Autonomous cars aren’t a new concept. Almost all the major automakers are developing autonomous cars of some sort. Some, like Tesla’s Autopilot and Google’s Waymo, are already in use, though they’re not fully autonomous yet. Tesla and Waymo, like so many other automakers in the autonomous car race, are still ironing out the kinks.
In the meantime, one of the biggest debates surrounding driverless cars is how they’ll impact the insurance industry. Human error accounts for 94% of road accidents, according to the National Highway Traffic Safety Administration. If human error causes almost all car accidents, then in theory, self-driving cars are the solution. But if self-driving technology succeeds in preventing car accidents, how will this affect car insurance?
Will Auto Insurance Still Be Necessary?
If autonomous cars make driving safer, will we still need insurance? The short answer: yes. Insurance is still necessary, but it will need to adapt. Technology may eliminate human error in driving, but tech isn’t infallible. Tesla already has a record of fatal car crashes with its autopilot function.
Self-driving cars operate by using a system of cameras, radar, laser sensors (called lidar), and other technology to assess road conditions and adjust driving behavior. Waymo, for instance, has cameras that can see up to three football fields in all directions. Waymo cars also have software that can predict the movement of everything in close proximity to the vehicle, including bicyclists and pedestrians. If any of those systems fail, it can result in a crash.
Autonomous vehicles are undoubtedly going to be a game changer for the insurance industry. Here are three likely scenarios that will play out as the industry adapts to driverless cars:
1. Insurance Rates Will Drop
As we slowly progress toward fully autonomous cars, car accidents should decrease. With fewer accidents, insurance rates should drop.
Fully autonomous won’t take to the roads overnight. The path to autonomous vehicles is gradually taking place across five levels of automation. Most cars today feature levels 1 or 2 automation: cruise control, electronic stability control, forward-collision warning, automated emergency braking, and self-parking. The Audi 8 was the first production car to reach level-3 automation.
If we’re indeed headed toward a world of level-5 autonomous vehicles, there will be a period in which both human-operated and self-driving cars share the roads. The risk to insurers will still be high. As self-driving cars become commonplace and lead to lower rates, insurance companies will have to change their business model to survive.
2. Auto Manufacturers Will Be Held Liable
With self-driving cars, one of the big questions is what happens to the liability portion of your insurance policy? Liability car insurance covers injury to the other driver or damage to the vehicle, should you be at fault.
With autonomous cars, the experts foresee that the liability in a crash would shift from the driver to the product. That means manufacturers and suppliers will be liable for accidents caused by a product defect in the car. Personal liability insurance may become obsolete altogether.
Up until now, personal auto insurance has brought in a large chunk of insurance companies’ revenue. The U.S. auto insurance industry generates around $220 billion in annual revenue. It’s predicted that this could fall by a massive 60% by 2040. Autonomous vehicles are sure to play a role in declining revenue for the insurance industry as auto insurance premiums are slashed.
This by no means signals the death of auto insurance. If a product, rather than a human, is responsible for an accident, it makes sense that the manufacturer should be held responsible. Shifting from consumer liability to manufacturer liability will keep the insurance industry afloat. The Insurance Information Institute suggests that even local municipalities may be called upon to take responsibility when accidents involving self-driving cars occur in their jurisdictions.
3. No-Fault Liability May Become Standard
There’s no reason to think collisions will never happen in a world of self-driving cars. No-fault liability may become standard practice across all states in the U.S. for these types of claims. Faulty technology can cause crashes or cause your car to misjudge distances and hit another car or object. Insurance will still be required to repair damaged vehicles. And these repairs will be costly when high-tech components need replacing.
Additionally, car crashes may decrease with autonomous vehicles, but other risk factors remain. Car break-ins and theft will still occur. Inclement weather and other road hazards will still present dangers. Insurance will still be needed for these risks.
Self-driving cars are going to be a part of our future, and they’ll disrupt the current insurance model. Precisely how the insurance industry will change is still unclear. It is, however, a talking point on most insurance companies’ agendas. At this point, no one can say for sure how risky autonomous driving is. Until more solid evidence exists on safety, the shift is likely to be gradual as the insurance industry assesses the risk posed by self-driving vehicles.