No Longer Science Fiction: The Risks and Rewards of Autonomous Vehicles FOR010

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2 No Longer Science Fiction: The Risks and Rewards of Autonomous Vehicles FOR010 Speakers: Mike Stankard, Managing Director and Automotive Industry Practice Leader, Aon Alan Gier, Global Director, Risk Management & Insurance, General Motors

3 Learning Objectives At the end of this session, you will: Learning Objective 1 Vision of the future and societal implications from the emergence of selfdriving vehicles. Learning Objective 2 Phases of transition and realistic timeline for adaptation to full autonomy Learning Objective 3 Understanding the implications on risk management from the perspective of auto manufacturers, parts suppliers, government, technology providers, consumers and insurance companies. Learning Objective 4 Understanding what OEMs are doing today to prepare for the future.

4 Vision of the Future Benefits to Society SECTION 1 4

5 Vision of the Future Vehicles that talk (and listen) to each other Vehicles that talk to the infrastructure Driver decision making replaced by far more efficient and accurate technology Traffic that moves x times more efficient than today Vehicles that park themselves in remote parking structures or return home

6 Vision of the Future No need for traffic lights (maybe) No need for drivers licenses Reading the paper on the way to work Text and phone all you want Sharing a vehicle with your neighbor or maybe a stranger Cars that refuel themselves Not having to worry about teen drivers, drunk drivers, distracted drivers and just plain bad drivers Vehicle crashes will be eliminated GM Video

7 Vision of the Future

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9 Safety Why Do We Want to Go There? 93% of accidents are caused by driver error Improve Quality of Life Congestion costs $100B per year (AAA) Demographic Shift The baby boomers need convenience and mobility We are losing the battle to control driver distraction Because we can Seemingly unlimited technology advances Google PR Machine Modern day moon landing 9

10 Accidents A Few Facts on Safety 11 Million accidents annually in USA 35,000 annual deaths 2.25 Million annual injuries 93% of accidents are caused by driver error Cost of Accidents (from AAA) $300 Billion annually ($1500 per person) Trends Rate per 100M VMD dropped from 7 to 1 over past 40 years Deaths up 9% in M accidents and 18% of Deaths caused by driver distraction 10

11 Benefits to Society Safety fewer accidents and deaths Reduced need for healthcare Reduced family related worry/anxiety Teenage driving Where have you been? Transportation for elderly and disabled The other guy drunks and just bad drivers Economic boost for food/beverage and entertainment business The perfect designated driver 11

12 Benefits to Society Reduced commuting time and more productive transportation experience Less stress The end of road rage? Redeploy the time and effort spent on driving responsibilities Boost in worker productivity and GNP? USA vs. ROW How will we spend this extra time? 10-hour days or 4-day work weeks 12

13 Benefits to Society Trucking industry benefits: Safer roadways for everyone Dedicated lanes for driverless trucks? Caravanning of trucks No restrictions on driving hours Cost savings in low margin business Savings passed on to consumers 13

14 What Will They Look Like?

15 What Will They Look Like?

16 Commercial and Military Applications

17 Transitional Issues and Realistic Timeline SECTION 2 17

18 NHTSA Definition of Phases Level 0 No Automation Driver in complete control Level 1 Function Specific Automation Early Power steering and power brakes Later - ABS and Electronic Stability Control Level 2 Combined Function Automation Technologies that work together and interact with surroundings Adaptive cruise control, lane centering, active braking systems, blind spot alert

19 NHTSA Definition of Phases Level 3 Limited Self-Driving Automation Driver can cede control of all safety-critical functions under normal traffic and driving conditions. Driver must be alert and prepared to take back control as necessary. Level 4 Full Self-Driving Automation No steering wheel necessary Driver programs the trip and vehicle completes on its own.

