Self-Driving Cars And Insurance Rates: How Will They Interact?

Madeleine Jones
November 9, 2016

Man signing on papers, car accidentSelf-driving cars may possibly be the next wave in safety, fuel efficiency, and traffic reduction, however, scant little attention has been given to how a self-driven car might be insured. Traditional insurance is purchased by the owner and operator of the vehicle (i.e. the person or company) and extends coverage based on the terms of the contract. If you or a family member was seriously injured in a car accident, call a Las Vegas accident attorney at Cogburn Law Offices today for a free case consultation.

Self-driving cars

A self-driven car is a vehicle that operates with minimal or no human supervision. There are no “actual” self-driven cars on the road yet. However, there are some partial imitators such as lane assists and brake assists. Numerous companies are working on self-driven cars including technology companies such as Tesla, Google, Uber, and Lyft and old stalwart car companies like Ford, Nissan, and Toyota.

It will be many years before self-driven cars begin to penetrate the market. But, many experts agree, that partially self-driven vehicles could be on the market as early as 2020. Some studies even believe that self-driven cars could dominate the market by 2030.

Is insurance necessary?

If self-driven cars are meant to herald a future without car accidents, why is insurance still necessary? Unfortunately, no system is perfect and there will be accidents. For example, Apple, one of the most successful technology companies on the planet, is unable to release an update to its operating system without a few bugs. These bugs take days or weeks to resolve and cause problems for thousands of users.

Even something simple, like an update, could introduce unanticipated bugs in the self-driving car software could result in accidents. Therefore, car insurance is and will continue to be necessary.

Impact on Insurance

Self-driven vehicles will profoundly affect the insurance industry. As stated above, self-driven cars will likely result in a shift of responsibility. For example, cities, suppliers, and manufacturers could all become responsible for accidents involving self-driven cars.

Furthermore, to address the significant rise in litigation costs, it is possible that insurance companies will incorporate a cost-benefit analysis into its underwriting to ensure that corporations are not sued into oblivion. A cost-benefit analysis requires the insurance company to consider the benefit of imposing costs on a certain party. Does it benefit society? Does it help the injured party? What is the cost? This analysis is used in products liability cases to shift the burden of proof to manufacturers and sellers of items rather than on consumers.

Regulation

Insurance is state-regulated. Each state sets its rules, requirements, and regulations on auto insurance companies.

There are two basic types of regulatory schemes: the no-fault system and the fault system. The no-fault system requires insurers to pay the injured party, regardless of who caused the accident. Conversely, the fault system assigns payment responsibility on the party that is at fault for the injury.

Self-driving cars will likely require a uniform insurance system that may result in the elimination or combination of these two systems. Furthermore, it is possible that the Federal government may choose to intervene and directly regulate insurance for self-driven vehicles.

Underwriting

Classic underwriting factors include things like the number and type of accidents the insurance applicant has had, the miles the applicant expects to drive, and where the car is garaged (their home address for most people). These factors will continue to be important. But, it is likely that make, model, style, and year will grow in importance because this will determine the sophistication of the self-driven vehicle.

Furthermore, the insurer will likely take into consideration where the car is driven. For example, if the municipality has set-aside areas such as dedicated lanes for self-driven vehicles. It is also likely that telematics monitoring, auto insurers monitor the driver’s activity through the use of a “black box,” will grow.

Liability

Liability will likely shift to vehicle manufacturers to prove that it was not responsible for the accident. This change will result in significantly increased litigation costs, so the law will probably evolve to provide some mitigation or shield to keep these companies in business.

As stated above, the liability regime will likely need to develop to address self-driven vehicles. The old paradigm of fault vs. no-fault is insufficient to address the reality of these new technologies.

Furthermore, liability policies may become more complicated as more potential “responsible” parties are added. Insurance policies may become complex multi-party contracts with several potential parties all agreeing to be responsible for individual events or results.

Repair Costs

While accidents are expected to decrease, repair costs could increase. While the number of accidents will drop, the use and amount of sensitive and expensive components will likely increase. Therefore, the cost of replacing these parts will go up.

Furthermore, it is possible that self-driven cars will not be individually owned by instead are operated by a service provider, similar to Uber or Lyft. In that case, repair costs would shift onto these large companies.