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Economic Observer reporter Jiang Xin Citizens lined up to try the new products, netizens discussed them endlessly, financial institutions conducted overnight surveys of companies in the industry chain, and autonomous driving concept stocks performed strongly...

Baidu's autonomous driving travel service platform "LuoBoKuaiPao" has triggered a wave of attention in the market about autonomous driving.

The safety of self-driving vehicles has also attracted attention: Are self-driving vehicles without drivers equipped with insurance? Will there be safety guarantees in the event of an accident?

At a press conference in May, Wang Yunpeng, vice president of Baidu Group and president of the Intelligent Driving Business Group (IDG), said that based on data from the past two years, the actual vehicle accident rate (for autonomous driving) is 1/14 of that of human drivers.

This also means that the unstoppable trend of autonomous driving will bring about a reconstruction of the insurance industry.

Is Carrot Run insured?

The reporter downloaded the Luobo Kuaipao APP and found that Luobo Kuaipao is currently operating in 12 cities including Hefei, Guangzhou, Changsha, Shanghai, Wuhan, Shenzhen, Beijing, Fuzhou, Jiaxing, Yangquan, Chongqing and Chengdu.

Taking Beijing as an example, Luobo Kuaipao operates in four locations including Yizhuang Economic Development Zone and Shougang Park. The reporter took a trial ride of 2 kilometers at the Shougang Park operation point and was charged 30 yuan.

Self-driving cars are no longer a "concept" but are becoming a reality. However, there is a gap in the protection of self-driving cars.

According to Chen Hui, director of the China Actuarial Science and Technology Laboratory of the Central University of Finance and Economics, at present, no single insurance product can meet the protection needs of intelligent connected vehicles based on their technological environment and differentiated scenarios. At this stage, intelligent connected vehicles tested on the road are mostly insured with a combination of "auto insurance + property insurance + liability insurance".

According to the "Implementation Guidelines for the Access and Road Traffic Pilot of Intelligent Connected Vehicles (Trial)" (hereinafter referred to as the "Implementation Guidelines") jointly issued by the Ministry of Industry and Information Technology and other four departments in November 2023, if a vehicle has a road traffic accident when the autonomous driving system function is not activated, it shall bear responsibility in accordance with the current regulations; if a violation or accident occurs when the autonomous driving system is activated, the pilot automobile manufacturer and the pilot user must provide certification materials to the relevant departments within the specified time. If the materials are not provided as required, they must bear the responsibility for the accident. The "Implementation Guidelines" propose that the pilot user should purchase compulsory motor vehicle traffic accident liability insurance and traffic accident liability insurance of no less than RMB 5 million per vehicle for the vehicle to be allowed on the road, on the premise of ensuring road traffic safety.

The Economic Observer learned from a property insurance practitioner that the pilot vehicles of LuoBoKuaiPao are currently insured with compulsory traffic insurance and traffic accident liability insurance according to the existing auto insurance terms, and the insured person enters the information of the safety officer equipped in each vehicle. Baidu has also publicly stated that the company has purchased a high insurance amount of 5 million for each driverless car and its passengers.

In Chen Hui's view, even if a combination plan is adopted for insurance, driverless vehicles still have compliance issues such as the insurance of vehicle-related products in the form of non-automotive insurance, differences in the applicable standards and compensation basis of various insurance types, and issues such as the division of responsibilities and the statute of limitations for compensation. Article 76 of the Road Traffic Safety Law shows that the traditional motor vehicle traffic accident liability is essentially a human responsibility. The purpose of establishing compulsory traffic insurance and commercial insurance is to replace the driver to bear the responsibility, and the risk of the car itself is not within the scope of insurance coverage. If in the case of fully autonomous driving, the accident is caused by the autonomous driving system itself, and the people on the car are not at fault for the occurrence of the accident, so the claims terms of traditional insurance products may not be applicable. Since motor vehicle traffic accident liability and product liability belong to two different types of liability, case handling and victim rights protection are more complicated.

Call for exclusive insurance for autonomous driving

Chen Donghui, former president of Swiss Re China, told the Economic Observer that the current insurance scheme for autonomous vehicles is not a long-term solution. Autonomous taxis have operating platforms, and once an accident occurs, the platform should be the main body of liability.

The Wuhan Regulations on Promoting the Development of Intelligent Connected Vehicles (Draft) issued in April this year clearly stated that intelligent connected vehicles should be insured with compulsory motor vehicle traffic accident liability insurance and commercial insurance in accordance with national regulations. When using intelligent connected vehicles for taxi passenger transport (online car-hailing) and road passenger transport, carrier liability insurance should also be purchased in accordance with relevant national regulations.

In Chen Donghui's view, on the technical level, in addition to taxis, operational vehicles such as rental vehicles and long-distance freight vehicles also meet the conditions for self-driving vehicles to partially replace existing vehicles. The insurance industry needs to launch exclusive insurance products suitable for operating driverless cars.

