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The Effect that Driverless Cars Will Have on Insurance

Posted July 18, 2017

Autonomous vehicle with LiDAR sensors on top. Image credit: Ford

By the year 2020 driverless cars will no longer be a novelty as they will be running on our roads. However, the insurance industry will bear huge losses due to this technology development.A driverless car is a vehicle that is operating on its own. There are various levels of automation for these types of vehicles. However, by 2021 fully autonomous cars will be introduced on our roads. Some of the car manufacturers who are already planning for this big move include Google and Ford.

How autonomous cars operate:

Autonomous cars are driverless cars that partly or fully operate without a driver. These type of cars have various levels of automation which include: Cars which can operate without drivers only in certain environments, cars which operate under the system of dynamic driving which may require the interference of a human driver and cars which automatically fully operate on their own without the intervention of a driver.

The self-autonomous cars are expected to lower the accident rate in America by 90%. However, the driverless cars will also lower insurance rates. It is predicted that the auto insurance industry could shrink 70% by 2050.

How car insurance operates:

Currently, drivers are more likely to get two types of car insurance. These include Personal insurance policy: This type of insurance policy covers the property or vehicle and the person involved in the car accident. Then there is the comprehensive car insurance which covers the loss of the car caused by fire, collision or theft to the car itself and the owner plus any third party involved.

Autonomous cars are likely to affect this industry in a big way. This is because when two cars are involved in a collision, the insurance of the driver who is at fault covers the expenses incurred. However, a driverless car will bring about issues of liability of who will cover the expenses since the vehicles will be driven by a computer and not a human being.

How car insurance with a driverless car may operate:

The lack of a human face complicates the matters of insurance further. Although autonomous vehicles are projected to decrease accidents, issues like unworthy roads which are full of potholes will affect the efficiency of the car. Therefore these cars will bring about the issue of cheap car insurance due to their mechanical nature. Autonomous car manufacturers will be expected to shoulder the responsibility of accidents.

This is because they are basically the operators of the computer which will be driving these cars on behalf of the driver. Therefore if the car makes a wrong turn or collides with another it will be the fault of the mechanics in the car. However, this will automatically trickle down back to the consumer. Car manufacturer Volvo expects to recover these costs by increasing the cost of their autonomous cars by approximately 10,000 dollars. Therefore, the consumer will still be paying for this insurance only in another way.

It is estimated that the autonomous car boom will take place over the next 20 years or so. Nevertheless, human drivers will be expected to exist concurrently with the machine operated cars. This will also bring another facet in insurance as most of them will have to deal with collisions that involve humans and machine operated cars. This has already happened in two scenarios with a Google car and a Tesla car. In both case scenarios, it was speculated that it was the autonomous car which was at fault. However, what will happen if it’s the human at fault or if the autonomous car damages a person’s vehicle. Who will the insurance cover and will the owner of the vehicle be expected to foot some bills?

Regardless of all the effects that the driverless cars will have on insurance, they are the future. Therefore governments and insurance agencies will have to come up with policies to cover them.

Source: Auto Insurance Center

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