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Will the UK’s First Driverless Policy Mean Cheaper Insurance?

Posted by Auto Loan Solutions on June 08, 2016 @14:43:27 EDT
Self-driving cars have led many to think car insurance rates will drop.

Photo by Mark Wilson/Getty Images

In what seems like an inevitable development, the U.K. has received its first driverless car insurance company.

Adrian Flux claims to be the first true driverless insurer.Adrian Flux, a car insurance company based out of Norfolk, England, announced yesterday the launch of what they feel is the world’s first true autonomous insurance policy. It focuses on drivers of cars with autonomous abilities such as automatic braking, and will even cover vehicles with features like Autopilot, currently found in the Tesla Model 3. Eventually, fully automated cars will receive coverage from the company.

News like this may excite you, especially if you’ve heard industry chatter about how self-driving cars could disrupt the car insurance industry. The theory is that driverless vehicles will bring about significantly lower premiums due to their increased safety.

Håkan Samuelsson, Volvo’s chief executive, believes driverless cars will threaten car insurers. In theory, that should make us smile, because it’s unlikely that any of us are fond of insurance providers. Even Håkan Samuelsson, Volvo’s chief executive, went on to say “Businesses will have to transform or motor insurers are going to die”.

But don’t jump for joy yet. Although the Knight Rider-like technology in future cars will make our roads safer, that doesn’t guarantee a global reduction in insurance quotes. And then again, it could – it’s really hard to say.

Why the Driverless Car Insurance Debate is so Complicated

We’ll start by saying this: it’s unlikely to see insurance quotes fall just because more cars will park themselves or panic brake without driver intervention.

Things can get tricky when determining who’s at fault for an accident. A driver can take control of a car manually, get into an accident, and then blame a faulty sensor or warning system.

This very concern has prompted manufacturers to consider adding black boxes to self-driving cars. If a black box finds human error to be the cause, the driver will have to admit fault as opposed to the manufacturer, leading to an insurance rate hike for the individual.

Until cars require no human interference, putting the blame on man or machine will need a witness, and that’s where the black box comes in.

The other issue too, is that insurance companies often serve as decision makers for new technology to develop. If insurers deem self-driving cars as too risky, they could deny coverage or enforce strict policies as they please, pigeonholing drivers to take options they don’t want.

For example, some studies have circulated the web, demonstrating the increased risk of self-driving cars as opposed to regular ones. One study found driverless cars to have a 50% higher risk of sustaining a rear-end collision.

In addition to their confined testing zones, insurance companies may use this data to justify tight policies for drivers of these vehicles. It’s like the taxi vs Uber debate – finding a balance between pros and cons will be difficult.

Safety Ratings, Driverless Features & Auto Insurance As it Stands Today

The premise of the self-driving/car insurance argument is that their increased safety measures will cut down on accidents.

In fact, a Wall Street Journal article predicted a 90% reduction in accidents, and savings of up to $190 billion in damage/healthcare costs when driverless cars hit the road as mainstream options.

But even though insurers look favourably at vehicles with higher safety ratings (which we’ll get to in a second), safety isn’t the only factor that leads to cheaper car insurance.

The Current Variables that Lower (or Raise) Car Insurance

  • Car cost – In most cases, a pricier car will cost more to insure since replacing its parts will be more expensive.
  • Car type – Drive an SUV or minivan, and you’ll get a cheaper rate. Drive something like a convertible, and it’ll cost more to insure.
  • Driving record – This one is a no-brainer.
  • Your location – Sorry, but your perfect driving might still not get you a significant discount if you live in an area with a high rate of accidents.
  • You – Are you a young driver under 25? Are you male or female? Who you are can alter your insurance quote even if you drive a car known for its safety.

It will be interesting to see how a company like Adrian Flux factors these considerations in as cars get more autonomous. Self-driving cars may allow for custom autonomous car insurance. When driverless cars go mainstream, and if there is a noticeable decline in accidents, then factoring one’s age and record may no longer be urgent.

Of course, that could also prove false since drivers may occasionally have to step in if a vehicle’s software or hardware fails.

Additionally, black boxes installed in these vehicles could monitor one’s driving habits (some drivers may still prefer to speed), and reward those who follow the rules with lower rates. Such a reality could serve as an incentive to “drive” even safer.

The Likely Reality of Car Insurance & Driverless Cars

To say driverless features are meaningless in the quest for lower insurance is untrue, however. Cars often rated as the safest – vehicles with the highest crash-test ratings – tend to come with autonomous features nowadays. And buying one of these vehicles can lower your premium.

Here’s what we think is going to happen. Before cars become fully automated, owning a car with autonomous features will have cost-saving rewards when it comes to insurance, as long as the other factors mentioned above are favourable.

These features will bail drivers out

  • High-risk drivers (young and those with accidents/tickets) driving cars with automated features may get a break since these cars are viewed as safer
  • Issues such as inattentiveness (although still problematic) will lead to fewer accidents as more cars come equipped with brake and lane assistance (this will translate to a lower rate as one’s record stays clean)
  • Although the black box issue is controversial due to privacy issues, drivers who don’t override their cars for risky behaviour could be rewarded by insurers
  • Drivers themselves may develop a heightened awareness with these features in cars (although it’s a double-edged sword since too many displays can be distracting)

Of course, some drivers may misuse these features, which could further complicate how insurance companies treat cars with driverless capabilities. But in general, these features can help some lower their insurance rates.

3 Safety Tips for Cheaper Car Insurance

At present, the wisdom that drivers get to keep their insurance premiums low hasn’t changed that much. This is true even with technology.

Of course, advice may change as companies like Adrian Flux base their premiums on unique factors centered around technology. But as it stands, you can keep your rates low by following a few basic principles.

  • Keep your record clean – Follow road signs, speed limits and do your best to avoid car collisions.
  • Drive a car with a high safety rating – Buy a car that gets top-notch safety ratings if possible. Nowadays, that includes many vehicles with automated features.
  • Take a driving course – If you’re a new driver, enroll in a driving school. These programs generally lead to a reduction in one’s insurance premium.

No Guarantees, No Surprises

Since insurance companies have their own criterias and standards, it’s hard to say how they’ll respond to the rise of self-driving cars. Adrian Flux may very well be the first company to give their vision on how they’ll cover these vehicles.

For now, the vast majority of insurers have kept quiet about the issue, and we can only speculate what will happen over the next few years. We’ll likely see some benefits in terms of lower insurance rates due to autonomy, as well as new approaches from insurers to ensure they still make profit. Essentially, things will probably balance out.

With that said, what are your thoughts on how driverless vehicles will impact car insurance? Do you think the cost of car coverage will drop? Do you think it will disappear altogether? Or do you think things will just stay the same?

Tell us your opinion!