Self-driving cars are the future, but do you need car insurance in the future?
Fully-automated self-driving cars may be the future, but the seeds of autonomous cars are being planted in the present. Autonomous technology is here now: Tesla vehicles have an Autopilot function, Google subsidiary Waymo is making waves with their technology, and Uber and Lyft are both working on self-driving technology.
The major advantage of self-driving cars is supposed to be that a robot is a safer driver than a human, and safer drivers mean fewer accidents. Fewer accidents mean lower car insurance premiums. What does that mean for car insurance companies? And more importantly, what does that mean for you, the customer, and how can you take advantage of savings today?
Read on to find out:
Before we get into how autonomous vehicles might make your car insurance rates might go down, it’s important to know how car insurance companies determine your rates in the first place. Like other insurance products, your car insurance rates are calculated based on how risky you are to insure – how likely the insurance company is to have to pay out. With life insurance, the insurer takes into account things like your health, family history, and risky hobbies. Regardless of your carrier, there are seven factors that are standard in setting your car insurance rates:
Your driving record: Obviously, you’ll use your car insurance when you get into a fender-bender. But infractions like running red lights also increase your risk of accidents, so companies will look at your full driving record for the past few years.
Your personal details: Statistically speaking, young people, men, and single people are more likely to cause accidents than their older female married counterparts.
Your zip code: You may live in an area that has more accidents, vehicle thefts, or vandalism. Even if you don’t ever suffer from these, your increased exposure results in increased insurance rates.
Your car: The market value of the vehicle, along with the history of other drivers who own the same model vehicle, can affect your rates.
Your credit: A car insurance company won’t necessarily charge you more for insurance because your credit is bad; rather, it’s because a low credit score is, broadly speaking, tied to a higher accident rate.
How far you drive: This is a simple numbers game – the more you drive, the more opportunities there are for you to get into an accident.
The coverage you want: Just as with any other insurance product, if you want more comprehensive coverage, including higher limits, you’ll pay more for it.
All of these factors figure into your insurance rates. If you’re a young single man who drives long distances and has a history of bad credit and accidents, well, you’re basically out of luck. But notice how a couple of these factors aren’t actually based on you personally? They’re based on where you live, or people like you. Driverless vehicles won’t have drivers, which means that you won’t necessarily be an important part of the equation anymore. So how can self-driving vehicles help lower your premiums?
Read more about the cost of car insurance and how it is calculated.
Self-driving cars can help lower car insurance rates in some obvious ways. The biggest one? Your driving record won’t have so many marks against it. Companies are still working out the kinks when it comes to self-driving cars – they occasionally rear-end other vehicles, miss stop signs, and run red lights – but once those bugs are worked out, self-driving vehicles will hopefully eliminate the human error that makes driving so dangerous.
Self-driving cars won’t suffer from road rage. Driverless vehicles won’t tailgate someone. Self-driven cars won’t forget to check their blind spots before changing lanes. Autonomous driving cars won’t drive when they’re drunk or tired.
Most of the reasons humans get into accidents are because of human error. Even when it comes to issues like fog or rain or ice, machines are better able to compensate and drive more safely than humans. Many of the factors that determine your car insurance rates are weighing how likely it is that you, a human, will get into an accident.
Self-driving cars take these out of the equation, too. If you’re not the one driving your car, an insurance company has no reason to charge long distance drivers more. The fact that you’re young doesn’t really matter, because you’re not the one driving. A low credit score doesn’t mean anything (as far as your car insurance is concerned; you should still take care of that, though). More comprehensive coverage will still increase your premiums, but you may opt for less coverage if your chance of getting into an accident plummets.
And where you live may still play a role, unless your self-driving car can sense when it’s about to be stolen and take off by itself. But if you can cut out most of the factors that lead to high premiums, that means consumers pay a lot less. It also means there’s going to be a big impact on insurers.
Some companies are building insurance products with automated vehicles in mind. Two examples:
Progressive’s Snapshot is a device that plugs into your car and measures your driving habits.
Root has an app that quantifies your driving habits over a two to three week period and prices your insurance policy based on the results. If it senses that you speed a lot or slam on your brakes your rates will increase. Root also gives car insurance discounts to Tesla owners. Tesla’s Autopilot is still something of a work in progress but its Autosteer function can help reduce crash rates by 40%, according to studies. Based on how many highway miles you drive using Autopilot, you’ll receive a tiered discount on your insurance. That gives you an incentive to use the self-driving features at every opportunity.
Lower car insurance rates sound great, but some people wonder, once we all have self-driving cars, if we should be paying at all.
A study by the RAND Corporation concluded that car manufacturers’ liability is likely to increase as self-driving cars become more ubiquitous. They also proposed an alternative, increasing coverage with "no-fault insurance" where crash victims "recover damages from their own auto insurers after a crash instead of having to seek recovery from another driver." A lot is still up in the air, and your eventual insurance costs will depend on how the liability issue plays out.
So far, Volvo has announced that it will pay for injuries or property damage caused by its fully autonomous IntelliSafe Autopilot system, which is scheduled to debut in the company's cars by 2020. Tesla has said that incidents would have to be decided on a case-by-case basis.
How urgent is it that we figure all of this out? Established insurers probably don’t have to (and definitely won’t) change their business models immediately, but it has to be something they’re concerned about. But self-driving cars are coming quickly. We’re not at fully self-driving cars yet, but we might be closer to "in the present" than "in the future."
Logan Sachon is the co-founder of The Billfold, a groundbreaking personal finance site for millennials that was named one of Time's 25 Best Blogs of 2012. Her work has been published in New York Magazine, Glamour, The Guardian, BuzzFeed and more.