An analysis of the current autonomous vehicle market, potential prospects, and estimates on how self-driving car insurance will operate in the near future.
During the last couple of years, numerous companies around the world have started investing hundreds of millions of dollars into the development of self-driving cars, also referred to as autonomous vehicles (AVs). More than a few advancements have been made thus far, whereas several working prototypes are already being tested on public roads. Similarly, semi-autonomous vehicles already exist and are available for public purchase.
The main purpose of this article is to paint a clearer picture of self-driving car insurance mechanisms that will govern these vehicles once they become a part of our daily lives. As such, some of the main topics that we will tackle include, but are not limited to, the current state of self-driving technology, regulatory frameworks concerning insurance mechanisms and autonomous vehicles, safety concerns, public attitude, and the overall impact that self-driving vehicles will have on regular automobile insurance companies.
Before discussing the future of cars, it is important for us to give a quick definition and background of driverless cars. In essence, the term refers to an automobile that is able to drive itself on public roads by sensing its nearby environment without the need for human input, unlike with traditional cars.
Self-driving cars feature several technological advancements that are not present in the current generation of cars. These include radars, GPS, inertial measurement units, lidar, sonar, and cameras. Artificial intelligence-based systems then analyze data provided by these instruments, to help the car recognize its nearby environment, while also making driving decisions on its own. Since such vehicles are capable of taking themselves from point A to point B automatically, this brings several interesting questions regarding self-driving cars’ auto insurance.
At this moment in time, no company is currently offering a fully autonomous vehicle for public purchase, although working prototypes exist and are being tested by developers. Also, several cars already have limited self-driving technologies. For instance, Tesla vehicles feature a limited form of self-driving; driver input is actively required — regulations do not permit fully autonomous vehicles. Moreover, these cars are not advanced enough to offer fully autonomous driving. On the other hand, numerous luxurious cars feature driver assistance systems such as parking aid, adaptive cruise control, emergency braking, accident sensing, lane assist, and more. Thus, driving such vehicles is bound to get easier. Further on, we will explore whether these functionalities have an effect on limited self-driving car insurance.
For simplicity’s sake, self-driving technology is ranked into 5 levels:
Level 1: Cars that feature computer-based assistance for several simple functions, including ABS, stability control, and cruise control. These have been around for years, making driving a breeze; especially for longer journeys. Reports indicate that these features were introduced in the 1950s–60s and are now common with most modern cars.
Level 2: Cars that feature computer systems offering partial automation of specific features; for instance, automatic breaks in case of an emergency. For this feature, cars use front-mounted radars which determine the distance of the vehicle in front. The insurance for self-driving cars will not be affected by this feature as it has been around since the early 2000s.
Level 3: Cars that feature computer systems offering further automation of more complicated driving features, such as lane assist or adaptive cruise control. With these features, the car uses integrated technologies to detect driving lanes to keep the vehicle on-road. Adaptive cruise control entails that the vehicle is able to automatically adapt its distance based on the behavior of the car in front. This level of driver assistance has been recently introduced and is available on a wide array of luxury vehicles; it too will not affect the insurance of self-driving cars.
Level 4: This level takes matters one step further as cars feature mostly automated driving functions. As such, human input is only necessary in case of unexpected and unusual circumstances. Therefore, humans still need to be present. Tesla and other automobile manufacturers will soon have vehicles that are classed as level 4. We will later discuss in full detail the effects of these features associated with self-driving cars and insurance.
Level 5: Last but not least, level 5 implies fully automated driving, without requiring human intervention whatsoever. These cars can drive by themselves (even without a passenger), since they are smart enough to predict traffic conditions, make turns, change lanes, and react to unusual circumstances. This level will likely be achieved within the next 3 decades when more, if not most, of the world’s cars will be based on these AI systems.
Market trends indicate that autonomous vehicles will be the new norm in a couple of years. Thus, it is mandatory for countries across the globe to consider the regulatory framework for these automobiles. At this point in time, prototypes are already roaming the public roads in several regions, so it is interesting to consider what’s happening in areas like these as well. Finally, we must also mention the importance of developing regulation meant for driverless car insurance policies.
