Insurance Coverage for Driverless Cars

Driverless car driving on highway viewed from rear seat

metamorworks / Getty Images 

Driverless vehicles from Tesla, Volkswagen, and Uber are currently being developed and tested on American roads, and making lots of headlines along the way.

In addition to incredible leaps in automotive technology, new aesthetics, and viral promotional mishaps, Tesla has had four "verified" autopilot-related deaths over the last four years, and in early 2018, a pedestrian was killed by a driverless Uber Volvo in Tempe, Arizona.

If—like most Americans—you own a vehicle without the ability to navigate traffic on its own, self-driving cars and their subsequent hype may feel irrelevant to your daily commute. But despite their futuristic bent, these new vehicles will have a lasting effect on the insurance industry, and may have repercussions for your current insurance premiums.

Gaining in Popularity

Despite the highly-publicized accidents, advancement in driverless technology is progressing rapidly in response to consumer interest. According to David Macknin, President and CEO of Alper Services, a national insurance brokerage headquartered in Chicago, Americans living in major metropolitan areas will see fully and partially automated vehicles on the road every day by 2022. Tesla had its best year to date in 2019, selling 367,500 cars.

“Right now, it’s a little like the wild wild west," Macknin says. "And all of us—drivers, passengers, and manufacturers alike—are the pioneers.”

Insuring a Driverless Car

Traditionally, auto insurance has followed the driver, regardless of what vehicle they’re driving. When the car is driving itself, this paradigm is completely disrupted.

Macknin explains that insuring automated vehicles comes down to a basic question of what it means to drive, and also notes there has yet to be a conclusive answer to this question as far a insurance liability is concerned.

"Car companies are stepping in to clean up any issues. None of the players on the autonomous car stage can afford adverse publicity right now," Macknin says. "Because the research and development expenditures are so vast—[automated car manufacturers] don’t want anything slowing them down. When it came to the pedestrian death in Tempe, the companies took care of everything behind closed doors within a couple of weeks. [Insurance companies] will never know the amount or the specifics."

The Short Term Fix

Until courts adjudicate otherwise, insurance will continue to be held by the owner of the car, no matter whose hands (if anyone’s) are on the wheel.

“I actually have an autonomous car now, and my insurer doesn’t know and doesn’t ask if I’m driving or the car is driving," Mackin says. "The incident rate is so infinitesimal it’s not a big deal to them, nor will it be for a while."

The Long Term Need’s senior economic analyst Mark Hamrick says there’s going to be an “epic battle” among lobbyists and trade groups trying to spread the risk around among manufacturers, insurers, car owners, municipalities, and others. Much of this, Hamrick explains, will be determined by legislation at state and federal levels.

“Ultimately, the courts will need to determine with whom the liability rests, and it could take a decade or more for that to happen,” Hamrick says. “Everyone is going to point fingers at the other guy. It’s going to come down to who has the best hold-harmless agreement, and who has the best attorney arguing in court."

Will Premiums Decrease?

"Things are only going to get better for consumers, both in terms of insurance prices and car prices," Hamrick says. While car prices aren’t likely to plummet by any stretch of the imagination, self-driving cars, along with the proliferation of ride-share services like Uber and Lyft, mean that fewer people will need to own cars, which should make coverage less expensive overall.

Currently, the average cost of car insurance for a Tesla is $4,352 per year in the U.S. This price, of course, depends on the model and trim, where you're located, the amount of coverage you choose to purchase, and your driving record.

In August of 2019, Tesla announced they would be providing their own insurance to drivers, and promised, "a competitively priced insurance offering designed to provide Tesla owners with up to 20% lower rates, and in some cases as much as 30%."

The company currently offers comprehensive coverage and claims management to support customers in California, and it plans to expand to additional U.S. states in the near future.

“In the past, families bought a car for their kids as soon as they turned 16, but that is ceasing to become a necessary option,” Hamrick explains. "Self-driving cars, for example, could potentially take you to work on one side of town, and then swing back by the house and take your kids to school on the other."

If autonomous technology works as envisioned, the number of accidents on the road should decrease dramatically. Since most accidents are caused by human error, when you remove humans from the equation, accident totals should fall.

As such, the people with the highest premiums in the future will likely be those who want to drive the “old-fashioned way.”