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Nicholas Kitonyi
Nicholas Kitonyi
Articles (252)  | Author's Website |

How Self-Driving Cars Are Changing Auto Insurance

With 90% of car accidents attributed to human error, autonomous vehicles could reduce this significantly

August 16, 2017 | About:

The auto insurance market is one of the most exciting segments of the insurance sector, but based on current developments in the automobile industry, this could soon change.

Advances in technology have created an environment where innovation is the main disruptive force. Whether you are in the smartphone business or the computing industry, the quality of devices being produced appears to be the main determinant of success or failure in a highly competitive market.

This concept has spread to other sectors, including the automobile industry, with tech-featured vehicles commanding higher profit margins than their traditional counterparts. Most cars today have one or two autonomous features, including cruise control and auto backing.

Some vehicles even have autopilot capabilities, meaning the driver can choose to let the self-driving system take control. These features are a massive leap in the automobile industry, but their effects are not limited to “taking control.”

The auto insurance industry is one of the biggest victims of this paradigm shift. The more autonomous vehicles produced, the higher the impact. The industry relies on premiums paid by motorists and, according to research, insurance against human error seems to be the industry’s cash cow. Reports indicate 90% of all car accidents are caused by human error.

A shift into self-driving cars will not only cause a disruption in the way auto insurance companies estimate their premiums, but also in the way motorists identify the best insurance plans for their vehicles. As such, getting a better deal on car insurance will become a complex checklist of what a motorist should cover and what the car manufacturer should insure.

Self-driving cars could reduce this risk to minimal levels, thereby affecting the quality of premiums paid toward this coverage. This means the auto insurance industry will need to reinvent itself to keep afloat in the future.

Reports suggest the data these companies collect could be handy in the long run by providing autonomous vehicles with statistics of the most accident-prone roads, but it remains to be seen how effective this will be.

On a positive note, it could take a while before a huge chunk of the cars on the road are autonomous. In addition, since the risk of causing an accident will now transfer to the self-driving system, it means the manufacturers of these autonomous vehicles will have to buy insurance for the same. As such, this could create a new revenue stream for the auto insurance industry as the transition to self-driving cars takes effect.

Some autonomous car manufacturers have already embraced this change with the likes of Tesla (NASDAQ:TSLA) already beginning to factor in the cost of insurance when pricing their cars. On the other hand, Volvo (VLVLY) has expressed optimism in its self-driving system by getting insurance for its autonomous vehicles. According to reports, “Volvo is already on board with this approach and is so confident in its technology that CEO Håkan Samuelsson plans to accept liability for its driverless cars when in autonomous mode.”

Car owners may also have to insure against cyber hacking. According to reports, the self-driving system is susceptible to hacking, creating another risk auto insurers can take advantage of. Charlie Miller, Uber’s former top hacker, revealed securing autonomous vehicles against hacking is a very tough job, raising the bar for manufacturers to increase security features.

If the developers of these systems were able to reduce the risk threshold significantly as Volvo claims to have done, then auto insurance premiums would decline substantially. This is the uncertain future that awaits the auto insurance industry as more automobile manufacturers continue to run pilot projects for autonomous vehicles.


In summary, different auto manufacturers have taken the issue of autonomous vehicles with varying perspectives. While Volvo seems to be convinced its autopilot system is foolproof, the likes of Tesla know well it is not possible to eliminate the risk completely. As such, they have opted to capture the cost of insurance in the autonomous vehicles’ pricing in a bid to balancing their books.

The immediate future for the auto insurance industry is unclear, but the long-term future appears to lean on the impact of self-driving cars.

Disclosure: I have no positions in any stocks mentioned in this article.

About the author:

Nicholas Kitonyi
Nicholas the founder of CAGR Value. He is a financial analyst with extensive experience in investment research and stock market analysis. His analysis has been featured on research sites like Seeking Alpha and Benzinga.

Nicholas has solid knowledge of both U.S. and European markets. His investment style is focused on undervalued plays and growth stocks. As a trader, Nicholas classifies himself as a swing trader and likes to trade GBP/USD, gold and FTSE 100, among other liquid instruments.

Visit Nicholas Kitonyi's Website

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Batbeer2 premium member - 11 months ago

>> .... since the risk of causing an accident will now transfer to the self-driving system, it means the manufacturers of these autonomous vehicles will have to buy insurance for the same.

How do you know that?

Let's imagine a scenario that car manufacturer X has been making autonomous cars and goes bankrupt in the year 2058. Does that mean all the cars they produced in the years prior to their bankruptcy immediately become useless since the manufaturer can no longer pay the insurance premium?

On another note, does Boeing carry insurance for the day one of their planes goes down in flames while it is on autopilot? How about the aircraft of manufaturers like Antonov and Fokker. Are those planes uninsurable now that the manufacturer is defunct? Or are the pilots instructed not to use the autopilot on an Antonov?

And yet you predict with certainty "manufaturers will have to buy insurance".

So tell me, what exactly is your prediction based upon?

Nicholas Kitonyi
Nicholas Kitonyi - 11 months ago    Report SPAM

Hi Batbeer,

I was merely referring to Volvo's stand. They seem ready to pay insurance whenever an accident is attributed to their autopilot system. "CEO Håkan Samuelsson plans to accept liability for its driverless cars when in autonomous mode.”

Batbeer2 premium member - 11 months ago

Interesting, I didn't know that, thanks!

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