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.”


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