Rachael Brennan has been working in the insurance industry since 2006 when she began working as a licensed insurance representative for 21st Century Insurance, during which time she earned her Property and Casualty license in all 50 states. After several years she expanded her insurance expertise, earning her license in Health and AD&D insurance as well. She has worked for small health insuran...

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Chris Harrigan has an economic degree from Limestone College and an MBA from Clemson University. He previously managed auto insurance claims for Enterprise Rent-A-Car. Currently, he is using his business and insurance expertise to provide insurance data analysis and visualizations to enhance the user experience.

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Reviewed by Chris Harrigan
Former Auto Insurance Claims Manager Chris Harrigan

UPDATED: Apr 13, 2022

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Key takeaways...

  • Autonomous vehicles are predicted to be the main transportation of the future
  • Car insurance companies will have to keep up with changing risks as cars are equipped with more autonomous safety features
  • In the future, car insurance companies may need to completely change their insurance model to remain relevant

Whether or not you are comfortable with the idea of riding in a car that is not controlled by a human driver, ever-increasing autonomous features in vehicles are pushing society towards the reality of a future filled with driverless cars.

Not only will the transition toward autonomous vehicles change most people’s daily lives, but it will also have a far-reaching impact on a variety of industries.

One industry that is going to have to change radically to keep up with this shift to autonomous vehicles is auto insurance.

And autonomous driving is definitely on America’s mind. Just a simple Google search shows the term “autonomous driving and insurance” is already pulling 12 million results (see below).

autonomous driving and insurance

To make sure you have the coverage you need as a driver — and you’re not overpaying for it — compare car insurance quotes right here to find the best insurer for your current needs. Enter your zip code above to get started.

Like it or not, change is coming. Below are three stages in which the car insurance industry is changing and will change:

#1 – Autonomous Vehicle Risk Assessment Now

Autonomous vehicles and vehicles with autonomous features are safer, meaning the cost of insurance will eventually go down. As these types of cars become more available, the risk of accidents on the road will likewise decline.

There are so many potential ways insurance will be affected.

In the nearer future, autonomous features of cars will cause an initial decline because safer cars equate to less risk. As a result, companies will not be able to charge as high premiums.

Traditionally, although insurance rates consider the safety features of the vehicle, premiums are calculated based mostly on the personal factors of the driver, including his or her age and driving history.

As cars become safer independent of the driver, insurance companies will have to give more weight to those features, rather than the driver, to keep up with the competition.

The following are some technological advancements which have statistically and demonstrably led to a safer driving experience. Also, each feature contributes to a level of autonomous driving (see graphic below)

  • Automatic Emergency Braking – The car’s sensors automatically signal the brakes to engage to avoid a front-end collision
  • Adaptive Cruise Control – Cruise control that works with the automatic emergency braking system can be set to a maximum speed, and then the car automatically slows down as traffic warrants
  • Lane Keeping Support – This feature alerts the driver to deviations from the lane and directs the vehicle to perform actions to avoid sideswipe collisions
  • Vehicle-to-Vehicle Communication – This option is still in development. Vehicles equipped with this feature will be able to communicate with each other, and vehicles that “know” what the other vehicles on the road are doing will be better able to avoid crashes

levels of autonomous driving

Many of these features are offered standard or as options on new vehicles, indicating the shift towards autonomy is already happening. Owners of cars with these features should see a significant drop in auto insurance premiums to reflect the decreased risk.

Drivers with cars featuring these technologies who haven’t seen a reduction in the premium costs, need to compare quotes and find a company that will reward them for their decreased risk.

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#2 – Near Future Trends for Autonomous Cars and Insurance Strategies

Insurance is a 1.2 trillion dollar industry per year in the U.S. with property and casualty insurance (including auto, home, and commercial) making up nearly half of that.

Globally, auto insurance is a 200 billion dollar industry. Some experts predict a 40 percent drop in auto insurance by 2030 and a 70 percent drop by 2040.

2030 sounds like the distant future, but it’s less than 12 years away! In the past 12 years, the auto insurance industry has only grown. In the next 12 years, whether it drops by the predicted 40 percent or not, it will decline.

