Japan: Autonomous Driving In Japan – Part 4: Insurance

It was announced in early November 2020 that Honda had become the world's first automaker to receive a national certification for Level 3 ('eyes-off') autonomous driving technology in Japan. The new technology is no longer a dream and Honda plans to start selling the Level 3 vehicles in March 2021.

Insurance companies will need to be prepared to adapt quickly to a new landscape shaped by novel risk calculations and liabilities. If the market for 'driverless' technology expands as predicted, insurers will be faced with the difficult task of establishing their role in a world where there is hope that human error can be eradicated from driving entirely.

As things stand, while insurance policies will need a radical shake-up, there are no scheduled amendments to the relevant Japanese insurance laws – implying that no large-scale overhauls may be needed. We set out below a very brief summary of the existing laws for those who are not familiar with the Japanese automotive insurance landscape.

Mandatory insurance under ASCAA vs voluntary insurance

Automobile insurance in Japan is operated under two different systems: compulsory automobile liability insurance (CALI) and voluntary insurance.

CALI is third-party liability insurance required under the Act on Securing Compensation for Automobile Accidents (ASCAA), covering the insured's semi-strict liability towards victims under the ASCAA. As discussed in part 3 of our blog series, the semi-strict liability under the ACSAA covers personal injury and death of victims only, and does not extend to property damage. Therefore, the coverage of CALI is limited to liabilities for personal injury and death of victims. The coverage cap depends on the seriousness of damage (eg ¥40m for death).

Voluntary insurance is typically structured as a mixture of third-party liability insurance and first-party damage insurance. The liability insurance portion is designed to cover liabilities that are not covered by CALI, such as: 

• liabilities under the ASCAA for personal injury and death that exceed the aforementioned caps; and 
• general tort liabilities for personal injury, death and, importantly, property damage of victims. 

The damage insurance portion is designed to cover the insured's own damage to his/her property. Around 75 per cent of vehicles in Japan are insured under voluntary insurance. (For more details, see this report (in Japanese)).

We continue to monitor legal developments. However, there have been no recent announcements regarding any proposed changes to the relevant legislation.

Recent activities of Japanese insurance companies

Japanese insurance companies are already beginning to adapt in advance of the upcoming release of Level 3 autonomous vehicles. We set out below three recent examples.

1. On 31 July 2020, Aioi Nissay Dowa Insurance announced a new product whereby certain distancing and driving characteristics of autonomous vehicles (eg sudden braking or acceleration), which would usually trigger increased insurance premiums, would result in incremental premia as long as the events arose during the autonomous driving mode. The policy appears to reflect the opinion that autonomous driving is safer than normal driving.
2. On 27 August 2020, Japanese insurance holdings company Sompo Holdings announced its acquisition of an 18 per cent stake in Japan's largest self-driving systems company, Tier IV, for $92m.
3. On 11 November 2020, it was reported that, from 1 April 2021, Tokio Marine & Nichido Fire Insurance will implement a new policy where accidents occurring during autonomous driving would generally not increase insurance premiums. No details of the policy are available as yet. Accordingly, it is to be confirmed if and to what extent failure to update software or to take control of the vehicle when required would trigger an increase in the premium or lead to a loss of coverage (see part 3 of our blog series, where we discuss these events in the context of liabilities).

What's next? 

We predict that there will be closer collaboration between insurance companies and original equipment manufacturers (OEMs) as autonomous driving technology develops. 

So far, there have been no signs of insurers offering novel products to OEMs and suppliers of autonomous driving technology to substitute the traditional business model.  It is safe to assume, however, that OEMs and suppliers are reviewing and, where necessary, updating their product liability/cyber-security insurance coverage carefully to ensure that their potential liability arising from defective autonomous driving/cyber-security incidents are sufficiently covered.

There may be momentum for more M&A, similar to the Sompo Holdings transaction mentioned above. We suspect that not only the vehicle technology, but also the ways in which claims will be made, will be drastically altered. 

In today's modern society, where consumers place heavy reliance on instantaneous results, it is easy to imagine a future where claims will be processed (perhaps by the vehicles' internal artificial intelligence) as soon as they are made. If there are fewer accidents and autonomous vehicle policies have relatively low premiums, the insurers that have skin in the game will have a significant market-leader/survivor advantage in an increasingly competitive and potentially less profitable market.

If the market for 'driverless' technology expands as predicted, insurers will be faced with the difficult task of establishing their role in a world where there is hope that human error can be eradicated from driving entirely.