How Autonomous Vehicles Could Change Auto Insurance

How Autonomous Vehicles Could Change 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 organizations seeking to scale adoption of autonomous vehicles.

It's impossible to say precisely how self-driving vehicles will affect our day-to-day lives, as they are still relatively rare on the roadways. But a change is coming to the automotive industry, and insurance companies (and consumers) will need to adapt as autonomous vehicles become commonplace.

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 self-driving software and was in fully 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. However, a look at the numbers complicates the assumption that carmakers could broadly assume liability for all vehicles.

If manufacturers were to accept liability for their autonomous cars, the ability to purchase one could impact consumers. Even if the car average cost of insurance was cut in half, that amount could still add $10,000–$15,000 to the price of a new vehicle.

Personal auto insurance will endure

There have not been any laws enacted on the regulation of product liability insurance, yet. 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.

Car owners will likely need to continue purchasing comprehensive insurance to protect themselves from these losses.

You may need to increase your auto insurance limits

As manufacturers 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.

Mandatory minimums

In California, as of June 2019, there were 61 autonomous vehicle testing permit holders. But while California enforces a mandatory minimum level of liability insurance for all drivers, 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 manufacturers continue to add advanced technology to vehicles, car owners in all states will need to consider purchasing more than their state's minimum required auto insurance to protect themselves from the costs of an accident.

As the costs of these claims rise, legislatures will need to increase the minimum level of insurance required by each driver.

The number of vehicles equipped with self-driving technology increases every day. Manufacturers and drivers alike should pay careful attention to how insurance companies and their regulators respond to the questions posed by autonomous driving technology.

Michael Hoffmann is a Senior Research Analyst focused on insurance. He was previously a Technology Editor at The Economist Intelligence Unit and has had prior roles as an ETF and Equity Analyst focused on emerging technologies like artificial intelligence, cybersecurity and cloud computing.

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