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Driverless Cars: How Insurers Can Shift Gears (Part 1)


To prepare for the not-too-distant future of driverless cars, insurers must think in terms of adoption phases and liability implications.

Part 1 of a two-part series.

To many, the driverless car is the most important evolution of the automobile since the invention of the combustible engine. To others, it is an exceedingly scary proposition. Wherever you stand on autonomous driving, what seemed like science fiction a few years ago is approaching reality. 

Along with excitement and fear, the rollout of driverless cars is having a ripple effect across industries. Insurers, for example, now wonder about future loss or damage. What happens when an accident occurs with a computer behind the wheel?

While many insurers are planning for this eventuality, very few have considered what to do during the transition period. Before becoming completely autonomous, vehicles will experience hybrid stages of driver-controlled and semi-autonomous modes. Thus, insurers must account for these transitional changes as well.

In this first installment of our two-part series, we’ll examine how driverless cars will change the rules and impact vehicular insurance coverage. Driver bots, start your engines.  

The Future Is Now

The driverless car landscape is occupied by a who’s who of companies. On one side are technology purveyors such as Google, Uber and Apple. On the other side are car manufacturers, such as Mercedes, BMW, Audi, GM, Toyota and Tesla. Most have announced plans to roll out autonomous vehicles in a phased approach as early as 2020. 

For the purpose of analysis, we have outlined three phases of automation, based on the four categories developed by the U.S. National Highway Traffic Safety Administration (NHTSA): 

  1. Driver-controlled (partial automation of driving as it exists today).
  2. Semi-autonomous (hybrid forms of manual and autonomous driving, expected in the near future).
  3. Fully autonomous (driverless automation, expected within the next decade). 

Figure 1

The adoption of driverless technology depends on five key factors: 


Given the uncertainty surrounding many new technologies, it will take some convincing for humans to cede control of their vehicles to a machine, even though automated technology has already significantly reduced the chances of dying in a car crash.


IHS Automotive predicts that the price of driverless cars will be $7,000 to $10,000 more than manually-driven cars in 2025, and $3,000 to 5,000 more by 2030. Early adopters will likely be high-net-worth individuals (HNIs) with the money and desire to be on the cutting edge, while others will wait for price reductions. 


Converting all cars could take decades. In the long run, non-automated cars will exist and retain vintage value, especially among enthusiasts. This could delay eventual adoption, meaning insurers will need to offer both traditional and driverless policies. 


To instill confidence and clarity on looming liability issues, the U.S. wants to spend $4 billion on regulatory guidelines and investment to help bring autonomous vehicles to light. Investments like this and many others are sure to spur the driverless car market. 

Car life.

The average longevity of a passenger car in the U.S. today is 11.4 years. As technology improves, this is expected to increase and change how insurers calculate value.

How Insurers Can Respond

The advent of driverless cars will have a significant impact on the insurance industry, from coverage and pricing, to underwriting and claims. Accountability will eventually shift from the driver to the vehicle manufacturer and network provider. The vehicle manufacturer will be liable for accidents related to an issue with the car’s hardware or software; the network provider will be liable for accidents determined to be a network fault, such as incorrect direction coordinates. The vehicle manufacturer and network provider will be expected to buy hybrid auto insurance products that will augment the personal auto insurance that exists today.

Different phases will require different parties to purchase insurance. In phase 1, for instance, car manufacturers will only be held liable when the loss was due to an automotive malfunction. Auto insurance will still be bought primarily by the vehicle owner at this stage. 

In phase 2, when cars can be operated in manual or autonomous mode, coverage will largely remain consistent with phase 1. In phase 3, however, the car manufacturer will be liable for any collision or liability damage that occurs during autonomous driving mode. The exception is if the vehicle is not roadworthy or poorly maintained, or if the autonomous vehicle halts suddenly, causing a rear-end collision by a vehicle that was not expecting such an abrupt stop. 

Additionally, the network provider can be held liable only if misdirected navigation, a network failure or a network hack causes the loss. In some cases, failure of infrastructure — such as a missing or incorrect road symbol — could also push liability onto the network provider in cases of loss or damage. 

Those are just the obvious situations. As you can see, liability will still need to be sorted over time with the help of new legal judgments and precedence. 

Looking Forward

For insurance carriers, the impending future of autonomous cars is as promising as it is perplexing. In Part 2, we’ll explore how driverless technology affects pricing, underwriting and claims of auto insurance, along with five recommendations for forward-thinking carriers.

To learn more, please read “Driverless Cars: Time for Insurers to Shift Gears” or visit the Insurance section of our website.

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Driverless Cars: How Insurers Can Shift Gears (Part 1)