Self-driving cars, also known as autonomous vehicles or driverless vehicles, are vehicles that can operate and navigate without human input. There are different levels of automation defined by the Society of Automotive Engineers, ranging from Level 0 with no automation to Level 5 for full automation.
- Level 0 - No Automation
- Level 1 - Driver Assistance
- Level 2 - Partial Driving Automation
- Level 3 - Conditional Driving Automation
- Level 4 - High Driving Automation
- Level 5 - Full Driving Automation
Currently, most vehicles have driver assist features that provide partial automation, but fully self-driving vehicles are still being developed and tested. This article will examine insurance requirements and considerations for autonomous vehicles.
Required Insurance Policies
There are several key insurance policies that manufacturers and owners of autonomous vehicles need to have in place:
Auto Liability Insurance
This policy covers bodily injury and property damage liability if an autonomous vehicle is involved in an accident. Auto liability insurance is mandatory in most states for registering any vehicle. For autonomous vehicles, liability questions arise regarding who is at fault in an accident - the driver, the vehicle manufacturer, or the software developer.
Liability caps may need to be increased to account for potential product defects and flaws in self-driving systems. Umbrella insurance policies can provide additional liability coverage beyond state minimums.
Physical Damage Coverage
Physical damage coverage protects against damage to the autonomous vehicle itself. This includes:
- Collision coverage - covers damage from colliding with an object
- Comprehensive coverage - covers damage from non-collision events like weather, vandalism, or theft
Repair costs for autonomous vehicles may be higher than standard vehicles due to specialized sensors and equipment.
Product Liability Insurance
Manufacturers of autonomous vehicles will likely need increased product liability insurance to cover potential defects in self-driving systems that could cause accidents. This protects the manufacturer if they are found liable.
Cyber Liability Insurance
Cybersecurity insurance covers financial losses and liabilities if an autonomous vehicle is hacked and compromised. As vehicles become more connected and reliant on networks and data, cyber risks grow.
Fleet insurance can provide comprehensive coverage for ride-sharing, delivery, and transportation companies using autonomous vehicles. This combines liability, physical damage, and other coverages under one policy at a discount.
- Covers entire fleet under one policy
- Streamlined underwriting and claims
- Lower premium costs
Insurance underwriters will need data from autonomous vehicle manufacturers to properly assess risks. Key factors:
- Safety features and collision avoidance capabilities
- Cybersecurity safeguards
- Miles tested and accident data
- Level of autonomy
New data sharing frameworks between insurers and automakers may need to be developed.
As automation increases, the role of drivers is expected to decrease, along with their fault in accidents. This shift of liability from driver to manufacturer will impact claims and premiums industry-wide.
Potential Impacts on Insurance Industry
Widespread adoption of autonomous vehicles will likely reshape the car insurance industry in the coming years. Here are some potential impacts:
Reduced Claims and Premiums
With advanced driver assistance systems (ADAS) and self-driving capabilities, autonomous vehicles are expected to dramatically reduce accidents caused by human error and risky driving behaviors.
Fewer crashes generally mean lower claim volumes and payouts for insurers. This could substantially lower insurance premiums for autonomous vehicle policies.
However, claims are not likely to be eliminated altogether. There may still be accidents due to:
- Software defects or failures
- Cyberattacks
- Machine errors
- Equipment malfunctions
- Extreme weather conditions
Premium reductions may happen gradually as automation reaches higher levels. Tesla owners with Autopilot can already get discounts up to 30% with some insurers.
Liability Shifts
As automation increases, liability will shift away from individual drivers towards automakers and technology companies responsible for self-driving systems.
Lawsuits and claims will seek damages from manufacturers for software flaws, sensor failures, or other vehicle deficiencies leading to accidents. Insurers will see claims filed against corporate policies rather than individual driver policies.
This redistribution of liability could impact pricing models as risk exposure changes for different policies. More costs may be pushed onto commercial auto policies.
Changes to Underwriting
With fewer accidents expected, individual driving records may become less predictive for risk and pricing. New rating factors could include:
- ADAS features installed
- Level of autonomy
- Amount of driver monitoring required
- Cybersecurity protocols
- Regular software updates
Large datasets from vehicles could give insurers more insights into safety performance, mileage, usage habits and more. This can enable more personalized underwriting and pricing.
