It’s always been a simple proposition: If you want to drive, you need car insurance.
But what happens when people are no longer in the driver’s seat?
That’s a multibillion-dollar question facing regulators and the insurance industry as cities such as Pittsburgh, Singapore, and — later this year — Boston test driverless cars, signaling the arrival of the robocar and threatening to leave traditional auto insurance in the rear-view mirror.
Some of the nation’s largest insurers, including Boston-based Liberty Mutual, and State Farm and Allstate Corp., both headquartered in Illinois, are spending millions of dollars to prepare for the brave new world where technology does the driving. If put into everyday use, driverless cars would probably reduce accidents, require an overhaul of insurance coverage, and threaten insurers’ profits.
“This is an industry that will be disrupted,” said Jerry Albright, a principal at KPMG LLP, a consulting company that is studying the insurance effects of driverless cars. “You’ve got a business model that is becoming obsolete.”
For most property and casualty insurers, auto policies tend to make up a bulk of their business, with companies collecting nearly $200 billion in car insurance premiums from drivers in the United States last year.
But if consumers adopt autonomous cars at even a moderate pace by 2050, accidents are expected to fall by 80 percent because most crashes are tied to human mistakes. With fewer accidents, insurers will have to charge less for their coverage, and premiums could fall by more than 40 percent, dragging down company profits, according to recent estimates.
Already, some semiautonomous functions are making roads safer. The Insurance Institute for Highway Safety found earlier this year that automatic braking technology reduced rear-end crashes by 40 percent and front collision warning systems eliminated 23 percent of rear-end accidents based on four years of data.
Consumers also seem eager to test out these driverless cars. A recent survey by the Arlington-based Consumer Technology Association found 70 percent out of the 2,001 drivers questioned were ready to try out an autonomous car, and nearly as many wanted to replace their own ride with one that drives itself. Other recent surveys have found consumers are concerned and more conflicted about ceding control to computers.
As driverless cars leap from the lab to city streets, the technology is raising fundamental issues about who pays and who is to blame when something goes wrong.
How insurance will be structured when technology takes control is unclear, said Chris Goetcheus, a spokesman for the Massachusetts Division of Insurance.
“There are more questions around this issue than there are answers right now,” Goetcheus said.
And the questions are endless: Will insurance be sold to drivers or to carmakers and technology companies responsible for the hardware and software? Will there be some basic insurance requirements for the consumer, and what will it cover and how much will it cost? Will people still want to own their cars, or will they rely on fleets of shared vehicles that pick them up for work or a run to the drugstore, and will they need car insurance for those trips? What if the human grabs control of the autonomous car at some point and starts making driving decisions? How should insurance work in that situation? What about owners who don’t maintain their cars with regular technology updates? And will all autonomous technology be equally safe, or will there be variations based on price, affecting potential insurance premiums?
“There’s a lot of uncertainty on how quickly it will affect the auto insurance industry,” said Hamid Mirza, senior manager of product strategy and solutions at Liberty Mutual. “But we definitely have our eyes on it.”
Liberty Mutual is studying autonomous vehicles and driver behavior with MIT’s Advanced Vehicle Technology Consortium and at its own lab in Hopkinton. The company has already started offering drivers discounts if cars have certain semiautonomous safety features that slow down the vehicle to avoid tailgating, trigger alarms if the driver swerves into another lane, and warn about potential blind spots.
Liberty Mutual officials said they are hoping to be involved in the Boston experiment on self-driving cars to get a better understanding of how they maneuver around traffic and any potential risks that would affect insurance pricing.
State Farm employees, along with carmakers, have embedded themselves at the University of Michigan’s $10 million testing facility for self-driving cars, gathering data that could help the company tailor insurance policies for self-driving cars.
And Allstate has researchers looking into high-tech cars and exploring new sources of revenue should the rise of the robocar cause their profits to plummet.
The National Association of Insurance Commissioners, which makes recommendations on insurance issues that are often adopted at the state level, has recognized that the current insurance framework won’t meet the needs of a driverless car world. The association is starting to consider how coverage might need to change, including whether consumers should only buy insurance to cover their own car and injuries — not for damages they might cause others, officials with the organization said.
Some shifts in the market are already happening. Volvo Car Group is launching a test of its fully autonomous vehicles in London next year and has already said it will pay for damages or injuries caused by its cars out of its own pocket.
In Pittsburgh, where the ride-for-hire service Uber has a fleet of self-driving Ford Fusions picking up customers, the company purchased a $5 million insurance policy in place for its test.
The coverage limits match what some Pennsylvania legislators have proposed in a bill aimed at creating a framework for self-driving car experiments, an Uber spokeswoman said.
But most states don’t have laws in place yet.
Last month, Boston officials announced that the city’s streets would be a testing ground for self-driving cars under a program by the World Economic Forum focused on the future of urban transportation.
The experiment is scheduled to launch at the end of the year, but Goetcheus said state insurance officials haven’t been contacted yet about how liability issues will be handled. Under Massachusetts law, insurers don’t have to write coverage for drivers they feel are too high-risk, which raises questions about who would insure these vehicles as they become increasingly common, Goetcheus said.
High-risk drivers are placed in a state insurance pool of last resort, which offers limited coverage options and can be more expensive. But it’s unclear whether driverless cars would be pushed into that same high-risk pool.
Still, some insurance experts are skeptical that the new technology will arrive that soon or be that transformative.
People still enjoy pressing foot to pedal, gripping the steering wheel, and hitting the open road, said James Lynch, the chief actuary at the New York-based Insurance Information Institute, an industry trade group.
“Will people change their behavior?” Lynch asked. “The popular image is in a few years that we’re going to be sitting in cars and they’ll be transporting us wherever we need to go. . . . It feels like the early days of aviation. How long it takes is an enormous question.”