The Future of Driverless Cars and Insurance: Who Pays?

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When I hear the phrase “driverless cars,” all I really want to know is if my insurance premiums are going to go down. The answer is yes—but it’s not that simple.

As you’ve undoubtedly heard, driverless cars from Tesla, Audi, Uber and Volkswagen are already on the road and making headlines, not only for their exciting implications for future use, but also tragedies, as the technology is being tested and perfected.

Tesla has had two autonomous vehicle-related deaths over the last three years, and earlier this year in Tempe, Arizona, a pedestrian was killed by a driverless Uber Volvo.

Despite the accidents, advancements in driverless technology are progressing every day. It’s reasonable to expect that most of us (especially those of us in major metropolitan areas) will see driverless cars on the road every day by 2022, according to David Macknin, President and CEO of Alper Services, a national insurance brokerage headquartered in Chicago.

But what does that mean for you—and your wallet—particularly where your insurance premiums are concerned? “Right now, it’s a little like the wild wild west, and all of us—drivers, passengers and manufacturers alike—are the pioneers,” Macknin says. Here’s what you need to know to wrap your head around this.

So, how do you insure a driverless car?

Traditionally, auto insurance has followed the driver, regardless of what vehicle they’re driving, so when the car is driving itself, that flips everything on its head.

“It comes down to a basic question of: What does driving mean?” says Macknin, who notes there is no absolute answer... yet. That in and of itself presents a challenge. Here’s how the landscape will likely play out.

For now...

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—they don’t want anything slowing them down.

When it came to the recent pedestrian death in Tempe, Macknin says the companies took care of everything behind closed doors within a couple of weeks. “We’ll never know the amount or the specifics,” he says.

In the short term…

Insurance will continue to be held by the owner of the car—no matter whose hands (if anyone’s) are on the wheel—until courts adjudicate otherwise. “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. The incident rate is so infinitesimal it’s not a big deal to them, nor will it be for a while,” says Macknin.

In the long term…

Bankrate.com’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,” he 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.

Honestly, all I want to know: Are my insurance premiums going to go down?

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 things less expensive overall. “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,” he says. 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 as well.

Since most accidents are caused by human error, when you remove humans from the equation, accident totals should fall as well. In the very far future, the only people with high premiums may be those who want to drive the “old-fashioned way.”

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With Kathryn Tuggle