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21 So when can we get started? Major issues (KPMG/CAR Study) Convergence of technology Cooperation between federal, state and local government, automakers and parts suppliers and related businesses (e.g., trucking) Adoption Slow transition to new vehicles and infrastructure Old vehicles will be retrofitted with transmission devices Legislation 5 states have passed law, 2 more are considering it. Legal Who is going to be responsible? How fast can we make legislative change ( Federal, State, Local) The alternative fuel war needs to play out Will electricity win? How and when will vehicles be refueled? 21

22 So when can we get started? 22

23 So when can we get started?

24 We are losing ARA Pace of Adaptation America s romance with the automobile (Dan Neil WSJ) Younger generation is more interested in technology than cars and increasingly view the automobile as a negative thing e.g., pollution Car ownership is not as important Older generation want mobility, comfort and safety don t care about performance Interior and Exterior styling remain important Performance minded consumers will be hold-outs 24

25 Realistic Timeline and Challenges Technology will be ready before we are Level 4 will be technologically feasible within 5 years Average vehicle age today is 11 years People are not going to throw away perfectly good cars Will Level 4 vehicles be affordable to all income levels? Level 3 has lots of challenges driver instruction and responsibility Will it hold up or speed up the time to Level 4? Legal/Regulatory time lag - 10 years Full Consumer Adaptation and affordability years Different Cultures/Countries May Transition sooner 25

26 Risk Management Implications SECTION 3 26

27 OEM s and Auto Component Manufacturers Implications Mass adoption not likely to occur until: vehicles are secure from cyber attack uncertainty about liability resolved social resistance overcome high precision mapping completed (BCG PR 1/8/15) Consumers cited the following as the most important reasons for buying partially or fully self-driving vehicles: lower insurance and fuel costs increased safety the ability to multi-task or be entertained while in the vehicle Manufacturer liability is likely to increase while personal liability is likely to decrease Insurance issues become complicated if a vehicle and a driver share operating responsibilities (Level 3)

28 OEM s and Auto Component Manufacturers Implications Increasing application of safety technologies mean fewer accidents, fewer repairs and decreased demand for aftersales products Inconsistent state regulations pose a risk to determining operation and liability responsibilities In California, insurers are pushing for rules making clear that manufacturers are responsible for damages and injuries under a law allowing vehicles to be tested on public roads Shift in Marketing and Advertising Will Exterior Styling be as important? Increased focus on interior environment Will performance (power and handling) continue to be a factor?

29 Risk Management - Implications Transferring Risk from Human Driver to Mechanical vehicle Product liability Hardware and Software malfunction - Manufacturer, Supplier and Third Party Converters Driver Error claims become product liability Failure to Warn- will require driver instruction Residual Driver Error Auto liability Driver can interfere with vehicle operation Driver may over rely on autonomous vehicle operation Reputational Risk D & O/Fiduciary When vehicle is operated by technology accidents may be blamed on manufacturers Computer Liability Cyber Liability Computerization of systems may lead to malicious interference of a vehicle operation Customer Connectivity may lead to breach of personal data

30 Insurance Market Place - Implications Product Liability OEMs Expect to see fewer net claims Responsibility Shifting Away from Driver Supplier Impact? D & O Will the Board be required to provide oversight on the pace and adaption of various technologies? Cyber Liability Will BI and PD type claims be added to cyber policies? Can black box data be used for rating or other purposes? Insurance Market Disruption Recent securities filings by insurers have warned that driverless cars could materially alter the way automobile insurance is marketed, priced and underwritten

31 Consumer and Societal Implications Personal Auto Insurance Will there be a need for traditional auto insurance? How do you rate a driver when autonomous vehicle is involved? Will personal lines carriers subrogate against OEM? Drivers licenses Will we need them? Fewer Accidents mean: Reduced need for first responders Lower emergency room traffic. Lower health care cost Speeding tickets and parking fines Lower traffic court dockets Reduced municipal revenues

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33 What is the Industry Doing to Prepare? SECTION 4 33

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35 What are OEMs doing to prepare? Traditional OEMs All have Some Level of Development Activity GM : 2017 Cadillac models will have ability to communicate with other cars, traffic lights and infrastructure? Mercedes-Benz : F015 Luxury in Motion Project Technology Standards/Sharing? Collaborating on legal issues? Others Google? Will they be an OEM or partner with one? Maybe just a technology enhancer? Apple Car? Tesla It will be Illegal to drive your own car some day?

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38 Questions?