Who Will Solve the Insurance Problem for Self-Driving Vehicles?
By Paige Cerulli — DAV Editor
Self-driving vehicles are poised to solve many problems, from eliminating accidents caused by driver error to reducing driver stress. The Institute of Electrical and Electronics Engineers predicts that, by 2040, self-driving vehicles will account for up to 75 percent of the vehicles that are on the road. With a transportation revolution on the horizon, though, the introduction of autonomous vehicles does present a significant issue when it comes to car insurance.
The Insurance Problems Posed By Self-Driving Vehicles
As autonomous vehicles become both practical and popular options, we will see some significant changes to our transportation system. These changes pose four specific challenges to the vehicle insurance industry.
Transfer of Liability
Given the very nature of autonomous vehicles, the issue of driver error is removed from the equation when determining the cause of a crash — as well as when determining who is at fault and financially responsible. Autonomous vehicles are likely to transfer liability onto the manufacturer, rather than the vehicle’s driver. Individual vehicle owners may decide that, because of their lack of liability, purchasing traditional car insurance is no longer worth the cost.
This transfer of liability results in even more potential issues. If a crash does occur, it seems natural to put fault with the manufacturer, but the litigation process can be a lengthy one. The parties involved in the accident could be left waiting for insurance payouts until the issue is resolved. Additionally, questions such as whether the vehicle manufacturer would retain the rights to then sue technology manufacturers would need to be clarified.
Currently, automobile insurance is state-regulated, with rules and regulations varying from state to state. This makes complying with the rules of every different state a logistical and a financial challenge for manufacturers.
If manufacturers of self-driving vehicles assume more liability for their vehicles once on the road, the manufacturers may request that the government play a role in regulating insurance nationwide. These manufacturers would likely request that the government help to reduce the cost of complying with all of the different state insurance regulations, possibly by instituting a national regulation.
Lower Insurance Premiums
The number of claims that are filed directly affects insurance premiums that companies need to charge in order to cover the money that they’re paying out. According to the National Highway Traffic Safety Administration, 94% of accidents are due to human error. With autonomous vehicles reducing the number of accidents, the number of claims will drop, too. This could mean a significant drop in insurance premiums.
Insurance companies would also need to restructure their risk assessment methods. A vehicle owner’s driving record, including previous tickets and accidents, factors in to the cost of the individual’s premium. Self-driving vehicles remove the driver as a risk factor, so insurance companies will need to find another way to determine a vehicle owner’s premium.
Paying less for car insurance may seem like a benefit to vehicle owners, but the scale of the drop in premiums could pose trouble for insurance companies. According to Accenture executives John Cusano and Michael Costonis, by 2035, insurance companies could see a drop of $25 billion in premiums. This would mean a significant drop in income, requiring companies to find other ways to expand their services and recoup that financial loss.
Less Demand for Insurance
A transition into transportation largely based on self-driving vehicles could also reduce the overall demand for insurance. According to Cusano and Costonis, it’s possible that self-driving cars won’t be largely owned by individuals, but will rather be owned by auto manufacturers, ride-sharing services, and technology services. If this is the case, insurance companies will receive fewer requests for individual policies, and more requests for policies that these companies will need for their vehicle fleets.
With the current insurance industry focusing on covering privately owned vehicles, this transition could mean a lack of growth for insurance companies, especially when paired with the anticipated lower premiums noted above.
Solving the Insurance Problem
As self-driving cars take to the road, the insurance industry will need to both assess and understand the unique situation and risks posed by these vehicles. Whether this leads to a restructuring of auto insurance plans, lower-cost insurance options, or another alternative will depend on just how insurance companies decide to handle the changing transportation landscape.
The introduction of autonomous vehicles does open avenues for alternative insurance coverages, such as policies centered around cyber security and product liability. Insurance companies may also decide to partner with auto manufacturers, software developers, and other companies involved in the evolving auto industry. With the cost of repairing a self-driving vehicle likely being higher than that of repairing a normal vehicle, insurance companies may begin to offer policies specifically for vehicle repair.
In order to both survive the changes coming to the automobile industry and to continue to serve their clients, insurance companies will certainly have to exercise creativity and innovation in restructuring their business models and plans.
The DAV Foundation also plays an important role in how self-driving vehicles may change the insurance agency. The DAV Foundation provides a network that allows transport assets and service providers to connect with one another, as well as for consumers to connect with service providers. Through this common marketplace, insurers can offer their services to autonomous vehicles, ride-hailing services, and more. Insurance companies compete with one another in order to provide the most appealing insurance products, which means better and fairer options for consumers on the transport network.
The good news is that the rollout of self-driving vehicles will certainly be a gradual one. With technology still being tested and perfected, insurance companies have plenty of time to assess these problems and come up with practical solutions. Government may play a role in helping to restructure insurance requirements, but individual insurance companies will certainly be focusing on the evolution of autonomous vehicles in the coming decades.