Will Driverless Cars Lower the Cost of Auto Insurance?

Tesla has installed autopilot software on roughly 90,000 of its cars over the last two years. (Photo Source: Tesla)
Tesla has installed autopilot software on roughly 90,000 of its cars over the last two years. (Photo Source: Tesla)

Dozens of companies — from tech giants like Tesla, Google, and Microsoft to auto manufacturers like Jaguar and Audi — are in a race to put driverless cars on the roads in the U.S.

By some accounts, there could be as many as 10 million cars with self-driving functionality on North American roads by 2020. A more conservative estimate, coming from the Insurance Institute for Highway Safety, predicts there will be 3.5 million self-driving vehicles by 2025, and 4.5 million by 2030. We’re still quite a long way off from those benchmarks. Tesla, for example, has only installed autopilot software on roughly 90,000 of its cars over the last two years. The software is still in beta testing.

The question now is whether safer, driverless vehicles will lead to any significant declines in auto insurance costs. If driverless cars make roads safer and lead to fewer accidents, shouldn’t that be reflected in auto insurance rates? And, in a driverless car society, if computers are technically “manning” the wheel, shouldn’t the insurance burden be shifted from the driver to the auto manufacturer itself?

MagnifyMoney reached out to several experts in the auto insurance space to see how they expect driverless cars to change the insurance landscape.

A change is gonna come … slowly

Google delivered the first real build of its driverless vehicle prototype in December 2014. (Photo source: Google)
Google delivered the first real build of its driverless vehicle prototype in December 2014. (Photo source: Google)

Among other benefits, driverless vehicles are expected to significantly reduce auto accidents, as driver error is the cause of 94% of all accidents, according to U.S. government figures. When driverless cars finally become mainstream, car accidents could decline by 80%, according to KPMG, the audit, tax, and advisory giant.

By and large, accident liability won’t go away completely even with powerful computers behind the wheel. That issue came to the forefront with a recent fatal crash in Florida, where a 40-year-old man was killed as a passenger in a Tesla self-driving vehicle.

Don’t expect insurance rates to drop if you purchase a car with an autonomous driving feature, several experts say.

“Insurance premiums will remain flat even with self-driving vehicles,” says Ashley Hunter, president of HM Risk Group, an underwriting firm located in Austin, Texas. Some automakers have made impressive progress in creating self-driving vehicles, but there is still room for error. “It still requires a driver behind the wheel in the event you need to take over,” Hunter adds.

Hunter likens driverless auto insurance to aviation insurance. “Once autopilot technology was created and became pervasive in airplanes, you didn’t see premiums go up – they roughly stayed the same,” she says.

Other insurance industry professionals agree.

“Liability insurance will definitely still be needed,” says D.J. Noland, an agent with McGhee Insurance Agency in North Little Rock, Ark. “The possibility of
the computer to malfunction is very real. Computers are only as good as their
designers and therefore have imperfections.”

The question of liability in the event of an accident is much trickier to answer. Who’s to blame when a self-driving car has an accident and is at fault while operating autonomously — the automaker or the driver?

“It will be interesting to see the insurance industry evolve to adopt new models to address the risk,” says Noland. “Ordinarily, the driver is the answer. Now we’ll have to look at the manufacturer of the car and the software company as possible liable parties.”

For that reason, new auto insurance policies will have to include a new price for these factors, and new underwriting models will be required to develop the pricing, Noland adds.

“Admittedly, without much data this early on, I think insurance prices will decline with mass adoption of driverless vehicles, but we’ll need more data — and a better understanding of the underlying technology — to accurately understand the risk and pricing by insurance companies,” he says.

A “nightmare” for insurance companies

For insurance companies, self-driving vehicles represent a “nightmare scenario,” says Joel Ohman, a certified financial planner and chief editor at CarInsuranceComparison.com, in Seattle, Wash.

Ohman sees a frightening scenario for auto insurance CEOs, where “perfect” robotic drivers will drive down accident rates and thus force insurers to drastically reduce their premiums.

“That’s why robotic driverless cars should be causing car insurance company CEOs to break out in a cold sweat at the mere thought of trying to sell insurance on cars that never get into accidents,” he says.
Other industry insiders say that while driverless-based insurance rates may decrease over time, there will still be risks that need to be covered.

Tesla’s “Autopilot” feature is currently in a public beta testing phase in roughly 90,000 cars. (Photo source: Tesla)

“For example, many self-driving car prototypes have sensors on the bumpers, so they’ll likely be one of the first parts damaged in the event of a simple rear-end collision,” says Ryan Ruffing, a spokesperson for EverQuote.com, the largest online auto insurance marketplace in the U.S. “Furthermore, there may be satellite damage to cover, cybersecurity claims and general wear and tear of self-driving cars.”

In the long run, as cars get safer, drivers should expect insurance rates to go down, Ruffing says. “However, it may be decades before that is the case,” he states. “In the meantime, self-driving car owners should ask their insurance agents what their future plan is, and how they plan to insure self-driving vehicles. They may want to ask their agents if they foresee rates rising or decreasing. If car owners aren’t satisfied with the response, they can always shop around and ask other insurance companies.”