Chen Donghui pointed out that the real autonomous driving of family cars may be a slow process, as different people have different acceptance levels of intelligent driving and different attitudes towards it. In addition, some people like the feeling of driving and regard cars as a continuation of family space, so they are less accepting of autonomous driving, but commercial vehicles do not have these problems.

According to the reporter, as early as last year, the regulator organized several major insurance companies to hold a seminar in Shanghai on driverless scenarios to discuss the insured entity, insurance liability, insurance pricing and clause form. The insurance industry also has a working group conducting research in this area, and the launch of driverless insurance products may not be too long.

Autonomous driving technology is divided into six levels from L0 to L5 according to different degrees of automation. Chen Hui also believes that as the commercialization of autonomous driving vehicles is put on the agenda, some vehicles equipped with L2 autonomous driving have been mass-produced in China, and there are also production schedules for L3 and even L4 autonomous driving vehicles. Therefore, it is very important to launch insurance products that can distinguish different levels of autonomous driving.

In Chen Hui's view, the market generally believes that L3 automation is the critical point between advanced driver assistance systems (ADAS) and intelligent connected vehicles (CAV). Autonomous driving above this level faces a series of risks, such as loss of the vehicle itself (including sensors and related equipment on the vehicle), economic damage or personal injury to the passengers and third-party personnel and property, so a separate product form is needed to meet the testing and commercial needs of autonomous driving vehicles.

How to restructure auto insurance in the future

At the 2024 Berkshire Hathaway Annual Shareholders Meeting held in May,BuffettI was asked about autonomous driving: If Elon MuskTeslaFounder and CEO) achieves his goal of fully autonomous driving, what are the potential financial implications for Berkshire’s insurance companies?

This question also challenges practitioners in the auto insurance industry. As autonomous driving algorithms continue to improve, the auto insurance accident rate will continue to decrease. Will the auto insurance business still exist?

According to the national motor vehicle collision causes released by the Ministry of Public Security, vehicle collisions are affected by drivers, vehicles, environment and unknown factors, of which driver factors account for as high as 94%. Compared with traditional cars, self-driving cars can eliminate the interference and disruption of normal traffic order by human factors to the greatest extent, thereby significantly reducing road traffic accidents.

Regarding the safety of driverless cars, Wang Yunpeng also said that the autonomous driving based on large model technology can be more than 10 times safer than human drivers, and the safety level is close to that of the domestic large aircraft C919. As of April this year, Baidu Apollo's autonomous driving mileage has exceeded 100 million kilometers, but there has never been a major accident with casualties.

According to data from China Reinsurance P&C, the auto insurance claim rate in 2022 was 16.2% (number of claims/auto insurance policyholders). KPMG's forecast model shows that if autonomous driving technology develops as expected, from 2025 to 2040, autonomous vehicles will gradually replace existing vehicles, and the vehicle accident rate will be reduced by 80%, with the average accident rate per vehicle falling to 0.9% in 2040. Chen Hui said that, obviously, as autonomous driving technology matures, traditional auto insurance premiums will gradually decline.

Although it can avoid many traffic accidents caused by human factors, it does not mean that autonomous driving technology is completely risk-free. In the interview, Chen Donghui expressed his concerns: "The intervention and control of the algorithm on the car is not as flexible and adaptable as humans. If there is an extremely low probability event, that is, a situation that the algorithm did not predict, extreme situations may occur. The current 5 million yuan guarantee is not enough. With the development of autonomous driving, the high-frequency, low-loss risk characteristics of auto insurance will change to low-frequency, high-loss risk characteristics."

Autonomous driving technology itself also brings new risk protection opportunities. Chen Hui believes that under autonomous driving technology, the main risks faced by cars will be transformed into network security risks, software algorithm risks and public infrastructure risks. In addition, there are also facility risks (including fire risks, electromagnetic radiation hazards, etc.), moral risks and reputation risks. As risks change, the responsible parties and scope of liability for autonomous driving car risks will change, and the corresponding claims objects, liability distribution, rate setting, insurance terms, etc. will also change.

For the insurance industry, the challenge of fully autonomous driving has not yet arrived. Judging from the current level of development of autonomous driving technology, cars will still be mainly driven by people for some time to come, and the existing insurance system can still play an important role. A small number of accidents caused by autonomous driving systems can be paid by insurance companies first and then sought from manufacturers or platforms.

The operating conditions of new energy vehicle insurance can also illustrate this problem: currently most small and medium-sized property and casualty insurance companies remain cautious about new energy vehicle insurance business. While the leading property and casualty insurance companies are experiencing an increase in premium scale, they are also facing a profitability test with high accident rates and high claims ratios.

It is foreseeable that as autonomous driving technology continues to improve, auto insurance premiums will continue to rise; when the technology is mature enough and the replacement rate is high enough, the premiums of traditional auto insurance will no longer rise, and the new insurance product revenue brought by autonomous vehicles will be needed to hedge. For property and casualty insurance companies, this is also a precious time window to restructure the auto insurance business.