In the US, numerous local governments have already enacted laws concerning autonomous vehicles. Therefore, regulatory development is underway; 15 states have reportedly enacted bills concerning the AV industry during 2018. Additionally, 33 states currently have some form of legislation concerning self-driving cars, whereas governors in other states have issued several executive orders regarding the market.
Similarly, action has been taken at a federal level as well, given the fact that the National Highway and Transportation Safety Administration in the US has released a set of guidelines for the automated driving industry. These laws are meant to serve as a regulatory framework for the development and testing of AVs on US public roads.
It is also important to keep in mind the fact that insurance and vehicle statistics showcase that, at this time, roughly 94% of vehicle crashes are caused by driver error, whereas the remaining 6% are caused by other factors such as technical difficulties or roadside issues. Hence, not all of the blame can be placed solely on the driver’s shoulder. Meaning, there are more factors in play when drafting autonomous cars’ insurance, and they all need to be taken into account once such policies are developed for mass-adoption.
One of the main purposes associated with self-driving cars is to increase overall roadside safety by introducing vehicles that are able to make smarter decisions when compared to humans. However, glitches can still occur; self-driving fatalities will likely happen as the technology continues to advance. This will be an important factor worth keeping in mind when considering autonomous vehicles’ insurance.
So far, statistics indicate that several deaths have been caused by self-driving cars, characterized as level 4 of autonomy. For example, on the 18th of March 2018, a self-driving vehicle designed by Uber caused the death of a pedestrian in Arizona. It’s important to remember that level 3 cars are in no way fully autonomous since they still require humans to take control from time to time; especially so in the case of unpredictable events. On the other hand, several deaths have been recorded for level 2 self-driving cars.
Now, when self-driving cars and insurance are concerned, statistics indicate that thus far, 5 deaths have occurred in cars because of autopilot system failure, with the most recent occurring in September 2019. However, crashes took place considerably more often. In fact, a report indicates that thus far, 37 crashes involving Uber’s self-driving cars have occurred, resulting in either personal injury or material damages.
Based on this data, we can conclude that autonomous driving still has a long way to go before it’s fully feasible and can be integrated into most modern production cars. The deaths and personal injuries also lead to numerous discussions on driverless car insurance policies, alongside safety concerns.
In terms of safety concerns, one AAA survey has shown that, currently, 71% of respondents are scared to ride in a self-driving car. Gender also seems to play a role in the survey results, given the fact that 79% of women fear autonomous vehicles, as compared to 62% of men. Moreover, people seem to be more comfortable with self-driving vehicles that operate at low speeds and are designed for short routes. For instance, 53% of survey respondents would use this form of transportation. Additionally, people prefer having an emergency back-up driver in autonomous vehicles; 53% of women and 32% of men to be exact. These rates will likely influence the popularity of driverless cars and insurance policies once they are first introduced on the market.
The general philosophy behind self-driving cars is that they should be able to drastically reduce the worldwide number of roadside crashes, personal injuries, and deaths. After all, there is no purpose in developing such vehicles if safety concerns are not fully addressed by manufacturers. Seeing how we’re still dealing with machines, there are bound to be questions regarding the overall liability for said crashes; especially for those leading to death, where a normal driver would have to face the criminal justice system. Therefore, future autonomous vehicle insurance providers will have to carry out their due diligence when designing policies fit for these cars.
Now, it’s time for an in-depth discussion on the future insurance policies that will govern self-driving cars. Numerous experts have stated that the liability would have to rest primarily on the shoulders of companies — unless the crash was caused directly by a third-party in circumstances where the car had no way of preventing the accident, such as someone jumping in front of the vehicle, natural disasters, and so on. Therefore, insurance policies must be brought up to speed with the new realities concerning autonomous vehicles.
Market experts believe that there are three main categories of self-drive car insurance that manufacturers will need.
driver is no longer relevant since level 5 cars are able to move by themselves, without any driver intervention. Hence, an insurance policy covering cyber risks such as identity theft and other technological errors is essential. There are physical risks associated with tech failure (4–6% in traditional cars), whereas the inter-connectivity provided by self-driving cars make prime targets for cyberattacks.
