How Self-Driving Cars Will Affect Car Insurance Rates

It’s only a matter of time before manufacturers introduce a fully self-driving car. How will self-driving cars affect insurance premiums?
Auto industry experts expect the car insurance sector to shrink by more than 70% by 2050, according to consulting firm KPMG, as a result of the availability of self-driving cars and a rise in on-demand transportation. Why? Because accident liability will move from the driver to the car manufacturer. Thus, car insurance companies are looking at a reduction in individual lines of car insurance in the future, with only 22% of auto loss actually occurring on an individual policy level by 2050, according to the KPMG study. In this article, Part 1 looks at how self-driving cars will affect car insurance for drivers and Part 2 looks at how the car insurance industry will be disrupted.

Part 1 of 2: Self-driving car insurance disruptors

So what exactly can car owners expect when it comes to car insurance premiums as self-driving technology becomes more prominent? The good news is you should primarily expect increased vehicle safety that results in a reduction in car accidents.
Also expect accident liability to move from at-fault drivers to at-fault equipment. And there will be a switch from vehicle ownership models of the past to more of an on-demand vehicle approach, where drivers order vehicles when needed — such as ordering an Uber.
The following information details how self-driving cars should affect drivers and car insurance in the distant future:
  • Improved safety: The autonomous nature of self-driving cars naturally make them safer than driver-operated vehicles. With the penchant for fewer driving mistakes, some experts say that self-driving cars could even lead to a reduction in accident frequency by up to 90% by 2050, according to the KPMG study.
  • Switching liabilities: With self-driving cars designed for minor passenger input, manufacturers should expect liabilities for accidents to fall on them instead of the individual driving the car.
This in turn should drive an increase in product liability insurance as manufacturers need to insure loss from an accident from malfunctioning technology and not driver error. KPMG estimates an increase in product liability insurance to the tune of 57% of total auto losses by 2050.
  • Mobility-on-demand: In addition, switching over to a mobility-on-demand model where passengers order a vehicle to come pick them up and drive them to their destination should increase the adoption of manufacturer liability policies. As fleets of such vehicle increase, look for an associated increase in commercial car insurance.

Part 2 of 2: Self-driving car insurance impacts

In addition, as liability switches from drivers to manufacturers, car insurance companies need to adjust how they approach insuring this game-changing technology. Some of the changes car insurance companies will see with the introduction of self-driving technology, according to the Insurance Information Institute, include:
  • Insurance regulation: With the introduction of self-driving cars, expect car insurance companies to push for a standardization of state insurance requirements. Such standardization should decrease the cost associated with trying to comply with the rules of 51 different jurisdictions — as is the current process.
  • Underwriting: Look for underwriting to change as well as insurance moves away from the driver record, where an accident a driver has impacts what they pay in premiums, to one where insurance underwriting might depend more on the reliability of the technology involved.
In addition, many expect the use of telematics devices to grow by up to 20% over the next five or so years with the introduction of an increasing amount of self-driving technology.
  • Repair costs: Also, look for repair costs to increase as the technologies involved in self-driving cars become more complex. But if a significant decrease in the number of accidents does occur, as predicted, it could help offset soaring repair costs.
In addition, a University of Texas at Austin study found that on-demand use of a self-driving vehicle could replace up to 11 conventional cars, reducing the number of vehicles on the road, and thus making it safer to drive, according to the Insurance Information Institute.
With self-driving cars predicted to change the way car insurance works in both the short and long term, you should keep up to date on upcoming changes and remain aware of what is expected in regard to car insurance coverage.

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