Driverless Cars: Big Insurance Implications

Updated: Jul 10, 2019

Driverless cars will have a huge impact on how we experience and move around the world. By 2035, an estimated 23 million autonomous cars will be driving around the United States, representing 10% of all cars. While consumers are wary of chauffeurs powered by artificial-intelligence, those in insurance are preparing for giant shifts caused by these new technologies.

Autonomous driving will create unique legal challenges as their adoption grows. While driverless cars have the potential to improve automotive safety (over 90% of accidents are caused by driver error), governments, regulators, and trade groups will need to sort through legal complexities not seen with traditional vehicles.

While many have discussed the economic and social impacts of driverless cars, few have discussed the legal complexities they pose.

Determining fault in autonomous vehicle accidents

A huge factor in car insurance claims is who caused the collision. In most cases, whoever caused the crash is responsible for paying for damages. With driverless cars, there is no human “driver.” Instead, a combination of hardware and software make the decisions, and could be “at fault” for an accident. As such, companies behind these vehicles could be held liable for damages, especially as new technologies remain imperfect.

In addition, insurance companies will have much more information on vehicle crashes involving driverless cars. Because autonomous cars require such a high volume of vehicle and environmental data, insurance and legal professionals will have a much better understanding of what actually happened during a car accident. In the same way a dashcam can provide judges and juries additional context, this new information will provide additional insight during cases.

While we have not reached fully-autonomous vehicles, governments are starting to lay the groundwork. Currently, Iowa legislation identifies the “owner” of any autonomous vehicle as legally liable. Insurance companies, vehicle manufacturers, consumer advocates, and trade groups are already trying to influence how liability for autonomous vehicle accidents plays out.

Vehicle safety and insurance premiums

Ultimately driverless cars could significantly decrease insurance premiums for consumers. While insurance premiums are based on a number of different factors, one significant consideration is the vehicle's safety ratings and features. All else being equal, safer cars have lower premiums.

With a suite of sensors, cameras, and software, driverless cars have the potential to dramatically improve safety and decrease premiums. If driverless cars can eliminate a small fraction of driver errors, it would decrease car accidents overnight. Hopefully, this leads to a huge decrease in accidents, insurance claims, and lawsuits.

This could also create significant cost savings for insurance companies, as they'll need fewer claims adjusters and lawyers to protect themselves. Similarly, there will be a huge decrease in demand for attorneys that represent people in insurance claims like myself. Insurance carrier may not initially pass these savings on to consumers, but in an increasingly price-competitive industry, it is likely that premiums will decrease.

Even so, autonomous cars may increase premiums for human drivers. When driverless cars become safer than their human alternatives, insurance companies may make human drivers pay more to retain the ability to driver their own car. In the same way that a car without airbags or safety belts would have much higher premiums, human driven cars may experience the same effect.

Vehicle price and repair costs

Another factor for insurance premiums is how expensive it is to fix your vehicle. Simply put, expensive vehicles cost more to repair and insure. As such, driverless cars will likely cost significantly more to repair. With their sensor arrays and cameras, even a fender bender might require expensive parts and technological know-how.

One thing we know for sure is driverless cars will not be cheap. Luxury cars like Tesla, Audi, Volvo, and Cadillac are the only brands to offer consumers the highest level of driverless technology right now. For consumers, luxury vehicles will continue to be the first vehicles that integrate driverless technologies. As vehicles gain more advanced driverless features, their cost and price are likely to increase.

Car ownership

While driverless cars will not be cheap, transportation as a service may decrease car ownership costs. With vehicle ownership, consumers gain the flexibility to drive to any destination on their own schedule, but are forced to pay for insurance, gas, and maintenance. Ride-hailing services like Uber and Lyft have changed this for many, particularly in urban areas; getting customized transportation has never been more convenient or inexpensive.

Autonomous vehicles may provide a less expensive alternative to car ownership in coming years by integrating with the ride hailing business. Uber drivers could be replaced by autonomous chauffeurs, decreasing the cost of customized transportation even further. Why own a car when Uber will pick you up and drop you off for less than you could do it yourself? Driverless cars may make consumer car ownership a thing of the past, eliminating your insurance bill completely.

My crystal ball for driverless cars

Here are my predictions for the impact of driverless cars on insurance:

- Autonomous features like lane-keep assist and collision avoidance will become standard for even entry level vehicles, improving safety for all motorists.

- In the near-term, driverless technology will continue to be available on luxury cars only, as the technology remains cost-prohibitive.

- In the long-term, driverless cars will usher in lower premiums, mainly due to the elimination of human-error.

- Ride-hailing services with driverless technology will replace many vehicles, prompting consumers to ditch their cars and insurance premiums altogether.

The future of driverless cars is uncertain, but the potential to decrease car accidents and related injuries is exciting. Obviously, there is still much work to be done on the technology itself and related areas like regulation and insurance.

After seeing how car accidents and resulting injuries can dramatically alter lives, I'm rooting for any technology that makes our roads safer.

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