Will driverless cars result in lower insurance premiums?

1st May 2018

Mobile phone and road

It has been estimated that 90% of road accidents result from driver error, reports The Telegraph. This is a startling statistic; however, take the driver out of the equation and, theoretically at least, road accidents would plummet in number.

If you are wondering how a car could be properly and safely operated without a driver at the wheel, keep in mind that the emergence of autonomous driving technology is already bringing this closer to a reality. However, this technology could also spell unexpected financial difficulties for insurers.

How autonomous driving can cut risk

As is widely known, the expense of insurance premiums correlates with the extent of risk. The lower risk a driver is deemed to pose on the road, the lower the premiums an insurer is usually willing to offer them - as an accident is less likely to occur and so the insurer is less likely to need to pay out.

Hence, should driverless cars become more prominent on the road, they could reduce the risk for many people who use them and, therefore, lower the insurance premiums that these people would need to pay. Good news for car users, then - but not so good news for insurers...

In 2015, leading UK motor insurer Direct Line warned that driverless cars could have "a major impact on the size and nature of the insurance market and the role of insurers". Autonomous technology implemented in existing cars is already hinting at the shape of things to come.

For example, autonomous emergency braking can stop a car - and so potentially save the driver's life - if that driver fails to sufficiently quickly respond to the danger of another vehicle or pedestrian hitting the vehicle. This technology can demonstrably cut instances of low speed accidents by 20%.

"Premiums always reflect the risk," Malcolm Tarling of the Association of British Insurers told The Telegraph. "If the development of the technology shows significant impact and reduces risk and makes vehicles safer, then that of course will be taken into account by insurers."

Is the future here? It might be just arriving

However, the picture of how driverless cars could affect premiums might not be quite as straightforward as Tarling's words suggest. This is largely because, according to the Harvard Business Review, the transition to a world of autonomous driving should turn out to be gradual.

As cars are increasingly fitted with a higher number and range of autonomous features, the driver's role should, over time, shift closer to that of a pilot. This means that the driver will have to continue monitoring the system and - should the necessity arise - manually override its controls.

For this reason, the driver will still, to a certain extent, continue to be deemed responsible for the vehicle's safety. Therefore, insurers will not necessarily have to speedily adjust their existing business models - though the actual premiums could continue to drop.

Could liability be transferred to manufacturers?

Still, companies developing autonomous driving technology are in the process of throwing a particularly large spanner into the works. As human error drops as a risk factor, increasingly driverless cars could become vulnerable to other threats - like hacking.

Let's picture the scenario of a car being hacked due to negligent security put in place by the manufacturer. The insurer could deem the manufacturer more responsible than the driver for the accident - and, thus, the payout as well.

Manufacturers could come to be seen as even more at fault for automotive slip-ups if more cars become fully automated - and, hence, no longer even need a steering wheel. Most completely autonomous vehicles, Harvard Business Review has predicted, will be owned by companies - including automakers and tech firms - rather than individuals.

It naturally follows, then, that insurers could react to the accident of a fully autonomous car by making its manufacturer, rather than user, liable. However, due to the complexity of how cars are made, the specific part at fault might not have been created by the named manufacturer.

Hence, it probably won't surprise you that Business Insider thinks transferring liability to manufacturers will be financially costly. The site warns that "the standard to establish a defect is vague and unpredictable."

This is all before we start to consider the complexity introduced by a semi-autonomous car that is capable of independently handling particular tasks but will still leave the driver in charge. The effects on premiums are, thus, not entirely predictable, but could be somewhat countered by our car insurance comparison services.

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