Car insurance companies will need to develop strategies to compete in this changing market.

State Farm is the largest car insurance company in the United States with 18.3 percent of the market share (see below). They, along with other companies, are already planning for these predicted future changes.

State Farm is collaborating with the University of Michigan and Stanford University in data collection and research regarding self-driving vehicles and has taken an active role in legislation recommendations.

The Harvard Business Review suggests the following strategies for car insurance companies planning to keep up with changes:

  • “First, they can build expertise in big data and analytics”  – Companies need to collect and analyze data from autonomous vehicles to understand exactly what the risks and needs are
  • “Second, they can develop the needed actuarial framework and models” – Insurance companies need to accurately develop models for autonomous features as they are developed
  • “Third, they should explore the partner ecosystem” – Collaborating with technology groups and data analysts from outside their circles will help insurance companies keep up with the changing times
  • “Finally, they should think about new business models” – If a company is primarily focused on personal auto insurance policies, they will need to expand their market to fit actual future insurance needs

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It’s clear that State Farm is on track according to these suggestions. Other companies are following a similar protocol.

Three years ago, 22 percent of car insurance companies admitted they had made no plans for the shift toward autonomous vehicles, and 68 percent of firms had allocated no money to developing strategies.

In just the past couple years, it should have become quite obvious to every insurance company that if car insurance is their primary offering and they want to stay in business, they’re going to need to give serious effort to evolve in order to stay relevant with changing needs and technology.

While aspects of personal auto insurance may change, and diminished risk will equal diminished profits for insurers, the general structure will remain the same as long as human drivers are in ultimate control of their vehicles.

Liability insurance will still be required and the current insurance structure will continue, albeit with some tweaks to actuarial models.

#3 – Autonomous Vehicle Forecast (But Not That Far Off…)

One predicted outcome of the rise of autonomous vehicles is that people will not own their own cars in the future. Instead, rideshare services combined with autonomous vehicles will be the main form of transportation.

Car ownership has been on the steady rise but as Leanna Garfield at Business Insider says, “On average, cars sold in the US sit parked more than 95% of the time.” This fact along with the rise of autonomous vehicles and ridesharing services may be a sign vehicle ownership is ripe for disruption, and it may happen fast (see line graph above).

Who pays for insurance then?

In this scenario, the need for traditional car insurance will be null. Car insurance as we know it — as a part of the average American’s monthly bills — will be gone.

If people continue to own their own cars, even if those vehicles are self-driving, the need for comprehensive insurance should remain about the same. Cars that can avoid accidents on the road are still not going to be able to avoid a hailstorm, broken tree limb, or vandalism.

But if predictions come true and personal car ownership becomes a thing of the past, even that aspect of car insurance will not remain necessary.

The changes in technology that usher in autonomous vehicles will also bring about the need for different types of insurance, such as these that the Harvard Business Review lists:

  • Cyber Security – Autonomous vehicles could be hacked and misused. When vehicles become less mechanically run and more computer-run, securing their computer systems will be important
  • Product Liability – Instead of liability insurance for human error, like car insurance currently offers, the autonomous vehicles will risk system error that requires liability insurance
  • Infrastructure Insurance – This type of insurance would cover the hardware and software, such as cloud servers, protecting riders

It seems impossible for a car insurance company to survive in an environment that is completely different, but the good news for insurers is that the shift to self-driving vehicles will not happen overnight.

Insurance companies have time to develop strategies but there is not a formula that will guarantee success for a current company.

Insurance will always be necessary. The type of insurance needed will change, but a savvy company has time to develop strategies to market the insurance products that will be in demand.

Predicting the future is difficult, and predictions don’t always play out. As autonomous vehicles take over, there will be issues that arise that may surprise the analysts and the public.

A car insurance company that commits itself to meeting changing insurance needs has a good chance of staying in business and becoming invaluable to the next generation of vehicles and vehicle users (notice we didn’t say owners?).

As long as you are still driving today, you’ll need traditional insurance. Use our free comparison tool below to find the best rate for car insurance.