Insurance underwriters will need to develop expertise in autonomous vehicle technologies as they expand in use.
Liability Issues
Determining liability in the event of an autonomous vehicle accident raises many new legal questions.
Determining Fault in Accidents
For lower levels of semi-autonomy, the human driver maintains responsibility and can be liable for accidents.
But as autonomy reaches conditional automation or high automation, it becomes less clear who is at fault when crashes occur:
- The human occupant/operator?
- The vehicle manufacturer?
- A component or software supplier?
Liability will depend on the specific circumstances and which autonomous driving elements were engaged at the time of the incident.
If accidents are caused by product defects, then automakers and suppliers may bear responsibility through product liability claims.
But if the occupant failed to properly monitor or maintain control when required, they could share in liability too.
Automaker vs. Driver Responsibility
States have different laws regarding autonomous vehicle accident liability:
- Some LIABILITY ALLOCATION - according to respective fault
- Some assign FULL LIABILITY to drivers
- Some assign FULL LIABILITY to automakers
A patchwork of state laws creates compliance challenges for automakers and insurers.
Clear federal standards are needed to answer questions like:
- When does the human driver need to take over manual control?
- Can drivers be liable for monitoring failures?
- Can automakers be held liable for systems allowing unsafe human takeover?
Insurance Implications
Liability disputes resulting from accidents may lead to increased litigation. Insurers on both sides will see claims activity rise.
Product liability coverage will become essential for automakers. Umbrella and excess liability policies will provide higher limits above state auto insurance minimums.
Human drivers and vehicle owners will likely still need adequate property damage and bodily injury liability, unless laws eventually shift all fault onto manufacturers.
Cost Factors
Insuring autonomous vehicles introduces new cost considerations beyond traditional auto policies.
Repair Costs
Repairing damaged autonomous vehicles will be more expensive than fixing conventional human-driven vehicles.
Key differences include:
- Specialized components - Lidar sensors, cameras, radar, laser projectors, AI chips
- Advanced systems - Software, control systems, operating platforms
- Skilled technicians - Specially trained to service autonomous tech
- Proprietary parts - Only available from manufacturer
- Calibration requirements - Must recalibrate sensors after repairs
Small repairs like dents or glass claims lead to bills in the thousands. Severe collisions incur five-figure repair costs.
Insurers will need a network of approved repair shops capable of servicing autonomous vehicle makes and models. Repair costs will be a significant factor in premiums and claims payouts.
Fleet Insurance Discounts
Fleet coverage for autonomous vehicles provides opportunities for savings and efficiency.
Insurers offer lower premiums for protecting an entire fleet under one policy. Bulk underwriting streamlines the process.
Costs can scale for large fleets while still providing flexibility per vehicle. Fleet policies offer:
- Bundled coverage options - first party, liability, excess liability
- Shared limits across the entire fleet
- Deductible options per vehicle or entire fleet
Customized fleet plans are available based on fleet size, vehicle type, use, and other characteristics.
Leveraging fleet policies allows businesses to optimize costs and coverage as they adopt new autonomous vehicle technologies.
Premium Load Factors
How insurers price autonomous vehicle policies will evolve along with the technology.
Premium charges will likely adjust to reflect new risk profiles. Some factors adding loading costs:
- Higher repair costs - more sensors, calibration needs, etc.
- Cyber risks - potential hacking vulnerabilities
- Uncertain liability - complex claims involving multiple parties
- Litigation risks - increased lawsuits and legal expenses
But premium reductions are also possible as automated safety features reduce accident frequency.
Data, competition, and loss experience over time will shape how insurers adapt pricing models. The regulatory environment in each state also impacts costs.
Automation Levels
Understanding the different autonomous vehicle automation levels is key for insurers adapting coverages.
Driver Assistance Features (Levels 1-2)
Most vehicles on the road today have driver assist technologies that provide partial automation:
Level 1 - Driver continually maintains full control but gets warnings or automated assistance like automatic emergency braking.
Level 2 - The vehicle can control steering, acceleration, and braking in specific use cases, but driver must remain engaged and monitor the road.
Examples include:
- Adaptive cruise control
- Lane centering
- Self-parking technology
- Automated lane changing
The human driver maintains legal responsibility and is liable for accidents. Insurance works similarly to regular policies but may offer discounts for advanced safety features.
