One of the big questions about the impending self-driving car revolution is how it will affect auto insurance. In this article, we'll go over the complexities the insurance industry will have to deal with, and what this new technology will mean for policyholders.
Industry Disruption Raises Serious Questions for Insurers
In recent years, tech giants and scrappy startups alike have disrupted countless industries. Uber's disruption of taxis and Airbnb's radical change to the hospitality industry are some of the most prominent examples but they're far from alone.
While the everyone's focus is on the industries that are shaken up and the new level of convenience and affordability for consumers, the insurance industry is hard at work in the background, forced to adapt quickly to the new paradigm.
When private passenger vehicles are used part of the time to ferry passengers for a fee, does the traditional insurance vehicle rating system work? If not, how will it need to change (find out whether your car is still considered a personal passenger vehicle if you sometimes use it for work)?
When private homes are rented out as accommodations, how does homeowners insurance address this? How does it insure a space that cannot really be considered a hotel but also can no longer simply be deemed a regular dwelling?
It's too late for insurers to speculate. Ride-sharing apps, online brokers, and countless other new services are already widely used. Self-driving cars, however, are not yet commercially available, so insurers have some time to plan a response and modify their offerings accordingly. But doing so will require them to answer some difficult and complex questions.
Insurance Issues Raised by Self-Driving Cars
While there are different levels of automation, let's keep things a bit simple by focusing on fully autonomous vehicles. These are the ones in which the driver has essentially no control over the vehicle while it is in operation. In other words, safe driving requires no human input whatsoever.
Here are some of the major questions auto insurance providers will have to answer by the time fully automated cars hit the road.
1. Who Will Have to Purchase the Insurance?
Naturally, it seems like anyone who might have a hand in causing an accident should purchase auto insurance (learn The First Steps You Need to Take After Wrecking Your Car). So far, that has made things straightforward: only the drivers need to be insured.
But what about fully autonomous cars? Here, things get tricky. If the car is doing the driving, then it's the manufacturer who will be held liable because it is the car's programming that caused the accident. And if manufacturers need to buy insurance for every vehicle they put on the market, they will likely pass that cost on to the consumer, resulting in a higher price tag on self-driving vehicles.
We have yet to see exactly what kind of laws will govern autonomous vehicles. It's possible that even fully autonomous vehicles will require a licensed, human driver in the front seat and ready to take the wheel if needed. Some vehicles may also only be partially autonomous and require human input to navigate difficult terrain or certain weather conditions. In either case, both the driver and the manufacturer will need to carry insurance. That shared coverage is likely to result in lower premiums for car owners, but it's not yet clear how much of the insurance burden will be placed on each party.
This, however, might raise another problem if a self-driving car is involved in an accident. No insurance company wants to pay more for a claim than is absolutely necessary. If the driver and the manufacturer have auto insurance from different companies, both companies will want to investigate and determine whether the driver or the artificial intelligence software was at fault and, hence, which insurer will have to pay the claim. This is likely to result in numerous court cases as insurance companies battle each other over liability, leading to higher insurance costs to make up for the litigation expenses.
2. How Will Self-Driving Car Owners Purchase Auto Insurance?
Self-driving technologies, and the companies pioneering them, have already changed the way some people purchase insurance. In certain parts of Asia, car companies like Tesla are trying to streamline the process by selling insurance along with vehicles as part of a complete package. Volvo has also taken the radical step of announcing that it will effectively self-insure by accepting responsibility and paying out of pocket for any accident that happens while their vehicles are in autonomous driving mode.
Since at least some of the liability for accidents caused by self-driving cars lie with the manufacturer, it is in their interest to find ways to manage and minimize insurance issues. It's too soon to tell whether manufacturers will follow Volvo's bold move. But to reduce complexity, we might soon be buying insurance straight from the car manufacturer as an optional extra to be checked off alongside leather seats and an upgraded sound system (and consider these other 5 Ways New Technology Will Change the Way You Buy Insurance).
3. Will Drivers Still Need Insurance? How Much Will It Cost?
If the claims about the safety of autonomous vehicles turns out to be more than just hype, riding around in a self-driving car could be such a low-risk activity that insurance might not even be necessary. If self-driving vehicles are programmed to drive cautiously, defensively, and are equipped to detect objects (including pedestrians and other vehicles) without any of the blind spots that obstruct the view of human drivers, we could soon see an incredibly low accident rate.
Moreover, the self-driving artificial intelligence could communicate with all nearby autonomous vehicles to signal not only their presence but their next moves, so that other nearby vehicles will know when the car will switch lanes or slow down in response to road conditions. If the technology is sophisticated enough, it's not unreasonable to expect that self-driving cars will never experience collisions with other self-driving cars.
Self-driving car owners might still want to insure their vehicles. After all, not only are they big purchases and no amount of safe driving will make them immune to theft or vandalism (for advice on reducing your risk, see 9 Ways to Keep Your Car From Being Stolen). With the reduced risk of accidents, owners who want to purchase insurance coverage for their vehicles will be able to do so at a much lower rate. Simply put: fewer claims translates into lower premiums.
In fact, we already see this increased affordability in non-autonomous vehicles. You can enjoy discounts on your auto insurance if you drive a car that is equipped with semi-automatic functions designed to enhance safety, like automatic braking systems and lane departure warning systems (to learn about similar developments in home insurance, see How Smart Devices Can Protect Your Home and Help You Save on Insurance).
So, What Does All This Mean for Consumers?
It's hard to know for sure, but as long as self-driving cars are still equipped with steering wheels, we are likely to need a system of parallel insurance where both the driver and manufacturer carry policies to cover their own liability. While this might lead to more expensive vehicles, the good news is that consumers will likely end up with cheaper insurance premiums for driving much safer vehicles.
The most radical changes to the auto insurance industry will come further into the future. When self-driving technology advance and the laws regulating autonomous vehicles adapt to this reality, there may no longer be a need for any human input whatsoever. And if you're not in control of the car, you aren't responsible for any accidents, which will drastically reduce or even eliminate your auto insurance needs.
But that sort of thing is still a long way off. Until fully automated cars go mainstream and regulatory approval catches up, keep diligently paying your insurance premiums – and start saving so you're ready when self-driving cars hit the market.