Will Self-Driving Cars Make Insurance Cheaper?

Self-driving cars may comprise as much as 75% of vehicles on the road by 2040 according to the Institute of Electrical and Electronics Engineers (IEEE), but it is unclear whether self-driving cars will make insurance cheaper. While self-driving cars, also called autonomous vehicles (AVs), may reduce the likelihood of collisions, the cost of each collision will likely increase. AVs have high purchase prices, costly replacement parts and will need specialized technicians for maintenance. These factors contribute to higher insurance rates.

Will Self-Driving Vehicles Bring Down the Cost of Car Insurance?

The relationship between AVs and insurance premiums is still clear until AV testing is complete. AVs will likely improve safety and reduce collisions but will be expensive to manufacture, purchase, repair and maintain. Therefore, premiums may increase for these vehicles.

The existing car insurance framework will likely adjust to accommodate self-driving cars.

Fewer Collisions Contribute to Lower Costs

AVs will feature innovations that should improve safety and reduce the number of collisions otherwise caused by human error or judgment, such as driving distracted or speeding. A drastic decrease in car accidents due to increased AV ownership should contribute to lower car insurance premiums.

After all, insurers already offer discounts on cars equipped with certain safety features, like anti-lock brakes, anti-theft systems and semi-autonomous features like advanced driver assistance systems (ADAS).

However, the total cost associated with driverless vehicles — from production to ownership — is quite high and may outpace the savings from lower accident claims.

Higher Purchase Price

AVs are more expensive. Your vehicle’s fair market value is one of many rating factors used to calculate your premium since insurers may need to replace your vehicle, if totaled in an accident. Therefore, vehicles that are expensive to replace are also more expensive to insure.

We’ve already seen this pattern with electric vehicles (EV). EVs cost more, on average, to insure than a non-luxury brand. According to Kelley Blue Book, a new non-luxury vehicle cost $43,072, on average, while a new EV cost $60,000 (39% increase).

Costly Replacement Parts

Semi-autonomous features (e.g. adaptive cruise control, lane-keeping assist system) already have a high replacement cost. Driverless vehicles will likely carry all of these and more, resulting in higher price tags and self-driving car insurance premiums.

While autonomous vehicles may reduce the number of collisions, increased repair costs will likely increase the cost of each collision. AV technology incorporates unique materials and sophisticated sensors that can drive up the cost of replacing damaged or defective parts.

Specialized Technicians

Autonomous cars are essentially computers on wheels and not all repair shops will have the expertise to service self-driving vehicles. Qualified automotive engineers that can identify, troubleshoot and repair new technology will likely command higher prices. As a result, insurance premiums may also rise.

Is the Driver or Automaker Liable?

If the car has full self-driving capability and the “driver” is now a passenger, and the manufacturer will likely be held liable.

Liability may also depend on the level of automation. There are five levels of automation according to the National Highway Traffic Safety Administration:

Level 1-2: The driver receives some technological support for steering and accelerating or braking, such as adaptive cruise control, lane-keeping assistance or lane departure warning, and automatic emergency braking.
Level 3: The system handles all aspects of driving, but the driver must be available to resume driving manually.
Level 4-5: The driver becomes a passenger as the system fully handles all driving tasks. Level 4 AVs are operable in only limited service areas, while Level 5 AVs can operate on all roadways.

For levels one to three, the driver will likely share at least some liability with the manufacturer since the driver is actively driving the vehicle or can take over if needed. With levels four to five, we predict the manufacturer will assume most of the liability since the “driver” is only a passenger and not involved with driving the vehicle. However, this is only conjecture based on the limited data available during the AV testing stages.

How Will Autonomous Vehicles Change the Insurance Landscape?

The existing car insurance framework will likely adjust to accommodate self-driving cars but some significant changes may be necessary.

Insurance Companies Will Likely Expand Coverage to AVs

The existing car insurance framework is the best for handling self-driving car accident claims and compensating drivers efficiently according to a 2021 Travelers Institute report. We predict insurers will adopt new insurance underwriting methodologies to cover AVs to make it easier for future drivers to insure their autonomous cars.

Product Liability Does Not Work

Without the standard insurance framework in place, self-driving car owners would likely turn to the manufacturer to get compensated for losses. After all, the automaker will likely be held liable for completely self-driving vehicles — the human driver is only the passenger.

However, getting compensation may only be possible after a lengthy and tedious court lawsuit, if the victims get compensated at all. The Travelers Institute cites the exploding Takata vehicle airbags as an example — the process of recalling the dangerous product and investigating the defect took over 10 years.

Subrogation Will Play a Bigger Role

After compensating AV drivers for a covered claim, insurance companies can seek reimbursement from the manufacturer in a process called subrogation. We’ve already seen insurance companies do this in 2010, when Toyota owners filed a class-action lawsuit due to an issue that caused the vehicle to suddenly accelerate. The defect resulted in fatal accidents. Insurance companies compensated insureds with this issue and then filed subrogation actions against Toyota to recoup their loss.

