Vehicles with assisted driving features are already available on the mass market, and connected car technology is quickly reaching a tipping point.

Fully driverless vehicles are not far behind, as car manufacturers and tech giants — including Google, Uber, Tesla and GM — push prototypes through thousands of miles of testing with the promise to enter production. Businesses and consumers aren't the only ones trying to make sense of a future without human drivers; insurance firms must also find pricing and coverage models that can accommodate the reality of autonomous vehicles.

Major market changes will likely occur in phases, with early autonomous car adoption primarily limited to the corporate sphere and only a small number of consumers pioneering the technology. Over time, as insurance firms develop more informed risk models and automated vehicles become more intelligent and safe, driverless cars will see mass adoption. While fully autonomous vehicles are unprecedented, the industry enjoys a variety of tools and strategies that will prove useful in adapting to the new realities of vehicle ownership.

The upside of limited adoption

The shift to autonomous vehicles, like countless other technological innovations that have come before, will be gradual, giving the market ample time to adjust. The prohibitive cost of the technology will prevent mainstream adoption for some time, leaving forward-thinking businesses and wealthy tech aficionados to pave the way for future consumers. Both groups will be well positioned to absorb unexpected costs associated with the technology, and their experiences will inform insurance firms' risk assessments.

Autonomous vehicle use cases will likely play a large role in determining insurance costs, just as a driver's age and gender do today. On one extreme, vehicles used for drayage or local transport (even pizza delivery), will likely benefit from very low insurance rates, while consumer and enterprise transportation vehicles will constitute a much larger risk. Of course, the intelligence and safety of driverless vehicles themselves will also play a leading role in guiding insurance rates and liabilities.

Despite persistent fears, autonomous vehicles appear to be (at the very least) as safe as their human-driven counterparts, if not safer. To date, Google's autonomous vehicle experiments have had one accident where the vehicle was at fault, and occurred while the vehicle was moving two miles per hour. Even if insurers choose to preemptively raise rates on driverless vehicles in anticipation of a slew of accidents, costs will quickly adjust to match their actual level of risk.

The implications of human drivers taking a backseat

By the time driverless technology becomes affordable enough for general adoption, vehicle ownership will look markedly different than it does today. In the same way that owning a horse today is a luxury — rather than a staple of transportation, manually driven vehicles could become an uncommon alternative for hobbyists. Depending on the future success of ride-sharing ventures like Uber and Lyft, owning a car may itself become a luxury, as autonomous vehicles allow the sharing economy to replace individual vehicle ownership.

In an environment where a dwindling number of human-operated vehicles are responsible for a disproportionate number of collisions, insurance rates will probably rise to compensate. In time, government agencies may eventually impose limitations on the use of human-driven vehicles.

By the time autonomous vehicles reach mass market penetration, they likely will be safer than human-driven cars and trucks. I predict that this will likely invert existing insurance incentives; rather than charging premium rates to insure autonomous vehicles, conventional transportation will instead be penalized. Already, accidents involving driverless vehicles have occurred due to human negligence.

Going forward, insurance models should adapt to the inevitability of un- or under-insured vehicles causing a collision. While these situations share many commonalities with conventional accidents, in some cases it may be difficult or impossible to determine the owner of a driverless (and potentially passenger-less) vehicle. In response, businesses and consumers may decide to carry more comprehensive umbrella policies that cover a broad swatch of potential incidents. Depending on the scope and quality of autonomous vehicle software development, insurance firms may even choose to offer discounts to customers who invest in more sophisticated driverless technology.

There will be a number of growing pains during the transition to autonomous vehicles, but increased safety and convenience offer a promising future. Even as insurance offerings, business practices and consumer behaviors adapt, the future autonomous vehicles promise is surprisingly familiar.

Matt DeWolf is the director of product innovation at Waterford, Wisconsin-based Runzheimer, where he drives the transformation of products and mobile technology strategy for enterprise clients.

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Driverless cars: What are the insurance implications?

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