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Driverless Cars: Who Pays for the Insurance?

By June 29, 2021February 27th, 2024No Comments

In a world with driverless cars, accidents depend on technical breakdowns rather than human error. This sounds great for commuters, but how will it impact auto insurance providers?

WaterStreet Company is a leader in offering P&C insurance technology and aims to keep you up to date on the latest P&C insurance trends.

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Self-Driving Cars Today

Most recently, Domino’s has begun offering self-driving cars for pizza deliveries in Houston, Texas. Domino’s driverless test cars date back to 2017, first created by Ford, and are now created by Silicon Valley robotics company, Nuro. The Nuro R2 vehicles are the first fully autonomous cars to receive regulatory approval from the US Department of Transportation.

The question of who pays for auto insurance on self-driving cars will continue to rise in various scenarios.

How Will Driverless Cars Impact Auto Insurance?

While the vast majority of accidents are caused by human error, there will always be a need for insurance regardless of how an accident could happen.

Insurance rates are expected to drop as more driverless cars enter the roadway. Before we reach a science fiction future of autonomous cars, there will be a long transition period where humans are still operating vehicles. Insurance rates will vary, but over time will likely become more expensive for human drivers during this transition due to increased risk compared to pools of self-driving cars.

Personal liability insurance is predicted to fade away as liability is shifted from drivers to manufacturers. So long as drivers are required to take control of their vehicle, the driver will remain liable. In the event an accident happens when the driver has no requirement to take control, the manufacturer’s product has failed rather than the human driver. Insurers will need to adjust to serving liability coverage to autonomous car manufacturers rather than individuals.

A report by KPMG Actuarial and Insurance Risk estimates a 60% drop in auto loss costs by 2040 due to decreased accident frequency and lesser severity of accidents offered by futuristic cars. This means the auto insurance industry will face a transitional moment with how to remain profitable while keeping up with the technical possibilities of how driverless cars can cause an accident.

Embedded Insurance for Driverless Cars

Current auto insurance for self-driving cars is classified as automated car insurance. The Society of Automotive Engineers has designed the classification system, approved by the United Nations and the U.S. Department of Transportation. The DMV has provided a list of requirements for manufacturers to meet safety, insurance and vehicle registration requirements, particularly for companies testing self-driving cars.

Embedded insurance has risen to popularity as a means for policyholders to buy insurance while buying the asset they intend to insure. For example, when a home buyer plans to purchase a home and purchases a mortgage for the home, the lender of the mortgage will often offer home insurance embedded into the mortgage. The lender has an existing partnership with a home insurance provider to easily recommend the right coverage to the home buyer.

Expect this trend to continue in the case of driverless cars, either for the buyer to purchase insurance at the point of purchasing the car through the manufacturer, or for the manufacturer to automatically provide insurance at the point of sale.

Carriers will need to become deeply entrenched in partnerships with home and auto sellers to remain relevant for the future of embedded insurance. This method of purchasing insurance is simple for the buyer to understand and ensures their coverage begins when purchasing the property.

This future has yet to come to light, and insurers have time to watch and learn as embedded insurance develops.

About WaterStreet Company

WaterStreet Company is dedicated to serving all facets of the Property & Casualty Insurance Sector. We understand the importance for carriers and MGAs to adapt to market changes. We provide cloud insurance software to support our clients through rapid transformation.

Self driving cars, smart homes, embedded insurance and never-before-seen product offerings are on the horizon and we look forward to many transitional phases to come for our industry.

Reach out to WaterStreet Company today to request a consultation and demo of our solutions.

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