What to ask your insurance agent

Ruffing offers three key questions to ask your insurance agent if you’re in the market for a self-driving car:

  1. What happens if my autopilot goes awry?
  1. Will you cover that type of claim?
  1. Will my insurance rates rise because of that, even though it would not be my fault?Right now, virtually no insurance companies are proactively insuring self-driving cars, primarily because there are no commercially available self-driving cars on the road today.  One of the rare insurers already offering robotic driving insurance is U.K.-based Adrian Flux Insurance Services. The policy covers several self-driving features, like self-parking and autopilot technology, as well as satellite-based systems failures and hacks from cyberfraudsters.

“We wanted to help provide confidence and clarity around the ongoing debate of ‘who is liable?’” says Gerry Bucke, Adrian Flux general manager.

Derek Benavides, an insurance agent with TWFG-Benavides Insurance, in Brownsville, Texas, says to tread cautiously before getting into any self-driving cars.

“Unfortunately, the majority of insurance companies don’t have programs in place or rating systems that will aggressively price self-driving cars,” Benavides says. “Before you get into any self-driving vehicle, it’s extremely important to be clear with your agent that they are insuring that vehicle, and get it in writing.”


The post Will Driverless Cars Lower the Cost of Auto Insurance? appeared first on MagnifyMoney.

Being Poor Can Cost You Big on Your Auto Insurance



If you’re single, a renter, out of work or haven’t owned a car in a while — even your perfect driving record won’t be enough to get a good auto insurance rate.

It’s no secret that auto insurers consider a lot more than just your driving record when they calculate your premium. New customers are routinely asked to provide personal details, such as whether they’re married or single, renters or homeowners, unemployed or employed, college- or high school-educated.

It is how you answer these personal questions — not your driving record — that can result in higher premiums, a consumer advocacy group argues in a new report.

In a study of five of the leading auto insurers in the U.S., the Consumer Federation of America found drivers with a good driving record pay 59% more — or $681 per year on average — when their answers to these personal questions point to a lower income status (e.g.: people who answer that they are single, out of work, or have only a high school education). The CFA has long studied how economic status can be tied to higher auto insurance premiums.

For this report, they used the online quote features at Geico, State Farm, Farmers, Progressive, and All State. They created four driver profiles to test — two men and two women, each pair including a high and low socioeconomic status — and requested quotes from each insurer in 15 major cities.

All four drivers shared characteristics in common. They each had a stellar driving record, with no prior accidents or traffic violations. They were each listed as 30 years old living at the same address in each city tested.

Where the two test groups (we’ll call them Group A and Group B, for simplicity’s sake) differed was in how they answered the personal questions on each quote request. In group A, one woman and one man were married homeowners with executive level jobs, a master’s degree and three years with the same insurance company.  In group B, the man and woman were single renters with high school degrees, and neither had owned a car in the last six months.

When the insurance quotes rolled in, an obvious trend emerged: across the board, Group B drivers were hit with higher premiums. On average, Group B drivers were quoted an average annual premium of $1,825. On the other hand, the married, home-owning, college-educated drivers from group A were quoted $1,144 per year.

Source: Consumer Federation of America
Source: Consumer Federation of America

GEICO and Progressive turned out to be the most costly option for drivers in Group B, charging premiums that were 92 percent and 80 percent more expensive, respectively, than premiums for Group A. In one extreme case from the report, GEICO quoted a man living in Minneapolis, Minn. from Group B two and a half times as much as the man from Group A – $1,840 per year compared to $528. The difference between premiums GEICO quoted for a low-economic status and high-economic status woman in Minneapolis was even more staggering — $2,158 vs. $528, amounting to a 300% upcharge.

MagnifyMoney reached out to all five insurers included in this report for comment. Each declined to comment.

James Lynch, senior actuary for the Institute, which represents the interests of insurers in the U.S., said insurers use personal information like marital status and education for a simple reason: they are highly predictive of whether a potential customer will cost the insurer in the future.

“Driving record is an important factor but it’s not the only predictor,” he added, noting insurers use upwards of 20 different factors to assess rates.

Screen Shot 2016-06-28 at 11.34.27 AM


Get the best auto insurance rate possible

Short of state regulator intervention, auto insurers will be able to assess risk in their customers however they see fit. It’s up to drivers to do their due diligence in order to get the best rate possible. Even then,

Start with your state’s insurance department website. Since insurance is regulated at the state level, Hunter recommends checking your state’s office of insurance website to find out what average premiums are like in your area. This website should also list a number of reputable insurers you can contact for quotes. Take those names and check them out on the National Association of Insurance Commission’s database, which maintains a history of service issues and complaints.

Never accept your first offer. Asking several different insurers for auto insurance quotes is an important yet often overlooked part of the shopping process. As the CFA found in this report (among others), premiums can vary widely by state by state and insurer by insurer.

Let your good driving speak for you. Some auto insurers today offer usage-based tracking technology that allows them to see just how often and how well (or, how poorly) you drive. This technology can be a boon to good drivers who have low annual mileage and aren’t hit with any traffic violations. You’ll likely qualify for insurance discounts. It is entirely optional to allow your insurers to track you, as it obviously requires you to forfeit some privacy while on the road.

Have a question for us? Send us a note at info@magnifymoney.com 

Mandi Woodruff is the Executive Editor of MagnifyMoney and host of Brown Ambition, a weekly podcast about career and finance. Follow her on Tumblr or Facebook.

The post Being Poor Can Cost You Big on Your Auto Insurance appeared first on MagnifyMoney.