Driverless cars: The future of insurance policies?

Driverless cars could soon be coming to a driveway near you. Indeed, trials of driverless cars are taking place in several major cities across the globe, and the UK is no exception. High profile car and technology manufacturers have begun to release features in the latest car models that give cars some autonomy, but market commentators have suggested that by 2020 there will be as many as ten million autonomous cars on the road in the UK.

The government has made it clear that it wants the UK to be at the forefront of the driverless car revolution and is investing millions of pounds into research and development of this technology. It has also announced a consultation to a change of legislation that would ensure consumers are able to insure driverless cars.

Do consumers want driverless cars?

Despite the government’s desire for the UK to lead the driverless car movement, Mintel research reveals that many consumers are unlikely to be interested in owning a self-driving car. This is not surprising given that the technology is so new and that many see it as a significant and possible risk. As with many forms of new technology, attitudes will change as progress is made and people have a clearer idea about what it looks like and the possible benefits.

Insuring driverless cars

The potential regulatory changes on the horizon have paved the way for Adrian Flux to be the first insurer in the UK to launch a driverless car insurance policy. This new policy has specific features to cover the new range of autonomous cars and the technology that powers these cars.

The policy covers for loss and damage if updates or security patches haven’t been successfully installed within 24 hours of the owner being notified by the manufacturer, if there are satellite failures or outages that affect the navigation systems, where these is loss or damage caused by failing to use manual override function and for loss or damage if the car is hacked.

While some standard car insurance policies also provide cover for some of these issues, this is the UK’s first insurance policy dedicated to autonomous cars.

Regulatory implications and insurance needs

In July 2016 the Department for Transport announced that it would be consulting on changes to legislation to ensure that insurance products will be available to cover self-driving cars before they arrive, paving the way for insurance companies to offer coverage.

The proposed changes to legislation, which are set to be announced as part of the Modern Transport Bill, will allow consumers to make a claim on their insurance policy even if they had handed control over to their vehicle, meaning that insurers would still need to pay out to victims in the event of an accident. However, there will also be provision introduced that will allow insures to claim back any settlement from car companies should the vehicle be at fault.

Despite the reduced risk posed by driverless cars, there are still opportunities for accidents to occur, and if this were to happen, the cost of repairing these cars and the technology used to run them could be high.

With additional technology and safety features, Mintel research has found that consumers believe that additional technology should make insurance premiums cheaper. Insurers will have to walk a fine line, charging consumers higher premiums to ensure that offering these policies are profitable could risk alienating the small majority that are interested in owning a self-driving car.

Scott is a Financial Services Analyst at Mintel, researching and writing Mintel reports. Prior to joining Mintel, Scott worked for the Financial Ombudsman Service for three and a half years as an Adjudicator, and as an Operational Contact engaging with some of the UK’s largest financial institutions.