Do Self-Driving Cars Spell Doom for Auto Insurers?

The self-dri­ving car seems like a ter­ri­ble driver’s dream: no steer­ing wheel to con­trol, no trou­ble par­al­lel park­ing, no con­cerns about hav­ing a cou­ple of beers on the way home from work. But the removal of fal­li­ble human dri­vers might cre­ate hav­oc for auto insur­ers.

Human error accounts for 90 per­cent of road acci­dents, accord­ing to the Inter­na­tion­al Orga­ni­za­tion for Road Acci­dent Pre­ven­tion, and our col­lec­tive fail­ure rate helps the auto insur­ance indus­try rake in a cool $157 bil­lion in pre­mi­ums each year. So if self-dri­ving cars elim­i­nate all those dri­ver mis­takes, the busi­ness of insur­ing vehi­cles will nec­es­sar­i­ly change as well.

A recent study by RAND Corp. pre­dict­ed increased lia­bil­i­ty for auto man­u­fac­tur­ers while per­son­al lia­bil­i­ty plum­mets. “If a vehi­cle and a human share dri­ving respon­si­bil­i­ty, the insur­ance issues could become more com­pli­cat­ed,” the study not­ed. The RAND authors had a sober mes­sage for insur­ers: If auto­mat­ed vehi­cles suc­ceed in reduc­ing the risk of crash­es, the indus­try could see a “sig­nif­i­cant reduc­tion in insur­ance pre­mi­ums.” The aver­age cost of auto insur­ance in the U.S. is $1,020, accord­ing to AAA, giv­ing the indus­try a lot to lose.

In writ­ing dri­ver­less insur­ance poli­cies, under­writ­ers will like­ly focus on the make and mod­el of a car instead of a driver’s acci­dent his­to­ry or how often he dri­ves. There may also be the intro­duc­tion of “black box­es,” data recorders akin to those found in air­planes that can track car data and deci­pher what real­ly hap­pened sec­onds before a crash.

Anoth­er pos­si­bil­i­ty: an uptick in no-fault insur­ance, where an insur­er cov­ers the dam­age regard­less of who’s to blame. This type of insur­ance has fall­en out of favor in recent years as the cost of med­ical claims has increased, despite the expec­ta­tion of low­er lit­i­ga­tion costs.

While it’s too ear­ly to tell which way auto insur­ance will go, there’s anoth­er cost for car own­ers that may go up. With few­er acci­dents keep­ing the nation well sup­plied with mechan­ics, repair­ing that fend­er ben­der may cost you more.


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