With subrogation, consumers are compensated while the insurance companies deal with the manufacturer directly.

AV Drivers Will Want Comprehensive Coverage

AV drivers will likely want comprehensive coverage for non-collision incidents, like theft, vandalism and falling objects, losses likely not covered under the vehicle warranty or the manufacturer's product liability coverage.

Current State Insurance Requirements May Need Revisiting

If the prediction by the IEEE comes true and 75% of cars on the road will be AVs, then current state minimum insurance limits may need to be revisited. The cost of manufacturing, maintaining and repairing an AV after an accident can be significant. A few states have property damage liability limits as low as $5,000. Such a low limit may not fully cover an AV driver’s losses.

The Farmers Institute believes that insurance companies should be actively involved in regulating AVs, encouraging higher state minimum limits and even expanding no-fault insurance. If AV manufacturers become the bearer of liability, then there will be no need to determine fault between drivers, and insurers will simply reimburse their insureds without an investigation.

Self-driving Cars and Insurance - Get Affordable Rates

What Types Of Obstacles Will Self-Driving Cars Face?

Beyond disputes about liability and how to insure AVs, self-driving cars will need to overcome public opinion, improve cybersecurity and discourage distracted driving.

Public Concerns About Safety

People may not be ready to embrace AVs for everyday commuting just yet. In 2020, the Partners for Automated Vehicle Education (PAVE) surveyed 1,200 adults and found the following:

75% of respondents believed “AV technology is not ready for primetime,”
48% of Americans “would never get in a taxi or ride-share vehicle that was being driven autonomously.”
20% believe AVs will never be safe.
34% of Americans think “the advantages of AVs outweigh any potential disadvantages.”
18% of Americans would join a waiting list for the first AV.

It may still be a few years until AVs are available for purchase but automakers will need to work hard to ease drivers’ concerns if AV technology truly is the near future of driving.

AVs will likely improve safety and reduce collisions.

Exposure to Cyberattacks

Like any other piece of advanced technology, AVs will be vulnerable to cyberattacks. Cybersecurity will play an essential role in protecting AV drivers from remote hijacking, unauthorized access and theft of collected data. The U.S. Department of Transportation is working closely with manufacturers to ensure that AV technology will be safe for consumers.

Distracted Driving

It may be several years before AVs will reach complete automation. Until then, semi-autonomous cars will require drivers to remain alert and take the wheel in emergencies. However, distracted driving may worsen if drivers become overly reliant on the automated system.

The 2018 Tesla Model X crash in California and the self-driving Uber car crash in Arizona are two examples that involved fatalities. The Tesla driver died after the car crashed into a concrete lane divider, while the self-driving Uber car driver hit and killed a pedestrian crossing the street. In both cases, the drivers were distracted — the first case involved playing a video game and watching a TV show in the second.

Drivers will need to remain vigilant when driving mostly autonomous cars or risk another fatal accident.

What Are the Major Automakers and Technology Companies Testing Self-Driving Cars?

Many major automakers and technology companies are experimenting with AVs, including the following:

Nissan
Subaru
Volvo
Mercedes-Benz
Tesla
General Motors
Ford

FAQs

Do self-driving cars need insurance?

Since self-driving cars will be sharing the road with other drivers, they will likely need to at least meet their state’s minimum liability coverage requirements. However, it is unclear how AV coverage will be structured and the required limits since AV regulations are still pending and AVs are in the testing phase.

Are self-driving cars more expensive to insure?

The safety features built into self-driving cars will likely lower the likelihood of a collision occurring but high-cost replacement parts and the need for specialized technicians for maintenance may actually increase insurance premiums. Until more data is available, it is not entirely clear whether self-driving cars will be more or less expensive to insure.

Will self-driving cars disrupt the insurance industry?

It is possible that self-driving cars will be absorbed into the existing car insurance framework with insurers using factors, like AV safety features and repair costs, to measure risk exposure and calculate premiums accordingly — similar to insuring a conventional car. For liability claims that involve manufacturer defects, policyholders may be compensated up to their policy limits and the insurance company may seek reimbursement from the manufacturer.

Key Takeaways

While self-driving technology will likely lower the number of collisions, the cost of each collision may increase due to costly AV replacement parts and the need for specialized technicians — it is unclear whether AVs will increase or decrease insurance rates.
The existing auto insurance framework is the best way to compensate drivers and victims in AV accidents according to the Travelers Institute.
Whether the driver or manufacturer should be held liable for auto accidents will likely depend on the level of automation, with both parties possibly sharing liability if the driver was not alert.

Are you paying the lowest possible rates for car insurance? If not, SmartFinancial can analyze carriers in your area to match you with equal or superior coverage at a cheaper price. Just enter your zip code below or call 855.214.2291 to receive your free car insurance quotes.

Will Self-Driving Cars Make Insurance Cheaper?

Dan Marticio

Fran Majidi

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