How Autonomous Driving Will Change the Auto Insurance Industry

13 March 2025

Autonomous driving is no longer a futuristic dream; it’s already here, and it's about to shake up the auto industry in ways we couldn’t have imagined. But there’s something else that’s going to change along with it—auto insurance. Yep, the way we insure cars is going to look wildly different in the coming years, all thanks to self-driving technology. So, let’s dive into how autonomous driving will change the auto insurance industry and what it means for you.

What Is Autonomous Driving?

Before we get into the nitty-gritty of insurance, let’s quickly recap what autonomous driving actually is. In simple terms, autonomous driving refers to vehicles that can operate without human intervention. You’ve probably heard terms like "self-driving cars" or "driverless cars" thrown around, but they all mean the same thing—cars that can drive themselves, using a combination of sensors, cameras, and artificial intelligence (AI) to navigate the roads.

There are different levels of autonomy, ranging from Level 0 (no automation) to Level 5 (full automation). Right now, most of the cars we see on the road are somewhere between Level 2 and Level 4, meaning they still require some level of human supervision. However, we're inching closer to full autonomy, and that’s where things get really interesting for the auto insurance industry.

The Current State of Auto Insurance

Let’s first take a look at how traditional auto insurance works. Right now, insurance companies assess risk based on a variety of factors like your driving history, age, location, and even your credit score. These factors help them figure out how likely you are to get into an accident, and then they set your premium accordingly. In other words, if you’re a high-risk driver, you’ll pay more for insurance, and if you have a squeaky-clean driving record, you’ll pay less.

The majority of insurance claims today are related to human error—speeding, distracted driving, or just plain carelessness. But with autonomous driving, everything is about to change because, well, humans won’t be driving anymore!

How Will Autonomous Driving Impact Auto Insurance?

1. Fewer Accidents, Lower Premiums?

One of the most appealing promises of autonomous vehicles is that they’ll drastically reduce the number of traffic accidents. According to the National Highway Traffic Safety Administration (NHTSA), about 94% of serious crashes are due to human error. Take humans out of the equation, and you’ve got a lot fewer accidents on the road.

Fewer accidents mean fewer insurance claims, which could, in theory, result in lower premiums for drivers. After all, if the risk goes down, so should the cost of insurance, right? It seems like a win-win situation for both consumers and insurance companies.

But before you start celebrating those lower premiums, there’s a catch. With autonomous cars, the question of liability becomes a little more complicated.

2. Who’s Liable in a Self-Driving Car Accident?

Here’s where things get tricky. In a world where cars are driving themselves, who’s to blame when something goes wrong? Is it the car manufacturer? The software provider? The car owner? Or maybe even the local municipality if there’s an issue with road infrastructure?

In traditional accidents, liability is usually pretty straightforward—if you rear-end someone, you’re at fault. But with self-driving cars, the lines get blurred. If an autonomous vehicle malfunctions and causes a crash, it’s very possible that the manufacturer of the vehicle or the software developer could be held liable, rather than the owner of the car.

This shift in liability could lead to a rise in product liability insurance claims, meaning manufacturers and tech companies may need to take on more of the insurance burden. Auto insurance companies may find themselves playing a smaller role in covering individual drivers, while product liability insurers could step into the spotlight.

3. New Insurance Models Will Emerge

As autonomous driving becomes more common, we’re likely to see new types of insurance models emerge. Traditional auto insurance policies may become obsolete, and insurers will need to adapt. Here are a couple of potential models we might see:

Usage-Based Insurance (UBI)

Usage-based insurance isn’t a new concept, but it could become the norm with autonomous vehicles. Essentially, UBI calculates premiums based on how much you actually use your car and how safely the car operates. Since autonomous cars will be equipped with tons of sensors and data collection tools, insurers will have a wealth of information to assess risk. Instead of paying a flat rate for insurance, you might pay based on the number of miles you drive or the times of day you’re on the road.

Pay-Per-Ride Insurance

Another model that could emerge is pay-per-ride insurance, where you only pay for coverage when you’re actually using the car. This could work particularly well with autonomous ride-sharing services like those being developed by companies like Tesla and Waymo. If you only hop into a self-driving car every now and then, why pay for a full year of coverage? Instead, you could be charged a small fee for each ride to cover the cost of insurance.

4. The Rise of Cybersecurity Insurance

Autonomous vehicles rely heavily on software, which makes them vulnerable to hacking and cyberattacks. Imagine a hacker taking control of a self-driving car on the highway—scary, right? As the risk of cyber threats grows, so too will the need for cybersecurity insurance.

In addition to covering physical damage or injuries caused by a cyberattack, cybersecurity insurance could also protect against data breaches. Autonomous vehicles collect a ton of data about their passengers and surroundings, and if that data falls into the wrong hands, it could be a privacy nightmare. Insurance policies will likely need to evolve to cover these types of cyber risks, which are only going to become more prevalent as cars become more connected.

5. Changes in Car Ownership and Ride-Sharing

Autonomous driving could also change the way we think about car ownership. With ride-sharing services like Uber and Lyft already becoming more popular, it’s not hard to imagine a future where many people don’t own cars at all. Instead, they could rely on fleets of autonomous vehicles to get around.

If car ownership declines, personal auto insurance might become less important, and fleet insurance could take center stage. Companies that operate fleets of autonomous vehicles would need to insure their entire fleet, rather than individuals insuring their personal cars.

6. Transition Period: A Mix of Autonomous and Human-Driven Cars

It’s important to remember that the shift to fully autonomous driving won’t happen overnight. For many years, we’ll have a mix of human-driven cars and autonomous vehicles sharing the roads. This transition period could be particularly challenging for insurance companies, as they’ll need to develop policies that account for both types of vehicles.

During this time, traditional auto insurance will still be necessary, but it will likely need to evolve to account for the unique risks posed by autonomous cars. For example, how do you calculate premiums when a human driver is only in control of the vehicle part of the time? Insurers will need to figure out how to assess risk in this hybrid environment.

What Does the Future Hold?

The auto insurance industry is on the brink of a major transformation. As autonomous driving technology continues to develop, insurance companies will need to rethink how they assess risk, determine liability, and price their policies. While fewer accidents and lower premiums might seem like a given, the reality is that the future of auto insurance is far from straightforward.

Manufacturers and tech companies will likely take on more responsibility, new insurance models will emerge, and cybersecurity will become a top priority. And, of course, there’s the question of how long it will take for autonomous vehicles to become mainstream. Will we see fully autonomous cars dominating the roads in the next decade, or will human-driven cars stick around for a while longer?

Only time will tell, but one thing’s for sure—the auto insurance industry is about to experience some big changes.

Conclusion

Autonomous driving is set to revolutionize not just the way we travel, but also the way we insure our vehicles. With fewer accidents, shifting liability, and new insurance models on the horizon, the auto insurance landscape is poised for a major shake-up. As drivers, manufacturers, and insurance companies adapt to this evolving technology, we’ll undoubtedly see both challenges and opportunities emerge.

So, buckle up—because the road ahead, although autonomous, is going to be anything but predictable!