Japan's Prime Minister Rides in Nissan LEAF for First Autonomous

Insurance Companies Admit Self-Driving Cars Are a Threat to Their Bottom Line

As automakers are keen on telling us, the age of semi and fully-autonomous cars is nearly upon us. From Tesla to Audi, and Volvo to Ford, automakers are working hard to introduce technologies which they believe will not only make the task of everyday driving easier, but safer too.

While autonomous vehicles that don’t crash are great news for car buyers and police authorities alike, they’re causing a major headache for an essential but hated part of the automotive industry: insurance companies.

Will autonomous cars cause a headache for the insurance industry?

Will autonomous cars cause a headache for the insurance industry?

That’s because insurance companies make money by betting against a driver’s likelihood of having an accident, taking your annual premium and investing it while ensuring that if you do have an accident, any repairs or medical bills will be met.

If autonomous vehicles don’t crash, then traditional automotive insurance services become a moot point. Even if required to cover theft or third-party damage, insurance premiums wouldn’t be as high, leading three automotive insurers and an auto parts manufacturer have recently listed autonomous cars as being a major threat to their bottom line moving forward.

As The Guardian reports, Cincinnati Financial, Mercury General and the Travelers Companies recently cited self-driving car technology as real and disruptive threats to the insurance industry in their annual reports to the U.S. Securities and Exchanges Commission (SEC).

Autonomous vehicles: do you welcome them or fear them?

Autonomous vehicles: do you welcome them or fear them?

In its most recent report, Cincinnati Financial warned that driverless cars “could decrease consumer demand for insurance products,” while parts company LKQ Corp warned that “the number and severity of accidents could decrease” with the advent of autonomous cars, “which could have a material adverse affect on our business.”

Like the automotive insurance industry, parts suppliers rely on a steady stream of accidents to drive the auto repair industry on which a large proportion of their income is dependent.

Reduce the number of accidents taking place, and that means a reduction in accident repairs, a lowering of demand for parts, and ultimately a tougher time for the accident repair industry in general.

That leaves the automotive insurance industry with a tough task: recoup the losses due to autonomous vehicles hitting the roads through increased premiums for drivers of non-autonomous cars, or find another revenue stream.

The first option would, naturally put those of used, older cars in an unfair position. Since it’s likely autonomous vehicles will first be offered as premium models before autonomous vehicle technology filters throughout the automotive market, it would also penalise lower-income buyers.

Some insurance companies feel threatened by autonomous vehicles like Google's self-driving podcar.

Some insurance companies feel threatened by autonomous vehicles like Google’s self-driving podcar.

Drivers of used cars would also suffer, with increased premiums reflecting their increased risk of having an accident compared to an autonomous vehicle.

The warning from these four companies also doesn’t seem to take into account the blurred line that’s likely in first-generation auto-pilot vehicles, where the driver will be required to take control of the vehicle at times.

In that situation, lower insurance premiums would only occur if automakers could categorically prove their vehicles were as safe or safer than a human-piloted car for the majority of the time.

Today, technologies such as lane departure warning systems, lane keep assist and automatic emergency braking are becoming increasingly common in new cars. As a consequence, the insurance industry is already starting to notice a difference in claims between vehicles fitted with advanced safety features and those without.

In fact, says Russ Rader from the Insurance Institute for Highway Safety, crash-related injury claims from occupants injured in an automotive accident are far smaller when a vehicle with automatic braking or other advanced safety technology is involved. Lower payouts equals higher profit for insurance companies, assuming premiums remain the same.

But while some in the automotive industry are already worrying, Rader says it’s way too early for insurers to panic.

Do cars like the Tesla Model S, which are fitted with autonomous driving technology, pose a threat to the insurance and repair industry?

Do cars like the Tesla Model S, which are fitted with autonomous driving technology, pose a threat to the insurance and repair industry?

“It takes a long time for new safety features to penetrate the fleet that’s on the road because people hang on to their vehicles for a long time,” he said. “Even when a feature is mandated by federal regulations, it takes 30 years for it to penetrate 95% of the vehicles on the road.”

In other words, even if autonomous drive technology was mandated for all new vehicles in the next decade or so, it would be the second half of the twenty-first century before non autonomous-drive vehicles became a rarity on our roads.

And while people are still piloting vehicles, insurance companies will need to offer packages designed to keep road users safe. Moreover, while autonomous vehicles have to share the road with non autonomous vehicles, it’s likely that autonomous vehicles will still need to be covered by an insurance policy in order to protect them from damage caused by an uninsured driver in a non-autonomous vehicle. As cars get more and more sophisticated, it’s worth remembering too that repair bills may escalate, requiring less frequent insurance payouts but larger ones when they do occur.

That, and of course the unlikely event that something will fail, and the autonomous vehicle will crash due to a hardware or software error.

Are you worried that insurance premiums will change as autonomous vehicles hit the roads? Do you worry that the insurance industry will penalise those with or without autonomous vehicles in order to keep their profit margins the same? Or like us, do you think the insurance industry will have to adapt as it has in the past with once unusual safety technologies that are now everyday, such as seat belts and airbags?

Leave your thoughts in the Comments below.


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  • I don’t think that self-driving cars will completely eliminate accidents. Rather it will reduce them by at least 50% initially, with better technology and a further reduction in accidents. nnCar insurance will still likely be necessary, and the price needs to be tied to the amount of time you spend in autonomous driving mode vs. human driving mode to encourage people to let the car drive themselves (and be safer).

    • GreatTVDude

      Even if there’s no accidents, theft and natural damage will require insurance. So I think you’re right about it still being needed.

  • The move to safer cars, especially BEVs, promises to wreck many economic models that have been generating fat profits for nearly a century. I do not expect the affected industries to go quietly.

  • Bob_Wallace

    Cars with crash avoidance systems will get lower premium rates starting soon after they hit the road. We’ve seen the same happen when other advancements were made. Is doesn’t matter if some companies try to hold premiums high, some company will go for that market segment and other companies will have to follow.

  • D. Harrower

    This sounds remarkably similar to the auto dealers’ fight against direct sales. Like the dealers, I’m sure the insurance companies will moan about how autonomous cars are a threat to their business model (we seem to be at this stage now), then they will send in their lobbyists to pressure government to delay or ban the adoption of autonomous vehicles. Eventually, they will have to adapt or die off. But I see many years of dirty fighting ahead.

  • Mobility Revolution

    Indeed, The Mobility Revolution will impact countless business models, including infrastructure & real-estate, urban planning, public transport, dealerships… even motorway service stations! Insurers aren’t doomed, but they will have to get creative: https://www.linkedin.com/pulse/insurance-shared-autonomous-vehicles-survival-lukas-neckermann

  • Jennifer McBride VanderKleut

    If, as some predict, liability shifts from the driver/passenger to the automaker as cars become fully autonomous, then does that suggest that auto companies are the ones who will need hefty insurance policies rather than families?

    • Bob_Wallace

      Premiums would be based on risk. Suppose car companies produce a car that cannot be crashed (play along). That would mean essentially no risk and companies would self insure.nnRecovery from being hit by a non-insured driver, theft, vandalism, etc. would continue to be an owner risk and car owners (individuals or self-driving taxi companies) would need to obtain insurance to cover those problems.

  • Kerry Carter

    Something they may need to get there heads around but as far as I can tell there are not 10’s of thousands of autonomous vehicles on the road yet. 2025-2030 at best before this is any kind of a problem. People keep there cars for much longer these days, including myself.

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