Theoretically, a cyber-criminal could hack into one of these vehicles, take control, and eventually crash it. Cyber-security risks are difficult to predict (even if manufacturers employ the industry’s best cybersecurity practices), so it will also be extremely difficult for insurance companies to predict the accurate costs of self-driving cars’ insurance.
Human error is highly likely as directors and officers in various industries have made some massive mistakes in the past. Consequently, manufacturers require appropriate policies that are able to reimburse the costs associated with bad judgment and criminal actions undertaken by company decision-makers.
Globally, governments have adopted regulatory frameworks that make it mandatory for all vehicles to be insured. This ensures overall roadside safety and helps mitigate risks; drivers and passengers can rest easy knowing they will be reimbursed in the case of an accident that is not their fault. This will also be the case with self-driving car liability policies.
Industry analysts believe that it is very likely for the entire automobile insurance landscape to change once level 5 autonomous vehicles become the norm. An argument in this direction is that car manufacturers have started launching their own insurance subsidiaries, given that existing insurance companies seem hesitant to provide coverage for such vehicles. Tesla has already launched its own insurance firm.
Since the overall number of accidents will likely decrease with the introduction of self-driving cars, it makes no sense for premiums to be kept at today’s levels. Yes, crashes will still occur, but their number will drop significantly over the next few decades. At this time, the automobile insurance market has premiums valued at roughly $225 billion — these numbers are expected to drop by $41 billion by 2050.
Already, studies showcase that vehicles featuring semi-autonomous driving features are less likely to be involved in car accidents. In this case, we are talking about level 2 and level 3 vehicles, which are significantly safer when compared to cars that do not feature computerized assistance systems. However, autonomous cars’ insurance rates haven’t dropped yet; not a whole lot of pressure has been placed on the traditional insurance industry thus far.
Additionally, there’s also the fact that fully-fledged self-driving cars won’t be around for a while; hence, it is likely that the insurance ecosystem will undergo numerous changes in the future, as Insurtech systems are implemented and the regulatory framework is reshaped. By the time we have fully autonomous cars serving the public, insurance policies will no longer be an actual concern, according to future predictions concerning insurance and self-driving cars. After all, at the moment, increased connectivity, as well as technologies that allow the analysis of real-time data, has already changed the relationships between insurance companies and their customers.
Based on everything that has been outlined thus far, fully-fledged autonomous vehicles are closer than ever thanks to numerous technological advancements made in the last couple of years. Still, the successful introduction of self-driving cars mandates that manufacturers, governments, and insurance companies have to collaborate on the development of an all-inclusive and standardized regulatory framework that tackles all the main topics (including ethics) concerning self-driving cars and insurance.
Nevertheless, it is very likely that self-driving cars will drastically reduce the number of roadside deaths and injuries, given the numerous benefits of autonomous driving systems, which are always attentive, do not get tired, and are able to analyze data from multiple sources, as compared to human drivers.
Yes, and no. Theoretically, self-driving car passengers won’t have to purchase insurance, since they are not the main risk factor. Rather, autonomous car manufacturers will need driverless car insurance policies that cover the risks associated with technical failure, employee error/ill-will, cyber-attacks, personal injury, and death.
Currently, semi-autonomous features add at least $10,000–20,000 to the base cost associated with specific vehicles. Conversely, the fully autonomous ones cost at least $100,000 at this point in time. As self-driving cars become more common, the prices will likely drop. Until then, commercial vehicles of this type will likely cost at least $100,000.
Despite their numerous driver assistance features, Tesla vehicles are quite expensive to insure, given the high price of their parts. Actual rates vary depending on the driver’s driving history, age, and location. Self-driving cars and insurance will remain thus until we get to a point where they are predominantly mass-produced.
You cannot technically crash a fully autonomous vehicle — they do not offer steering, acceleration, and braking mechanisms. However, manufacturers who do not own an insurance subsidiary will likely have to deal with higher insurance premiums in case their vehicles are more prone to crashes. Therefore, an entire paradigm shift is entailed in the case of self-driving cars, since policies and contract conditions will differ.
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