By Mark Pratzel on September 12, 2016

car GPSAs driverless automobile technology develops it leaves unanswered questions about the legal implications for auto insurance.   Currently, if drivers of traditional cars get into an accident, the auto insurance policy of the party at fault will typically cover the property and bodily injury damages sustained by the victim. But what happens if the fault can be attributed to an autonomous vehicle controlled by a computer?

Approximately 10 million cars will be equipped with self-driving features by 2020, according to a recent Business Insider report. If this projection proves accurate, it could result in a substantial overhaul of the auto insurance industry.

Autonomous automobiles incorporate crash avoidance technology. As this technology becomes more widespread, it may significantly alter the landscape of auto insurance.  For example, insurers will be able to better determine the extent to which this technology reduces the frequency and cost of accidents. Also, responsibility and liability for accidents may focus more on the crash avoidance technology than the drivers. This may lead to a higher percentage of product liability claims following accidents, as claimants blame the manufacturer or suppliers for what went wrong rather than their own behavior. As a result, liability laws will need to evolve to ensure that autonomous vehicle technology advances are not inhibited by an increase in lawsuits.

Marc Mayerson, a lawyer and adjunct professor of insurance law at Georgetown University, recently said, “In theory, self-driving cars would not create negligence liability for the passenger, non-driver, and owner of the car.” To the extent that liability can be shifted from drivers to manufacturers of autonomous vehicles, insurance premiums for vehicle owners could decrease significantly. In fact, there is concern within the insurance industry as a result of this potential decrease in its revenue. According to one source, premiums could drop as much as 60 percent in 15 years as autonomous vehicle technology becomes more widely used. However, auto insurers’ ability to spread liability to deep-pocketed automakers may also reduce insurers’ liability exposure.

Under this potential new paradigm, determining and allocating liability will become more complex since both manufacturers and drivers will bear responsibility for causing accidents. If, for example, an accident is caused by a hardware or software defect, then it would be reasonable to place the liability on the manufacturer. However, if the vehicle owner failed to make necessary updates or failed to follow the manufacturer’s safety instructions or warnings, then fault will fall on the vehicle owner.

Insurance is state regulated, with each jurisdiction establishing its own rules and regulations for auto insurance. With the introduction of more autonomous vehicles, there will surely be more state legislation and regulations governing them, and the federal government may be called on to play an increased role in the process. If car manufacturers are required to bear more responsibility for damage and injuries, manufacturers may push for a greater role for the federal government to promote uniformity and consistency in applying and complying with the individual state rules and regulations.

One thing is clear. Autonomous vehicles are on the horizon, and the automobile insurance industry will have to adjust to this new technology.