Most people — based upon the publication of accidents involvingdriverless cars — erroneously believe that driverless cars (sometimes called autonomous vehicles) will increase accidents.In fact, the opposite is true.

According to the National Highway TrafficAdministration over 90 percent of auto accidents are caused byhuman error. So taking control of the car away from the driver,will reduce both the frequency and severity of accidents accordingto the Institute for Highway Safety and Highway Loss DataInstitute (IIHS).

Related: Most drivers still wary of autonomous vehicles,J.D. Power says

The reduction in the number of accidents, however, will nothappen overnight; rather the savings will take place as more carswith driverless, or other accident avoidance technology, replacecars without these safety features.

Safety technology

The auto industry is already working on safety technology.Nissan introduced safety technology in the 2013 Altima that warnsdrivers when their cars are close to another car. As a result ofthis innovation, bodily injury losses for people driving NissanAltimas have dropped 40 percent and medical payments by 27percent.

In 2015, Tesla introduced its Autopilot mode. Nearlyevery manufacturer's vehicles will soon be equipped with some formof accident avoidance technology. Like cars with seatbelts andairbags, it will shortly be impossible to buy a car without someform of accident avoidance technology. The inability to buy carswithout some form of accident avoidance technology will overcome,over time, the fear of some drivers to use this safetytechnology.

Lower insurance premiums may also motivate drivers to purchasecars with accident avoidance technology. According to the IIHS,it's anticipated that there will be 3.5 million self-drivingvehicles by 2025, and 4.5 million by 2030. Some studies suggestthat nearly all vehicles will be self-driving by 2050. Someinsurance company actuaries predict that auto accidents may drop byas much as 80 percent by 2040.

Related: Auto claims face a bumpy roadahead

The risk of accidents will not be completely removed bydriverless cars. Some drivers, who enjoy driving, may disable theaccident avoidance technology. In addition, the accident avoidancesystems may fail.

Nevertheless, auto insurers are already making plans to confrontan anticipated drop in revenue. The industry is predicting thatauto premiums will likely plunge by as much as 60 percent in thenext 15 years as car owners will need less coverage. In fact,numerous insurers on their regulatory filings have noted thatself-driving cars could hurt their businesses.

Impacts beyond auto insurance market

The impact on insurance company revenue may transcend the autoinsurance market. The number of vehicle-related workers'compensation claims, as well as health care and disabilityinsurance costs related to auto accidents will also decrease,possibly resulting in a reduction of these insurance premiums aswell. However, as more crash avoidance features are incorporatedinto vehicles, the cost of replacing damaged parts is likely toincrease because of the cost and complexity of thesecomponents.

Although the number of legal cases related to auto accidentsmay decrease, they will become more complicated. (Photo:iStock)

Litigation will continue

Driverless cars will not end litigation. While the newtechnology will reduce accidents significantly, it will not beperfect. When the accident avoidance technology fails, thecompanies who manufactured that technology or provide the softwarewill face liability. Litigation may also center on the training ofdrivers as this new technology is intergraded into their cars.

Related: How self-driving cars will change the rules of theroad

Although the number of cases will decrease, they will becomemore complicated as nearly all auto accident cases will focus onhow the accident occurred and whether the driver, productmanufacturer or both caused the accident.

The insurance industry is already planning for the reduction ofpremiums by exploring other markets. Some predict the drop inpremium could approach $60 billion by 2030 based upon the increasein ride sharing and the use of autonomous cars. Personal autoinsurers like Allstate, GEICO and State Farm will have to find aplace for the loss of premium revenue from safety technology andthe use of ride-sharing services.

New insurance markets created

There will certainly be new insurance markets as a result ofdriverless cars. For example, one potential market is insuringmanufacturers and software providers of accident avoidance systemswho will be sued should those systems allegedly fail as theirpotential liability. As a result their need for insurance willincrease.

There's also a potential for cars being hacked as they becomemore networked. This could lead to the need for cyberliabilityinsurance for both the manufacturers and software providers of theaccident avoidance systems as well as the owners of these cars fornot protecting their cars from being hacked.

Related: Thriving in the autonomous automarket

The advent of driverless cars may also increase competition inother insurance markets as traditional auto insurers enter marketsnow dominated by business insurers looking for other markets toreplace policyholders and lost premium revenue.

There are certainly challenges ahead for the insurance industryas more drivers start using driverless cars. Consumers shouldbenefit in two important respects. First, the roads will be saferas human error, the major cause of auto accidents, is virtuallyeliminated. Second, consumers will benefit from a substantialreduction in premium.

Ronald L. Kammer is the co-partner in charge of the Miamioffice of Hinshaw & Culbertson and the national business unitleader of the firm's insurance practice. Contact him at [email protected].