How Autonomous Vehicles Could Change Your Auto Insurance

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Global technology companies and automobile manufacturers have made massive investments in building out their autonomous driving capabilities. GM's Cruise, Alphabet's Waymo and self-driving car divisions at Uber and Lyft are just a few of the organizations seeking to scale adoption of autonomous vehicles.

But by most estimates, we're still a long way off from widespread market adoption of autonomous vehicles. However, that hasn't stopped curious enthusiasts from speculating about the impact self-driving cars will have on society. Will truckers and taxi-drivers be out of a job? Will commuters be able to catch a few extra minutes of sleep on their way to work? It's impossible to say exactly how self-driving cars will affect our day-to-day lives. However, one thing is certain: a change is coming to the automotive industry, and insurance companies will need to adapt to account for that shift. Here are three ways autonomous vehicles could affect your auto insurance policy in the coming years.

Insurance costs could be built into the price of a car

As early as 2015, Volvo announced that it would assume full liability for an accident caused by one of its vehicles if it were equipped with Volvo's own self-driving software and was in full autonomous mode at the time of the accident. This assertion has led some to expect that all car manufacturers would begin to assume liability for such incidents. Insurance companies would then begin to sell policies to the manufacturer instead of individual drivers, since the manufacturer would be the liable party.

However, a look at the numbers complicates the assumption that car makers could broadly assume liability for all of their vehicles. "By the time autonomous vehicles are around, cars could last more than 20 years," says James Lynch, chief actuary at the Insurance Information Institute (III). If manufacturers were expected to cover liability insurance for the lifetime of a vehicle, that expense might be front-loaded onto the price tag of a new car. Even if the average cost of insurance were cut in half, that amount could still add $10,000–$15,000 to the price of a new vehicle.

"Consumers might want to pay another, say, $15,000, for safety," Lynch says. "Or they might just keep buying the standard car with a driver they trust—themselves."

If manufacturers were to assume liability for their autonomous vehicles, the ability to buy a car outright might be pushed out of reach for most consumers. However, it would still be possible for manufacturers to add the cost of insurance into the monthly bill for those who finance the purchase of their vehicles.

Personal auto insurance will probably endure

Some industry speculators have suggested that, if liability insurance were carried by the manufacturer, other costs incurred by car-related incidents may be covered by home and health insurance policies.

Lynch believes these speculations are premature. Legislatures have yet to weigh in on how product liability insurance will be regulated. And while health insurance policies may reimburse you for the medical costs incurred by a car accident, they're unlikely to cover damages paid for pain and suffering or lost wages, which many current auto insurance policies insure.

One thing Lynch is confident of, however, is that some form of personal auto insurance is here to stay. "At the very least, people will still need protection if, say, a tree falls on their car or it is damaged by hail." Incidents such as these have nothing to with a vehicle's manufacturer, and with new technology driving up the price of cars already, it's unlikely that this type of coverage would be absorbed into home insurance policies. Instead, car owners will need to continue purchasing comprehensive insurance to protect themselves from these losses.

You may need to increase your auto insurance limits

For the past several years, auto insurance companies have been operating on slim profit margins—if any—due to an increased number of accidents and natural disaster claims.

Additionally, as car makers continue to add more sophisticated technology to their vehicles, the cost of minor collisions has risen. These increases implicate the need for higher insurance premiums and higher policy limits.

Drivers today are at little risk of colliding with an autonomous vehicle. However, if you caused a collision with one, or any other high-tech vehicle, you would likely incur a substantial insurance claim. And as companies continue to put self-driving cars on the road, the number of these incidents will continue to increase.

Take for example, drivers in California. Companies such as Tesla, GM and Volvo have been working for years to master autonomous driving technology. Apple, meanwhile, has been racing to catch up. As of June 2019, there were 61 autonomous vehicle testing permit holders in the state of California. But while California enforces a mandatory minimum level of liability insurance for all drivers in the state, the minimum required property damage limit is only $5,000. This amount would likely fall short of the total costs incurred by a collision with a high-tech vehicle.

As car manufacturers continue to add advanced technology to vehicles, car owners in all states will need to consider purchasing more than their What is the Minimum Car Insurance Required in Your State? required auto insurance in order to adequately protect themselves from the costs of an accident. And as the costs of these claims continue to rise, legislatures will need to increase the minimum level of insurance each driver is required to obtain.

The number of vehicles equipped with self-driving technology increases every day. Still, the technology is in the early stages of development, and human drivers will be necessary for many years to come. Manufacturers and drivers alike should pay careful attention to how insurance companies and their regulators respond to the questions posed by autonomous driving technology.

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