Could self-driving cars be the secret to cheap car insurance?
It’s early days, but some signs point there. Insurance company Lemonade, for example, already advertises a “50% discount” to Tesla drivers when Full Self-Driving (Supervised) mode is engaged.
Human error is often the cause of car accidents, making the roads unsafe and affecting car insurance costs. Replace human drivers with error-prone computers, and the cost of certifying self-driving cars will drop to a fraction of current prices.
At least, that’s the idea.
“The consensus view is that increasing the autonomy of vehicles will significantly reduce the frequency of accident claims,” Robert Hartwig, former president of the Insurance Information Institute and now an associate professor at the University of South Carolina’s business school, tells Money by email. “All else being equal, a decrease in the frequency of accidents will lead to fewer claims and lower insurance costs. The problem is that ‘everything else’ is not equal.”
Even if it’s independent driving it can be reduce crashes, there are several reasons why self-driving cars fail to deliver insurance savings. Biggest: Repair costs can rise as automakers add expensive sensors and cameras that must be repaired and recalibrated after a collision.
Here’s what else you need to know.
Will self-driving cars lower car insurance costs?
Tesla and Waymo are leaders in self-driving technology. Both already have cars on the road with autonomous driving modes or the ability to carry passengers from point A to B.
Waymo’s latest ads suggest that its cars – which boast a “no-blink” system – are safer than cars driven by people, who may be inexperienced, tired, angry, drunk or slow to react.
But because Waymo is focused on robotaxis, the cost of consumer car insurance currently has little impact on the Google-owned company.
For Tesla, of course. The company is pricing its Full Self-Driving (FSD) subscription at $99 per month, claimed that it “improves US road safety by more than 80%”. To hear Tesla tell you, FSD’s value proposition isn’t just a better and safer driving experience – it’s also cheaper insurance.
Tesla drivers using Tesla Insurance, the company’s internal option, can take advantage of the FSD discount: The points-based insurance pricing model rewards drivers with points for every 100 FSD miles, leading to “lower insurance premiums over time,” according to Tesla’s website. Discount Lemonade, now in four states, has the same premise but a different structure.
While Americans are starting to see more self-driving cars on the roads, Tesla, Waymo and the companies trying to catch up to them still have work to do. They must demonstrate to regulators that their technology is safe enough to be widely approved and demonstrate to insurers that it is safe enough to offer discounts. Both are important in getting the general public to buy.
But insurance experts stress that there’s a difference between the statistics you see in flashy commercials and the kind of hard data science that drives new technology adoption on the road.
“Tesla’s safety reporting numbers are unfounded,” said Bryant Walker Smith, a law professor at the University of South Carolina who studies self-driving cars.
A recent report from Reuters alleges that Tesla has made an apples-to-oranges comparison of its crash rates, unfairly stacking incidents explained by airbag deployment against accidents involving tow trucks (lower bar). Outside analysts told the outlet that Tesla vehicles with FSD actually traveled three times the distance between accidents than standard vehicles — not 10 times, as the company claimed.
The National Highway Traffic Safety Administration also has four active investigations related to Tesla’s self-driving cars.
Discount Lemonade: The Promise – and the Limits
Digital insurance company discount FSD Discount became available in Colorado in late June following previous launches in Indiana, Oregon and Arizona. The company says it expects to roll out to all states where Lemonade offers car insurance later this year.
Maya Prosor, Lemonade’s chief business officer, tells Money that the company sees “sophisticated,” personalized pricing that better reflects real risk as a solution to the rising cost of car insurance.
“When it comes to Tesla and autonomous driving, the data is already there to show that it’s much safer than human driving,” he said.
A 50% discount on car insurance sounds pathetic. But the fine print is important.
Unlike most traditional car insurance policies, Lemonade’s rates are a pay-per-mile model, and the insurer relies on telematics data from Tesla to determine when FSD is used. It’s a type of usage-based insurance, or UBI program.
For example, one Arizona driver posted a screenshot on Reddit of the price showing a base premium of $98.64, plus a usage-based charge of about 10 cents for every mile driven and a charge of 5 cents for every mile driven. The 50% discount only applies to usage-based payment per mile. The base premium is unchanged.
Lemonade executives acknowledge that the current auto insurance market is limited. The company wanted to get out of the gate first, Prosor said, and sees the discount as a long-term investment in customer acquisition.
According to Prosor, some Tesla FSD users save 30% to 40% on their car insurance with Lemonade. On Internet sites, however, users shared mixed experiences: Some reported savings, while others said Lemonade’s quotes were more expensive than their current insurance.
Critics of the discount, like Smith, call it pure “marketing,” comparing it to a grocery store that puts an $8 list price on a box of cereal, charges $4 (regular price) and calls it a 50% discount.
Others have more concerns than price. Patrick R., a Minnesota resident who owns a 2025 Tesla Model Y Performance insured by USAA, tells Money he prefers to keep his driving data to himself.
Lemonade “needs[s] to plug into your car to make sure you’re using FSD to get any discounts,” he said in a message. “That allows them to see how you’re driving, ie speed, driving times, total miles driven. The Tesla API also allows them to see all the places you’ve driven, too.”
He adds that he doesn’t pay FSD because he doesn’t think it’s worth the money.
“They will have to give me a discount of more than $99 a month to cover the cost of FSD,” he said.
