accidents. Given the fact that the risk associated with insurable interest plays a key role in determining premium rates, the insurance companies’ income from the premiums would significantly decline by the increase in the number of AVs. Additionally, the emergence of AVs renders traditional driver-based premium calculations obsolete, further complicating the determination of insurance rates.

Despite their enhanced safety measures, AVs introduce a new set of risks. Malfunctions in their highly complex performance could turn AVs into potential hazards on the roads. AVs are a type of product produced by manufacturers and distributed into market for consumers. Should any damages occur due to the defects of product, the manufacturer might be liable under product liability doctrine. That would expose the manufacturers to more claims because they, in fact, diminish the driver’s role in AVs and take charge of all activities related to driving. A shift in attributing car accidents to product defects instead of drivers would redirect the demand for vehicle insurance from owners and drivers to car manufacturers.

Beyond the financial implications, legal challenges emerge in the event of accidents involving AVs. Current liability and insurance regime is generally founded on the presumption that there is always someone who drives the car. AVs, however, eliminate this presumption as they are basically driverless. In the event of an accident, it would be very difficult to attribute any fault to the person in the driver’s seat when automated driving functions are active.

The current no-fault auto insurance scheme in B.C. has done away with the fault analysis for paying compensation in many instances of car collisions — where ICBC provides Enhanced Care Benefits notwithstanding the parties’ degree of fault in the accident. However, there are certain instances of car crashes ineligible for Enhanced Care Benefits in which the driver’s fault is determinative for providing insurance coverage. Given the elimination of the role of drivers in AVs, it is unclear under the current liability and vehicle insurance regime how the insurer can determine if a specific accident involving AVs is ineligible for Enhanced Care Benefits.

More importantly, the vehicle insurance coverage in B.C. only applies to the accidents arising out of the “use” or “operation” of a vehicle. The courts have interpreted the terms “use” and “operation” in a way that they require minimum human involvement in driving. The mere manipulation of some parts of the vehicle or simply being a front seat passenger would not amount to “use” or “operation” of the vehicle. It follows that the extent to which the current vehicle insurance coverage extends to car accidents involving a vehicle in autonomous mode is uncertain.

The inherent challenges of AVs for the vehicle insurance and liability regime led the Insurance Bureau of Canada (IBC) to recommend a legislative overhaul. In its 2018 position paper, Auto Insurance for Automated Vehicle Prepared for the Future of Mobility, IBC essentially recommends a single insurance policy approach, which requires insurers to compensate victims of AV-related accidents regardless of the responsibility of the person in the AV or the automated technology. IBC further proposes that insurers should have the ability to recover liability payments from vehicle manufacturers or technology providers. Those recommendations are yet to become law in B.C., leaving the deployment of AVs on the streets associated with the risk of inadequate insurance coverage in the event of an accident.