TOKYO -- Sompo Holdings will invest 9.8 billion yen ($92 million) for an 18% stake in Japan's largest self-driving systems company, Nagoya-based Tier IV, a deal that the company expects to help it navigate a shrinking domestic auto insurance market and expand into autonomous driving services.
Sompo also intends to use the deal to leverage its proprietary accident data to help catalyze the autonomous driving industry and make it safer.
By taking the 18% stake, Sompo will make Tier IV an equity-method affiliate.
Companies all over the world are racing to develop self-driving technology, which is expected to reduce the number of accidents and help solve labor shortages.
A key to competing against the incipient industry's heavyweights like Waymo, a subsidiary of Alphabet, will be the ability to incorporate safety features.
Tier IV expects to use Sompo's investment to accelerate the development of its technology.
Tier IV was founded in 2015 to develop basic software for autonomous driving systems. It had been a research project at Nagoya University. It calls its operating system Autoware, which has been adopted by hundreds of companies from more than 10 countries.
Self-driving trials are underway in various parts of Japan, nearly half of which use Autoware. Toyota Motor adopted it for self-driving buses to pick up and drop off athletes during the Tokyo Olympics, postponed to next summer.
Sompo, one of Japan's biggest insurance companies, intends to come up with a three-step program to help these trials become safer. In the first stage, Sompo will propose safe routes for the parties conducting these trials that will help them convince municipalities to host the trials.
The insurer will base its route recommendations on accident history data that its auto insurance business accumulates.
The second step is designed to ensure safety while self-driving vehicles are operating. Sompo and Tier IV will jointly develop the remotely operated Connected Support Center, which will be able to halt vehicles and guide passengers to safety should there be trouble.
The final touch will be an auto insurance policy for self-driving vehicles. Sompo will be responsible for setting premiums at levels that will allow it to make payouts and respond to accidents.
It is not rare for insurance companies to participate in the research and development of self-driving technology. But Sompo's decision to bring a systems development company into its group and get involved in the design of safety features is.
Sompo's decision comes with Japan's insurance market expected to further shrink and with auto insurance accounting for nearly 60% of its total insurance sales.
The insurer has more than 300 offices that process customer requests and accident reports.
As self-driving edges onto more roads, the auto insurance business will be challenged since the technology will likely reduce the number of accidents caused by driver lapses. With the Tier IV stake, Sompo has put itself on the road to selling accident prevention systems.
Sompo and Tier IV have been working together since 2017. Last year, Sompo partially invested in Tier IV. Now the parties have formed a capital-business alliance that will allow for the collection and use of a wider range of road data.
Tier IV has been trying to monetize its data business by investing in California-based data analytics giant Palantir Technologies.