"The future is here," or so stated Adrian Flux Insurance Services, an insurance broker out of Norfolk, England, that announced it will issue policies for self-driving cars.
"Unlike every insurance policy that you've ever held in the past, driverless car insurance needs to cover you against a whole host of modern problems, not just your typical bumps and scrapes," the company stated in a news release.
The U.K. allows the extensive testing of fully autonomous vehicles on public roads, as do the states of California, Florida, Michigan, Nevada, Texas and the District of Columbia in the U.S. New vehicles are increasingly coming with advanced driver assistance systems (ADAS), which can take control of the vehicle to ensure it stops before hitting an object or maintains speed and distance between other vehicles.
That poses the question: who's responsible if a vehicle is in an accident but the driver is not driving it?
Flux's policy covers fully autonomous cars and vehicles with ADAS from software glitches, hardware failures and even hacking by third parties.
Egil Juliussen, director of research at IHS Automotive, said he's never heard of an insurance company writing policies for fully autonomous vehicles.
Flux said it designed its policy "for people who may have driverless or autonomous features in their existing car, or who may be thinking of buying a new car with driverless or autopilot features such as Tesla's Model 3, which is expected to ship in late 2017.
Stephan Appt, an intellectual property and information technology attorney with the U.K.-based law firm Pinsent Masons, said driverless cars will likely change the future of automobile insurance.
"If a machine can drive itself, and the owner has little or no influence over how it operates, and if no technical fault arises in the event of an accident that can be pinned on the manufacturer, then you can see why there might need to be a paradigm shift in consideration of liability," Appt said.
Under Flux's policy, if a car is in an accident and it's being driven in an autonomous mode, who will be responsible for the damage will depend on a number of factors, as it would be for other vehicles: the condition of the car, the driver's awareness and abilities at the time, road conditions, other vehicles or people involved.
"If, for instance, the car's driverless technology or its supporting systems are shown to have failed or caused some other disruption resulting in an accident, collision or other type of damage, the driver may not bear any responsibility," the insurer stated.
The driverless vehicle insurance policy, however, requires the driver to always be in a position to take control of the car at any time.
"So a driver couldn't turn on the autopilot and have a nap at the wheel," the company stated.
Flux, which has about 600,000 policyholders, has a reputation for taking on hard-to-insure vehicles. Fully autonomous vehicles or even cars equipped with advanced driver assistance systems (ADAS), however, are far from risky.
According to a study published more than a year ago by the Insurance Institute for Highway Safety (IIHS), autonomous vehicle technology has already led to a lower fatality rate in accidents involving late model cars.
Most accidents are caused by human error, so if this factor can be minimized by taking control of the moving vehicle away from the driver, the accident rate should tumble, the IIHS stated. Data from the IIHS and the Highway Loss Data Institute (HLDI) already show a reduction in property damage liability and collision claims for cars equipped with forward-collision warning systems, especially those with automatic braking.
The impact on the insurance industry could be significant. Far from hurting the insurance industry, which generates $220 billion in revenue a year in the U.S. alone, self-driving cars are likely to shrink the amount of settlements it pays out.
Industry consultancy KPMG predicts that the insurance market will shrink 60% by the year 2040.
"Currently, the personal auto sector accounts for roughly $125 billion in loss costs. By 2040, we believe this sector could cover less than $50 billion in loss costs," KPMG stated in its report.