Conditional Automation (Level 3)
Level 3 conditional automation enables the vehicle to handle all driving functions under certain conditions. The driver does not need to monitor constantly, but must be ready to take over when needed.
In level 3, liability may shift more towards the automaker if they fail to properly limit the autonomous driving to appropriate conditions.
Mercedes recently became the first to gain approval for level 3 automated driving features in Nevada. However, no vehicles are approved for level 3 across all U.S. states yet.
High Automation (Level 4)
A level 4 vehicle can drive itself without any human input under certain conditions and locations. Key aspects:
- No driver attention needed when automated driving features engaged
- Vehicle responsible for monitoring road conditions and environment
- Features limited to mapped highways or geo-fenced areas only
During automated operation, the vehicle would likely assume full liability in any crashes. But human operators may share blame if they operate the vehicle outside its approved domains.
Waymo test vehicles and GM's Cruise automation operate at level 4 under limited conditions. Approvals to expand domains are still pending.
Full Driving Automation (Level 5)
This refers to fully autonomous cars capable of performing all driving functions under all conditions.
With level 5 vehicles, automakers would assume full liability for the vehicle's operation. Human occupants become simple passengers with no driving responsibility.
Experts believe level 5 automation is still many years away from becoming broadly commercially available. Extensive testing is still required to validate safety across diverse environments.
As technology progresses through these stages, insurance products and regulations will continuously adapt around the shifting autonomy levels and division of control.
Laws and Regulations
Insuring autonomous vehicles raises policy questions that laws and regulations aim to address.
Federal Guidelines
The National Highway Traffic Safety Administration (NHTSA) provides a national framework of recommended practices for self-driving vehicles. Key aspects include:
- Safety assessment - Regular testing and validation of autonomous features
- Cybersecurity - Protections against hacking and unauthorized access
- Crash reporting - Mandatory reporting of autonomous vehicle crashes
- Consumer education - Helping consumers understand capabilities and limitations
However, the NHTSA policies are voluntary. Enforceable standards require action from Congress.
The lack of binding federal direction leads to an evolving patchwork of state laws.
State Requirements
States take varied approaches to overseeing autonomous vehicles and insurance:
- Testing regulations - Permits, reporting, safety drivers required
- Insurance mandates - Liability coverage minimums
- Use restrictions - Limiting full automation to test fleets
- Safety inspections - Vehicle approval processes
- Accident liability - Impacts claims and litigation risks
This state-level variability poses challenges for developing nationally scalable insurance products. Insurers must adapt to individual state markets.
Some states set additional coverage requirements beyond regular minimum limits. For example:
| State | Autonomous Vehicle Insurance Requirements |
|---|---|
| California | $5 million liability coverage |
| New York | $5 million liability + $5 million bond |
| Michigan | $10 million liability coverage |
Future Considerations
- Uniform standards - Clear liability rules and operating regulations needed at federal level
- Infrastructure coordination - Integration with smart highways and connected networks
- Expanded oversight - Safety validation, cybersecurity, and data privacy
- New risk pools - Managing increased product liability exposure
- Regulatory flexibility - Accommodating rapid technology changes
Lawmakers also face complex questions regarding the ethics of autonomous vehicles and programming decisions about risks in different crash scenarios.
Close collaboration between regulators, automakers and insurers will shape the legal landscape governing autonomous vehicles.
Driver Requirements
Autonomous vehicles have shifting needs for human driver involvement depending on the level of automation. This impacts insurance risks.
Supervision for Lower Automation Levels
For vehicles at automation levels 1 and 2, the human driver maintains full legal responsibility. The vehicle provides warnings or limited automated assistance, but the driver must continue actively supervising.
Drivers are liable for any accidents that occur while using driver assist technologies like automatic emergency braking or adaptive cruise control.
Insurers advise monitoring the road and being prepared to brake or steer at any time. Policies may stipulate:
- Hands must remain on the wheel
- Paying attention to driving environment
- Ready to take over immediately if needed
Distracted driving at these levels can still lead to accidents and claims. Insurance pricing depends heavily on individual driving records.
Responsibilities and Limitations
At Level 3, drivers can legally turn attention away temporarily during automated driving, but must be prepared to resume control when prompted.
