Since the creation of the first personal auto policy more than100 years ago, auto insurance policies have all had similar goals:to protect the vehicle owner and driver in the event of anaccident, theft or other damage to the vehicle.

With the invention and innovation of self-driving cars, the entire transportationsystem must adjust to humans as passengers only, and notdrivers.

The question arises: What sort of insurance will be required tocover incidents involving self-driving vehicles?

As self-driving vehicle testing ensues, the need to insure thesevehicles increases. Insurance for a self-driving car must providecoverage for a host of issues that have only recently arisen. InJune 2016, Adrian Flux, a popular U.K. insurer, introduced thefirst autonomous car insurance policy. Whilethe Flux policy outlines several autonomous-specific scenarios thatshould probably be addressed in most self-driving auto policies, it also providescoverage consumers are currently used to seeing.

Insuring the car of the future

The Flux policy provides coverage for damage or loss that occursbecause of hacking or attempted hacking of the vehicle's software,particularly the operating system. Hackers could potentially foolthe car's software into “thinking” there is an obstacle in the roadwhen there isn't. A hacker could commandeer the vehicle's softwareand refuse to release the vehicle, an act of cyber-extortion calledransomware. Because of risks like these, coverage for hacking maybecome necessary.

The Flux policy provides coverage for a collision caused by afailure to install updates to the car's operating system, firewallor navigation system within 24 hours of being notified about theupdate by the manufacturer. This approach allows for a small windowof user-error, but if an owner fails to install updates after the24-hour time limit, the assumption is coverage will not beprovided.

Satellite failures or outages

The policy provides coverage for damage caused by satellitefailures or outages affecting the navigation system of the vehicle.Global Positioning Satellite Systems (GPSS) provide vehicles withaccurate timing and positioning data. Satellites will potentiallygive autonomous vehicles much of the information needed to navigateroads, allow for intelligent speed adaptation, adopt to changingtraffic congestion, and facilitate road traffic warningsystems.

There is some risk of high-rise buildings in cities blocking thesatellite signal from seamlessly reaching the car. New developmentsin Wi-Fi, 3G and 4G, and the ability to use more than one of thosethree platforms at one time may provide a more seamless satellitesignal.

The Flux policy also provides coverage for loss or damage causedby the failure to use the manual override function to avoid anaccident in the event of a software or mechanical failure, andcoverage for the failure of manufacturer software or any otherauthorized software for the car. The policy also provides thecoverage that consumers are used to receiving with their personalauto policies, including comprehensive, third-party, fire and theftcoverage.

Legislation similar to the English VehicleTechnology and Aviation bill could provide a roadmap for state andfederal regulations concerning the use of autonomous vehicles inthe U.S. (Photo: Shutterstock)

Changing the law

More recently, the U.K. government has shown initiative byimplementing laws to regulate self-driving vehicles in advance ofthe coming trend. According to a bill released in February 2017,insurance coverage for self-driving cars must offer coverage forthe two states of an autonomous vehicle: when the driver is incontrol, and when the vehicle is in control.

The insurance that will be required for all drivers ofself-driving cars was set out in the Vehicle Technology and Aviation Bill releasedFebruary 22, 2017. This two-in-one insurance policy structureprovides personal auto coverage and negligence, and autonomouscoverage for when the car is in self-driving mode.

The reasoning behind this two-faceted insurance requirement isto make it easier for accident victims to recover whether a humanor the car was in control at the time of the accident. In the eventof a crash in self-driving mode, claims against the vehicle will bepaid by an insurance company who will then recover costs from theresponsible party, in some cases the manufacturer.

The bill outlines what the Secretary of State considers to beautomated vehicles affected by this legislation, the insurers'liability when the accident is caused by an automated vehicle, andincludes a section on contributory negligence. The bill also makestwo important exemptions.

First, the vehicle owner becomes liable if unauthorized changesare made to the car's software. This prevents insurance companiesfrom insuring unknown perils, which would have affected the premiumpayment if the company was aware of the peril when the policy waswritten. The second exemption provides that the vehicle's ownerbecomes liable for failing to install an update the policy requiresto be installed.

Some concerns still not addressed

While the suggestions made in the bill have been welcomed byinsurers, the bill fails to address some concerns that arise withthe discussion of self-driving cars, such as hacking, satellitefailures, software issues, navigational issues and problems withthe manual override; most of which are issues that were addressedin the Flux policy.

With the rise of autonomous vehicles in the U.S., accident rates will drop. At first glance, adrop in accidents seems good for insurers, but it is likely thatdrivers of autonomous vehicles will be less willing to pay the samepremiums as drivers of manually controlled cars, particularly asdrivers of autonomous cars will be spending more on their cars.Manufacturers will become liable for a higher percentage of theaccidents that occur, and dealers will probably become responsiblefor making sure a purchaser of an autonomous vehicle is fullyinformed at the time of purchase.

Related: Creating a new playbook for autonomous vehicleclaims

Although things seem to be moving slightly faster in Europe,similar changes are coming to the U.S.; perhaps faster thanexpected. Insurers in the United States should take a look at boththe Adrian Flux policy and the Vehicle Technology and Aviation billin order to determine the most important risks to include in apolicy, and which events should be covered by endorsement or leftoff of the policy completely. Above all, personal and commercialauto insurers should be prepared to deal with industry-widechanges, and attempt to be flexible and prepared to adjust to thenew auto insurance climate.

Hannah E. Smith, JD, ([email protected]) is a staff writer withFC&S, the premier resource for insurance coverage analysis.Additional information about FC&S Online is available atwww.NationalUnderwriter.com.