What will Autonomous cars mean for auto insurance?

Driverless cars are becoming more and more popular among auto manufacturers around the globe. So far 9 states have enacted some type of legislation allowing and monitoring the use of autonomous cars. Most states only allow the use of these cars for testing and many of those states require a passenger to be present in the driver’s seat. Because of the newness of this technology and the slow pace of acceptance from a majority of state legislatures, many would assume that autonomous cars being commonplace is still several years away. This attitude by several states can mean one of two things: That most of the states are correct and the use of this technology is still very much in its infancy or that a majority of the states are not being proactive. The lack of forward thinking legislation towards this technology could cause chaos throughout the auto industry when the technology is ready to be used by the general public. One area of the auto industry that will be impacted drastically is the insurance industry. Three main ways in which the auto and insurance industry will have to deal with this new technology is through regulation, liability insurance and repair costs.

Automobile ownership has decline steadily for at least the past decade. More people in urban areas are opting for public transportation and ride-shares like Uber or Lyft. Some experts wonder if there will be a day when all vehicles are self-driving and if that day comes will there be a need for many people to actually own a car. If this does occur cars may be owned by a company, municipality or other group. This will drastically change the insurance industry from one of mainly personal auto insurance policies to one where liability will be to a commercial operation. The need for a car is still going to be a necessity in this country for the time being, but autonomous cars are going to be a larger portion of the cars on the road sooner, rather than later. For that reason, the auto and insurance industries will have to be proactive in order to deal with these coming technological advances.

As autonomous cars become more common, there will still be a need for liability coverage. Eventually the coverage could change. In a study done in 2014, the 2014 RAND study on autonomous vehicles, many leaders believe manufacturers, suppliers and maybe even municipalities will be called upon to take on some of the responsibility for accidents. According to the sturdy, coverage for physical damage due to a crash and for losses caused by things like wind, floods, other natural elements and theft (comprehensive coverage) are less likely to change. They may even become cheaper because of less crashes occurring with driverless cars. On the other hand, Autonomous cars have more expensive parts attached to the cars. This could cause the cost of claims to rise due to higher costs to repair or replace damaged vehicles. It will all depend upon the difference between a lower accident frequency rate and higher cost to repair the cars when accidents do occur. The study also predicts the number of vehicle-related workers’ compensation claims should drop as will the share of healthcare and disability costs related to auto accidents. These types of claims currently account for a large but decreasing portion of claim costs. Three main ways in which the auto and insurance industry will have to deal with this new technology is through regulation, liability and repair costs.

Regulation: 

Insurance is an industry that is regulated by the individual states. Each state has its own set of rules and regulations for commercial auto insurance (and so far for self-driving cars). Basically, there are two kinds of liability systems. In some states liability is based on the no-fault concept, where insurers pay the injured party regardless of fault, and in others it is based on the tort system. But there are many important differences among the states in the regulations that now exist within each category, see report on No-Fault Auto Insurance. Will the auto insurance system change to be more uniform with the arrival of self-driving vehicles and will the federal government play a larger role? If car manufacturers are required to accept more responsibility for damage and injuries, they might push for a greater role for the federal government to eliminate some of the cost of complying with the rules of 51 jurisdictions.

Liability: 

As cars are become more automated the responsibility becomes on the manufacturer to prove it was not responsible for what happened in the event of a crash. The liability issue may evolve so that lawsuit concerns do not drive manufacturers and their suppliers out of business. According to the RAND Study, referenced above, most states will implement some sort of no-fault auto insurance system. This will make probable that more automakers will enter the market for autonomous cars and the competitio0n will drive down the price for these vehicles.

Repair Costs: 

While the number and severity of accidents is expected to drop as more technological advances are incorporated into vehicles, the cost of replacing damaged parts is likely to increase. This is because of the complexity of the components used to make it possible for the car to drive itself. At this time, it is not clear whether the reduction in crashes will offset the cost to repair vehicles because of the more expensive parts.

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