All About Insurance for Self-Driving (Autopilot) Cars

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Rachel Bodine graduated from college with a BA in English. She has since worked as a Feature Writer in the insurance industry and gained a deep knowledge of state and countrywide insurance laws and rates. Her research and writing focus on helping readers understand their insurance coverage and how to find savings. Her expert advice on insurance has been featured on sites like PhotoEnforced, All...

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Written by Rachel Bodine
Insurance Feature Writer Rachel Bodine

Leslie Kasperowicz holds a BA in Social Sciences from the University of Winnipeg. She spent several years as a Farmers Insurance CSR, gaining a solid understanding of insurance products including home, life, auto, and commercial and working directly with insurance customers to understand their needs. She has since used that knowledge in her more than ten years as a writer, largely in the insurance...

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Reviewed by Leslie Kasperowicz
Farmers CSR for 4 Years Leslie Kasperowicz

UPDATED: Mar 11, 2022

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The future for cars is almost here. Soon people will sit back and relax in their cars as it drives itself. Automobile manufacturers are getting close to making self-driving cars. According to Loup Ventures, 90% of all new vehicle sold by 2040 will be self-driving.

That’s a massive shift in the market and in what the roads will look like. These vehicles come with the promise of safer streets. Safer roads mean changes to the auto insurance industry. The changes may shift the car insurance industry as we know it.  Here’s a look at how self-driving cars may change the auto insurance industry.

A Shift in the Way Car Insurance Rates are Calculated

Car Insurance companies calculate your age based on a few different factors. These factors include driving record, how far you drive, your personal information, zip code, and what kind of car you drive. Right now, a young man who has a bad driving record and drives a lot would pay a high premium for insurance.

An older woman who has an excellent driving record, and doesn’t drive much would pay considerably less. Self-driving car insurance wouldn’t take all these factors into account.

Taking the Personal Factors out of the Equation

The Car insurance industry won’t need to factor in a person’s age, gender, or driving record. The car would presumably do all the driving, so there’s no need to worry about the driver speeding or switching lanes without checking their blind spot.

A person’s driving record would get better over time as self–driving cars go long periods without an accident. Insurance companies worry about human error while driving in natural elements such as snow, rain, fog, and hail. According to the NHTSA, 94% of accidents are caused by human error. Eliminate humans from the equation, and the risk drops dramatically.

The sensors used in self-driving cars do a much better job of driving in these harsh weather conditions than humans can. Once these human factors are taken out of the equation insurance rates will go down significantly.

Things like zip code and driving distance will still factor in. Your zip code allows the insurance company to calculate the likelihood of your car getting stolen. If you live in a neighborhood with a high crime rate, the likelihood is higher than if you live in a neighborhood with a low crime rate.

Even as the risk of getting in an accident diminishes with a self-driving car, the possibility rises the more you drive. So if you do a lot of driving your insurance rates are always higher.

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Changes in Liability Insurance

Drivers in most states are required to carry some level of liability insurance.  As self-driving cars appear on the road, experts are wondering if drivers will need liability insurance at all.

A Study done by the RAND Corporation found that liability for car manufacturers will likely increase while liability for drivers will decrease. It’s hard to hold the drive liable when he or she isn’t doing the driving. Instead, the technology created by the car manufacturers will be held responsible.

Volvo has already said that they will pay for any damage and injury caused by their self-driving technology. Technology is scheduled to debut on some of their 2020 models. Mercedes-Benz and Google have both announced that they plan on accepting liability for any crash where a self-driving system is at fault.

Tesla has taken a different approach so far. The company has partnered with insurance companies in markets around the world to develop custom auto insurance plans for their vehicles. These plans meet the specific needs of the cars and take the self-driving feature into account when it comes to rates.

Many customers are buying these plans when they purchase their Tesla. A Forbes article theorizes that Tesla’s model may represent the future of car insurance for self-driving cars. They envision a world where car makers handle all insurance.

This cuts out the middleman and allows the manufacturer to offer lower rates. The manufacturers will have all the driver data from your vehicle and other vehicles to set rates. Rates will continue to go down as the manufacturer releases new software and makes the car safer.

A person could see their rates go down each renewal.

A Slump for the Insurance Industry

At a certain point, drivers won’t need extensive coverage anymore. Accidents may become so rare that states no longer require drivers to carry auto insurance. Many people may choose not to carry insurance if states don’t require it. That doesn’t mean the insurance industry will go under completely.

People will continue to keep coverage for things like theft, natural disasters, and other unexpected damaged, that fall under the comprehensive insurance category, but the industry’s bread and butter may shift. Car insurance for self-driving cars may look completely different than what we have now. As stated above the car insurers may begin to work with the car manufacturers directly to survive and thrive.

One area auto insurance company may pivot to is cybersecurity insurance. Self-driving cars require more software and hardware than current vehicles. All of the added software and hardware gives hackers the chance to steal information, plant malware and ransomware, and potentially take control of a vehicle.

Companies like Uber and Amazon that are interested in employing large fleets of self-driving cars may require this.  These massive companies could end up on the hook for a lot of money if hackers steal customer information like credit card numbers.

The industry will most likely pivot in some way as self-driving cars begin to dominate the road. No one knows what that pivot looks like, but the industry has at least a decade to research and find an answer.

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