The automobile market is shifting gears around the world. New technologies are changing consumer behavior and market realities. According to reports, the North American automotive market is going to grow at a CAGR of 5.43% by 2029 and the market size will go up to 1.29 trillion USD.

The changes in the automotive market are quite visible. While still in its infancy in terms of absolute numbers, there has been a notable move from ICE vehicles (internal combustion engines) to EVs (electric vehicles). Now the market is talking about autonomous cars.

These are self-driving cars, which hold forth the promise of shifting market dynamics quite significantly. The wide acceptance of autonomous cars is still far away, but major companies like Mercedes-Benz have already announced conceptual and other models. Companies like Tesla and Waymo are also showing off their autonomous car models. Many states, like Texas and California, have seen such cars on the road being tested as well as being put to commercial use in the past couple of months.

There is an interesting conversation to be had about the insurance of these autonomous cars. The future seems a bit fascinating. One of the value propositions behind the coming of autonomous cars is to reduce car crashes and fatalities. Removing human error from driving could improve overall transportation security to a certain extent.

However, are these cars truly the future of humanity, and can they serve the purpose for which they were designed?

Footprints of autonomous cars in the US

The first frontier may be won as autonomous trucks become widely used in the United States. According to a Deloitte report, these trucks are being tested to go on the road for shipping purposes, but only on tried-and-tested routes. In stage 1 states such as Oregon, Arizona, New Mexico, Oklahoma, and Texas can expect these self-driving trucks on the road. In the following stages, these trucks will be tested on additional routes. Technology is currently being monitored closely, with many difficulties becoming evident along the way. However, once the technology matures, more routes with higher traffic volumes can be introduced to better test the volatility of the autonomous vehicles.

This has led to the gradual emergence of self-driving cars. Companies such as Wyoma are testing their first fully autonomous cars in cities around the USA as taxis. Meanwhile, there is news that semi-autonomous flying cars are being tested this year and might become commercialized in 2027. Even leaving aside such flights of fancy, it’s clear that innovations are never-ending. It seems that in the next few years, many such interesting ideas and models will hit the automobile market.

How does the future of insurance look with autonomous cars?

Autonomous cars are currently facing a number of challenges. These include some unpredictability in the behavior of cars to unexpected changes in their route. Their ability to sense their surroundings on bad weather days and the synergic interaction between humans and cars is also still being tested. Another thorny question is the ethical “calculations” required to avoid mishaps, and so on. Until now, the primary source of deciding insurance premiums/ compensations was the driver and their circumstances. Now, with so much technology involved, judging the insurance aspect may become more difficult. Insurance premiums for EVs may be higher, but for self-driving vehicles, they may be lower because many risk factors have been reduced significantly. The premiums could be higher for EVs because the infrastructure and repair work for these vehicles may require more money as per the present scenario and the availability of resources.

But will self-driving cars be able to insure themselves in the future?

The answer is maybe. Because autonomous vehicles incorporate a variety of technologies, insurance premiums are more likely to be determined by the technology of the car. This means that premiums will no longer be based on driver behavior. Insurance providers will continue to accept these policies, but the primary responsibility no longer lies with the driver. Similarly, semi-autonomous vehicles’ insurance liability can shift between human-driven and autonomous modes. All of this can be monitored using IoT devices and driving history, the technology of which will be built into the vehicle. All of this can then be controlled and monitored using mobile applications.

Alternative regulations based on geography could be interesting to see as they emerge. Each state may have its own set of rules and regulations for determining who is at fault in an accident and how insurance works for autonomous vehicles.

Another interesting thing is underwriting. When human reliance is almost absent in fully automatic vehicles, premiums are determined by other factors such as technology, safety, telematics, and so on. So, there may be less need for complex underwriting discussions to decide the premiums.

This does not imply that the cars would not require insurance. The US government mandates auto insurance, but the clauses and scenarios may greatly vary with the advent of these cars.

Our guess is, this will take another decade or so to see autonomous cars in the mainstream market, but the future is already (silently) driving closer.

Moving forward, we can expect different regulations and bills to monitor, manage, and automate the insurance process backed by structured investigation on how to protect car owners and maintain a credible insurance system. It would be interesting to see how this unfolds. At Gonzalez Insurance, we constantly upgrade our products and understanding of how to insure people based on upcoming technology. If you hold a car that is not ICE and need guidance on how to insure it properly, get in touch with us. We can help you meet the right requirements with the correct guidance and on-point solutions.