ebooksGET LEADS844.688.1586


The Orange

Resources for the modern insurance agent

Are Smart Cars to Blame for Auto Insurance Rate Bump?

by Precise Leads

January 10, 2017

Rate increases in Illinois are an early indication of the disruptions autonomous vehicles will pose for the insurance industry.

Advances in vehicular technology are poised to disrupt the American roadway as we know it, and the auto insurance industry will not be spared from their transformative influence. After all, as technology becomes more sophisticated, the cost of repairs and replacements also rises; a bumper equipped with a sensor comes at a higher price than its more basic predecessor.

State Farm, for example, recently increased Illinois auto insurance rates by 5.9%, in large part due to smart car technology. "Cars are just getting more expensive to repair, due to the technology," said Missy Dundov, a spokesperson for State Farm.

Allstate cited a similar justification when explaining why their rates increased 6.9% earlier this year. "Now we're not just replacing a bumper for a fender-bender, we're replacing the cameras or the sensors in that bumper," said company spokesperson Meghan Sporleder. "We're seeing newer, more sophisticated models costing much more to repair, especially with some of the more advanced safety features."

The Future is Here (Almost)

Though ‘self-driving car’ may sound like the stuff of sci-fi, the reality is that automated cars are already hitting the roads. BMW, Mercedes, and Tesla have already released or are currently developing self-driving features for their vehicles. Tech companies like Google have also started to prototype new models, and experts predict that the number of these new cars will continue to rise through the end of the decade. Uber has already deployed a fleet of self-driving cars for a pilot robo-taxi service in Pittsburgh and more recently in San Francisco — though the California DMV deemed the service illegal the next day. Nonetheless, Business Insider projects that by 2020, there will be 10 million self-driving cars in circulation.

Increased safety and convenience for drivers and passengers may result as we cruise towards an automated future. According to the U.S. Department of Transportation, 90-93% of crashes are caused by human error — for that reason, allowing a complex computer system to make decisions based on real-time data can potentially save lives.

Currently, the most common self-driving systems in use are collision detection, auto-braking, and self-parking, but several fully autonomous cars are available for purchase. Every Tesla currently on the market is equipped with the hardware needed for full self-driving capability through Autopilot. According to Tesla, “Autopilot allows Model S to steer within a lane, change lanes with the simple tap of a turn signal, and manage speed by using active, traffic-aware cruise control.”

Who’s Deciding?

The federal government plans to regulate self-driving cars as they become commonplace, and that regulation will apply to both production and maintenance. According to Transportation Secretary Anthony Foxx, “when a human being is operating the vehicle, the state laws that have conventionally applied will still apply. But in terms of our approach to the regulatory environment of a software-driven car, we intend to occupy the field there.”

However, all insurance considerations will be left to the states. As with the Illinois rate increase, the rising cost of replacement parts will continue to be a factor in rate adjustments moving forward, but autonomous cars will cause ripple effects throughout every sector of the insurance industry. Companies will have to change the way they construct policies and process claims.

These automated systems are not foolproof. Earlier this year, Google’s self-driving car project was involved in a minor collision in which the automated vehicle was at fault. Uber is currently investigating the circumstances surrounding a video which shows its self-driving Volvo running a red light in San Francisco mere hours after their test service was launched.

In the event of an accident involving an autonomous vehicle, claims adjusters will be left to decide liability. Because each car offers telematics which allow insurers to monitor almost everything drivers do behind the wheel, big data will play a large role in determining how insurance works in our increasingly automated future.

It’s clear from the rate increases seen in Illinois that the insurance industry is already beginning to adjust for higher replacement costs, but the disruptive force of the autonomous future is only just beginning. As self-driving cars become more common, traditional insurers will have to consider the ways in which their offerings can evolve to meet clients’ needs.

Sign Up For Our Mailing List