Drivers remain responsible for:
- Monitoring automation alerts
- Properly enabling/disabling features
- Maintaining vehicle sensors
- Staying within intended operating domains
The vehicle bears more liability, but human errors may still occur around improper use or supervision.
Higher automation permits more hands-free operation, but insurers caution against sleeping or activities preventing takeover. Policies may exclude coverage if drivers improperly rely on automation or disable safety features.
Impaired Driving Concerns
Fully autonomous capabilities could potentially curb impaired driving someday if human oversight becomes unnecessary.
Currently though, no level of automation allows intoxicated or distracted driving. These behaviors void insurance policies and expose drivers to legal penalties. DUI laws still apply.
Drivers should avoid misusing self-driving features or believing they reduce crash risks under the influence. Insurance pricing continues to reflect individual factors.
Premium Incentives
Some insurers offer discounted premiums incentivizing safe autonomous and semi-autonomous driving:
- Using advanced driver assistance features as intended
- Completing training/education on system capacities
- Allowing data monitoring for continued validation
- Regularly updating vehicle software
- Adhering to all use conditions and manuals
Following best practices can demonstrate lower risk and earn savings. However, risky behaviors or over-reliance on automation can increase costs.
Insurance Rates and Pricing
Insurers are adapting rate structures to account for autonomous vehicle technologies.
Premium Discounts for ADAS Features
Many insurers offer discounts for advanced driver assistance systems (ADAS) and active safety packages such as:
- Automatic emergency braking
- Forward collision warning
- Lane departure warning
- Blind spot monitoring
- Adaptive headlights
Average savings range from 5% to 30% for vehicles equipped with these automated features.
Discounts incentivize consumers to adopt safety technologies that may reduce accidents. However, insurers caution that these features do not replace attentive driving.
Usage-Based Insurance
Usage-based insurance (UBI) programs use telematics devices or mobile apps to capture driving data such as:
- Mileage
- Time of day
- Speed
- Braking habits
- Cornering
Insurers incorporate this data into pricing models for personalized rates. Policyholders can earn discounts by practicing safe driving behaviors.
As vehicles become more autonomous, UBI data provides insurers greater insights into automated system performance and real-world usage.
However, privacy issues regarding data collection and sharing need to be addressed.
Evolving Risk Assessment
Rating factors will evolve to better reflect autonomous vehicle risks:
- Automation software and hardware
- Level of autonomy
- Capability assessments and validation
- Cybersecurity protocols
- Over-the-air software update frequency
- ADAS package options
- Fleet vs personal use
Individual driving factors may become less predictive as automated systems assume control.
Pricing models will aim to balance premium incentives rewarding safety with adequate risk reflects and profitability.
State Regulatory Environment
Insurance rates are regulated at the state level. Pricing models and available discounts vary based on:
- File and use - No prior approval, just file rates with state
- Use and file - Set own rates then file after
- Prior approval - Get approval before changing rates
- Flex rating - Band of pre-approved rate changes
Navigating disparate state rules poses obstacles to insurance availability and affordability for autonomous technology.
Equitable Access
There are also concerns around autonomous vehicles potentially creating insurance inequalities:
- Higher premiums for regular vehicles as crashes concentrate among fewer manual cars
- Potential bias if algorithms rely on variables correlating with demographics and credit scores
- Affordability barriers if only the wealthy can access self-driving tech initially
Insurers and regulators will aim for risk-based pricing aligned with fair access as adoption evolves.
Conclusion
The advent of autonomous vehicles promises to transform the automotive and insurance landscape. As self-driving technology progresses, insurers must adapt to shifting liability frameworks, pricing models, regulatory needs and consumer expectations.
Key trends will likely include reduced premiums but increased product liability risks, evolving underwriting factors, and closer collaboration between insurers and automakers. Auto insurance will expand to cover new areas like cyber risks and software failures.
Navigating this transition involves addressing regulatory gaps, infrastructure coordination, and equitable access barriers. Driverless car insurance requires balancing innovation with considerations around safety, privacy, and fairness.
Despite remaining uncertainties, the safety and efficiency benefits of automated driving technology are compelling. Insurers play an integral role in enabling adoption through expert risk management and shaping economically sustainable solutions.
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