What will autonomous cars mean for auto insurance?

by Daniel Griffin, President of Wesfair Agency, CIC, CPA

Despite the significant problems in implementation, the autonomous car is coming. We won’t all wake up tomorrow and finish our morning coffee in the backseat of our Altimas, but it’s coming. So what does this mean for Auto Insurance?

We’ve been living with the early versions of this for years now. On my honeymoon in 2012, my wife and I were driving a rented Volvo in California where we experienced first hand the collision avoidance technology. A quick look to the side for a missed turn, and the breaks engaged and the car powered off. Having narrowly avoided rear-ending the car in front of us, we looked at each other, restarted the car, and stopped for lunch. I won’t tell you who was driving because she felt so terrible about it.

The newer cars rolling off the production line are already semi-autonomous. For most, we’re seeing safety technology that can be a set of eyes permanently affixed on the environment around us: sensors that can avoid front end collisions, sideswiping cars in the next lane, and even a safe swerve around oncoming objects. This is the more likely immediate future for the next cars we average consumers buy. And it’s a good thing.

Auto Insurance premiums have been generally rising over the past few years due to an increase in distracted driving, higher costs of repairs, recent storm activity. There are myriad reasons, but the result is unhappy customers, which we don’t like! I expect that as insurance companies see the impact of the semi-autonomous safety features of new cars, they will better be able to offer discounts for those customers.

It won’t happen overnight, but the impact on insurance rates could be significant as the number of cars on the road with these safety features increases. It’s likely to roll out like safety features that we now take for granted: airbags, anti lock brakes, daytime running lights, and seatbelts. In fact, unlike these older features, new smart features could actively work to override the distracted driver, the obstructed view, or a slow reaction. This should reduce the likelihood of collision with another car or pedestrian. The more cars with this new safety tech, the safer the roads, and the lower the exposure for the insurers.

I know that the more interesting speculation arises from fully autonomous “driverless” cars. This presents a new problem entirely. Who is responsible when this car hits a pedestrian? What about another car? What if the other car is partially to blame? Does the automated car maintain a blackbox recording of the whole event? The answers to these questions will impact the personal auto insurance marketplace.

First, we need to understand who will be liable for accidents when the car is driving completely independently. There’s no driver override here, just a computer. Frankly, it’s too early to know the full impact on auto insurance. The auto manufacturers won’t want to accept that risk as product liability, but they may not have a choice. At least not until the insurers have the data to really understand the quality of this automated driver. In my opinion, it’s unlikely that the liability for a fully driverless car would shift to your personal auto insurance policy. So now you have this car that drives itself and you don’t have to worry about the liability. Sounds like you have no need for personal auto insurance, right?

Wrong. First of all. That fully driverless car will cost beaucoup bucks. And in any situation, you’ll need coverage for comprehensive (or other than collision) damage. It floods or the car is hit by a tree or an animal. These are all things you’ll need for any material investment, like this car.

Second, we won’t wake up one morning to a world full of driverless cars. They will phase in over time, and it may never get to the point where all cars are automated. Until that time, there will be the question of the other driver. You paid to relax in the back seat, but someone who didn’t just got into an accident with you. Maybe it’s your fault, maybe not. But either way you’ll have the need for liability coverage for this car.

It’s going to be an interesting ride. But we will see.