Will self-driving cars lower car insurance rates?

Will self-driving cars lower car insurance rates?

It’s a tale as old as time: Man makes machine, machine replaces man, man has to deal with the consequences of automation.

It’s a serious issue, but can machines taking over for people actually benefit our personal lives? Like, for instance, when they become our chauffeurs. That frees to text and (not) drive, lets our GPS also be our driver so we never get lost, and can be safer than letting humans take the wheel.

Those first two points are nice, but that last one is important. Safer drivers mean fewer accidents. Fewer accidents mean lower car insurance premiums. And it may be a machine, driving, but you’re still the one paying for insurance.

Fully-automated self-driving cars may be the future, but the seeds are being planted in the present. Tesla vehicles have an Autopilot function, Google subsidiary Waymo is making waves with their technology, and Uber is currently being sued by Google for allegedly stealing critical self-driving tech designs. When corporations start suing each other, that’s when you know things are really heating up.

But what does that mean for you, the customer, and how can you take advantage of savings today?

How car insurance is calculated

Before we get into how your car insurance rates might go down, it’s important to know how those rates are determined 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, 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 car, along with the history of other drivers who own the same model car, 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, 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. So how can self-driving cars help lower your premiums?

How self-driving cars can help lower car insurance rates

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 let’s think about an ideal world, where all of those bugs are worked out. Self-driving cars won’t suffer from road rage. They won’t tailgate someone. They won’t forget to check their blind spots before changing lanes. They won’t drive when they’re drunk or tired.

Most of the ways humans get into accidents are because of...humans. Even when it comes to issues like fog or rain or ice, machines are better able to compensate and drive more safely than humans.

But then we get into the factors that are more tangential to the number of accidents you’re in. The distance you drive doesn’t mean you get into more accidents – it means that you might. Being single or male doesn’t mean that you’ll get into more accidents – but it does mean that you probably will.

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.

What will happen to car insurers when we all have robot chauffeurs?

Insurers use premiums to fund payouts, but they also make a profit. That’s capitalism in action, for better or worse. Dropping premiums drops their bottom lines. What happens then?

Some companies are building their insurance with self-driving in mind. That’s what Root is doing. The Root app 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.

There are other insurers who do this. Progressive’s Snapshot is a device that plugs into your car and measures your driving habits.

But Root also gives 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%. 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.

In an interview with Backchannel, Root’s founder Alex Timm sees a future where forward-thinking insurers "will be able to charge fees as low as $30 every six months." That’s great for companies like Root, who are planning on the disruption. Companies like Progressive, who are using specific and real-time data, may also be able to shift. But for companies who are using old ways of measuring risk – and have high overhead – lower rates and a drop in claims thanks to self-driving cars could do real damage to their business model.

Who is liable: the carmaker, the driver, or the insurer?

Lower car insurance rates sound great. But if you’re not the one driving, should you even be paying at all?

That’s the elephant in the room when it comes to self-driving cars. Who takes responsibility for a crash?

In 2015, Volvo announced that "it would pay for any injuries or property damage caused by its fully autonomous IntelliSafe Autopilot system, which is scheduled to debut in the company's cars by 2020." They were so confident in their system that a human couldn’t possibly be at fault.

Tesla’s Elon Musk took a slightly more reserved approach in 2016, saying that incidents would have to be decided on a case-by-case basis by the insurer but that "...if it is something endemic to our design, certainly we would take our responsibility for that."

A study by the RAND Corporation concluded that manufacturer 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.

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. Uber rolled out tests of self-driving cars in Pittsburgh last year. Tesla is working hard to up production and make its cars more widely available, and recently updated Autopilot. Google and Waymo are logging more test miles than ever. We’re not at fully self-driving cars yet, but we might be closer to "in the present" than "in the future."

If you’re looking to lower your insurance rates, see if your carrier uses data, like the Progressive Snapshot, to offer lower rates. Or, if you’re lucky enough to own a Tesla, look into insurers like Root to see if self-driving capabilities can already net you a discount.

Your own self-driving cars may be a few years away, but that doesn’t mean you can’t start saving today.