How will the self-driving car trend change the auto insurance industry?

By Jonathan Crowl

| Insurance

Companies have been quietly testing their self-driving cars on public roadways for years, and it’s only a matter of time before the self-driving car becomes a reality for consumers. However, not everyone is eager to rush into this new era. Many consumers still have reservations about handing over their fates to self-driving vehicles, and auto insurance companies are in an even tougher bind. If these cars work as advertised, dramatic reductions in accident rates could create a problematic revenue flow for every company.

There are plenty of unknowns that need to be addressed, and insurers are already working hard to find viable solutions.

Facing an uncertain future

Auto insurers are used to seeing mobile technology disrupt their industry, and if the past is any indication, they’ll come up with solutions to keep themselves afloat.

Though self-driving cars are unprecedented territory, insurers aren’t unfamiliar with technology’s ability to improve safety and reduce accident rates. Many new cars now come with collision-avoidance features, including blind-spot detectors and computer braking technology — features that help drivers avoid accidents every day.

Insurers were able to navigate those challenges without incident. Meanwhile, they used mobile technology to create other revenue opportunities and better assess risk in drivers. For example, mobile devices installed in cars can track driving behavior and transmit that data to the insurance company.


The tech-driven changes are relevant, but the scale is nothing like what self-driving cars will bring to the world’s roadways. If human error is entirely eliminated, insurance companies will see accident rates drop by up to 90 percent, according to GeekWire. As investment expert Warren Buffett explained to CNBC, companies won’t be able to charge anywhere near their current premiums if the risk drops substantially. That creates a cash flow problem for those companies — a problem that is years away, since self-driving car adoption figures to be slow for at least the next decade — but this problem will need to be solved nonetheless.

A need for clear guidelines

One of the biggest issues insurers face with self-driving cars is the matter of assigning fault in any given situation. If a self-driving car gets into an accident due to a satellite outage, mechanical defect or other problem where the manufacturer is liable, that consumer shouldn’t be billed for it.

As Business Insider noted, Britain has been proactive in establishing a set of ground rules for billing consumers for auto insurance. The country’s transport minister has overseen the development of a single insurance product that covers a vehicle in two separate situations: when the human is operating the car, and when the car is on autopilot mode.

This is a problem insurers must address in the US and in other countries around the world. How does liability shift from companies to consumers, and how might that relationship be a potential opportunity? Insurers may need to pivot toward selling to businesses as much, or even more, than consumers, or figure out how to split this liability (and the corresponding mediums) between the two parties. A lot of this will depend on the types of regulations set, which is why insurers would be wise to take an active role in those conversations.

Getting a jump on looming challenges

Just like insurers used mobile phones to improve processes such as purchasing insurance, contacting the agency and gathering information to process claims, these companies will also need their best minds on the issues that come with self-driving technology. For example, companies may want to develop insurance technologies and products that integrate with self-driving cars, and they might want to look into their options for various business partnerships with self-driving car makers.

Insurers will also have to develop a strategy to differentiate between damage unrelated to a car’s autonomous activity and accidents caused by the self-driving vehicle. Even if human error is taken out of the equation, falling branches, inclement weather, vandalism and other problems will continue to be a threat and will create a continued need for consumer-owned car insurance.

Fully autonomous roadways might be decades away, as it will take time to replace older cars. Yet there are ways insurers can brace for the coming wave of disruption today.