Insurance and Self-Driving Cars

Self-driving, or autonomous, cars will completely change the automobile insurance industry as we know it today. This change, though, will likely take many years to fully come to fruition.

If driverless cars truly result in the increased safety that is predicted, reducing accidents by 90%, the type of insurance needed will drastically change. Premiums for liability insurance on Level 3 automation vehicles, where the car is basically self-driving but requires a human to be present and able to take control, should be significantly less than current levels, as accidents will be far less likely to occur. One estimate is that insurance premiums in 2035 will be 20 percent less than they were in 2015.  Further, when cars become truly driverless (Level 4 automation), individual drivers will likely not even need liability insurance. Instead, liability will probably be shifted to car manufacturers and programmers, or potentially car providers (such as car service companies), and it is difficult to predict what an insurance set-up will look like. Will car manufacturers carry liability insurance? Will they choose to self-insure? Some policy advocates have suggested a no-fault insurance system for self-driving cars, but it is unclear whether such an idea will gain any real traction.

For individuals that choose to own an autonomous car, the car would still need to be insured for loss. Cars could still be stolen, vandalized, or damaged by storms, wind or flood, so some insurance would still be necessary. With the rise of new technology, previously unheard of threats will need to be insured against, such as insurance for hacking, for cars' systems being over-riden and used for criminal purposes, and for the potential that a car could be hacked and control not be given back to the owner until a ransom is paid. Moreover, when an autonomous car is damaged, the cost of replacing any damaged parts will most likely be more expensive, as the technology used in these cars will be quite complex.

In 2016, the first autonomous car insurance policy in the world was launched in the UK by Adrian Flux. This policy covers drivers using the autonomous features of their vehicles and includes coverage for issues such as loss due to the failure to install software updates and/or security patches; loss due to navigation systems going down; failure of a car's operating system or software; loss due to a driver's failure to override the car's software system to prevent an accident in the event of system failure; and loss or damage due to hacking. You can read more about this first foray into insuring autonomous vehicles here. 

A report released by the Association of British Insurers in late 2016 recommended that drivers be able to buy one policy that covered both traditional and self-driving vehicles/modes of operation. The report also stated that insurance companies should have a right to recover against car self-driving car manufacturers and software companies in cases where losses were due to faulty technology. The same group also stated that if an autonomous vehicle were in an accident, insurers would need certain data from the car manufactures, such as whether the car was in autonomous mode, the time and location of the accident, when the driver last interacted with the vehicle if it was being operated in autonomous mode, and data from directly before and after the accident.

Beginning in April 2017, a Japanese insurance company will begin covering accidents involving autonomous vehicles for all of its policyholders. Current policies in Japan do not cover accidents with self-driving cars unless the victim can establish that the actual driver was at fault, which requires victims to make claims against carmakers. Under the new policies provided by Tokio Marine & Niched, victims will be paid under their insurance policy.

No matter what the automobile insurance policies of the future look like, most analysts agree that self-driving cars will lead to lower premiums for individuals and lower profits for insurance companies. For more reading on this topic, go to http://www.claimsjournal.com/news/national/2016/03/31/269798.htm.

Claims frequency has already been declining in the automobile insurance industry (because of safer roads, safer cars, and a crackdown on impaired driving), but one study has found that within 25 years, the private passenger automobile insurance industry will shrink by as much as 60 percent. This industry employs tens of thousands of people, and thus the economic ramifications of safer vehicles will undoubtedly impact the employees of this industry. http://www.insurancejournal.com/news/national/2015/10/23/385779.htm

Interestingly, despite the extreme changes that are likely to come to the insurance industry as autonomous vehicles become more prevalent, a 2016 survey of participants at the Risk and Insurance Management Society Conference in San Diego, California found that up to 65 percent of insurance companies have done nothing to prepare for the inevitable changes.