Last Tuesday, California became the third state to legalizedriverless cars, a concept automobile under development by Googlethat could one day revolutionize the way we drive. But thedevelopment raises a host of liability questions for insurers.

While noting that these cars are still years away from beingproduced on an assembly line, Tom Kavanagh, director of theinsurance practice for PricewaterhouseCoopers, says it's stillinteresting to ponder this question today: If there is no driver,then who assumes liability if there is an accident, the owner orthe manufacturer?

This, he says, would add a layer of complexity to automobileinsurance that does not exist today and it will be up to both thelegal system and insurance carriers to figure these questionsout.

If the cars prove safer, a contention made in the marketing ofthese vehicles, then that could have a profound impact on the priceof insurance, as frequency and severity from auto accidents arereduced. Ultimately, it could mean lower auto premiums for autoowners.

Another concern is the data that these automobiles will collectand who takes ownership of it.

Kavanagh points to the use of telematics and some of the privacyconcerns controversy over the use of data to determine price.

“There will be some similar challenges on it related to this,”says Kavanagh.

He says it will still be years before insurers have to face thedriverless-car issues, with earliest manufacturing forecast in2015, if not later.

“I don't think [the insurers] are going in any direction yet [onthis],” says Kavanagh. “They are approaching this like they wouldany issue, working with their legal and compliance departments andwith regulators on timing and related issues.”

A spokesperson from Google declined to comment, but didacknowledge that the insurance implications are important and willneed to be worked out.

The company also issued a statement saying, “Self-driving carshave the potential to significantly increase driver safety.”

Robert Passmore, senior director of personal lines policyProperty Casualty Insurers Association of America, says there arethose that believe the driverless car will mean the end of autoaccidents, translating into the end of auto insurance.

On the other hand, despite the enhanced safety features the carconceivably would bring, there are liability exposures that wouldcontinue to arise for the vehicle's owner.

The technology will probably make the cars more expensive, hesays, and their increased value will need to be insured againstdamage from natural events and theft.

And despite the technology, notes Passmore, there is still therisk of a collision with vehicles still being driven manually.

In legislation that has been passed by at least two states,California and Nevada, the cars must have an operator and theability to override the computer.

“The major concern that we had was that somebody, for thepurposes of liability, for the purposes of traffic law enforcement,is considered the operator of that vehicle, whether they aresitting behind the wheel or sitting in a control room somewhere,”Passmore says. “I think that is something that, in both states, wasaddressed. But other than that, it, and the whole issue ofimprovements in auto technology, are something that most insurerswill be watching closely.”

At the nation's largest insurer, State Farm, Public AffairsSpecialist Arlene J. Lester says, “While it is too soon to give anopinion or endorsement of these vehicles, we are watching theadvancements made in this arena with great interest especially dueto the potential it has on making cars and roadways safer for alldrivers. Safety is always our number one priority.”