Automakers that build self-driving cars are betting on auto insurance discounts being one of their main selling points.
While the technology and surrounding regulations are still divisive, consumers excited about self-driving capabilities are bragging about the safety benefits and the time it takes to get back into the car for work or pleasure. And if the risk of crashing is reduced again reduce their insurance bills? Even better.
Experts say insurance companies will likely face pressure to offer more affordable auto insurance if self-driving cars are seen to be safer and lower costs for insurers. However, cheap insurance is not guaranteed, and there are several reasons why self-driving technology may ultimately fail to deliver significant savings.
Self-driving mode must be used to save
Early models of self-driving cars require owners to drive part of the time. Insurance discounts can only apply if self-driving cars are active, which means savings potential is limited.
The deals are already available to some Tesla drivers who use Full Self-Driving (Supervised) mode, a standalone feature that costs $99 a month and requires an alert human driver behind the wheel.
Tesla’s Lemonade discount takes 50% off its mileage-based charge when Tesla’s FSD mode is installed. The vehicle’s telematics data tells the insurer when the FSD is active; for all other miles, the full price applies.
To qualify for the Lemonade discount, Tesla must have Hardware 4 (HW4), which is due out in 2023.
Online, Tesla owners shared mixed reactions to the quotes they received from Lemonade. The drivers who represent the most savings related to the regular Lemonade policy seem to be owners of high-end Teslas who travel thousands of miles per month and use FSD most of the time. It’s unclear whether any of these drivers save enough with Lemonade’s discount to completely offset the monthly cost of FSD.
Safety data are disputed
Maya Prosor, Lemonade’s chief operating officer, tells Imali that Lemonade came up with its 50% discount after reviewing Tesla’s safety data and other outside reports. The company was convinced that miles driven using FSD were cheaper to insure than miles driven by humans.
“If that’s the case, it’s up to us as insurance companies to come in and find a way to more accurately call out the fact that autonomous driving and automated driving are safer, and pass that cost reduction – or pass that benefit – back to consumers,” he said.
Recent reports from media outlets such as Reuters, however, have cast doubt on the integrity of Tesla’s FSD safety calculations, leading to a letter from Senate Democrats calling for further scrutiny of federal regulation.
Reuters wrote that Tesla took an “apples and oranges” approach even though apples were readily available for comparison” with FSD’s excessive safety. The company compared its crash rates defined by airbag deployment to normal crashes defined by tow truck demand, which is often a low bar. Analysts told the outlet that Tesla cars with FSD actually traveled three times as far between accidents as standard cars — not 10 times, as the company claimed.
Bryant Walker Smith, a law professor at the University of South Carolina, says that the figures promoted by the company “are based on Tesla’s consolidation.” [FSD] factor with an alert human driver.” That’s a key difference because if human intervention prevents a crash, the statistical package “tells us nothing about the performance of Tesla’s system,” Smith said.
And he says he believes FSD mileage is a “proxy” for easy, safe mileage because drivers are likely to use the feature in favorable conditions.
“If this feature works in simple driving conditions on highways in good weather where there is no construction, then we would already expect the frequency of crashes to be very low,” he said.
The wider auto insurance savings on self-driving cars will only be realized if insurers are confident that the safety data is solid.
High end cars are expensive to maintain
This is an expensive job. Automated and semi-autonomous driving will require additional cameras, sensors and software. In addition, customers will likely have to pay additional fees or subscriptions (or both) for self-driving technology, which increases the cost of car ownership.
Insurers may also raise premiums if more technology makes repairs more difficult and expensive. This has been a trend for years: Even if cars drive safely, they are more expensive to insure.
A study from insurance marketplace Zebra that tested nine car safety technologies found that only one reduced the cost of insurance — and only by about $7. S&P Global reported that “these same factors can increase repair complexity and material costs.” Smith adds that major damage to electrical components can total a vehicle.
Lemonade says it will continue to monitor the latest safety data and expects to increase discounts in the future.
“As FSD continues to get better and more secure, we will adjust our prices to reflect that,” the company’s website reads.
As self-driving cars come to market, all insurers will have to revise their assessment of both the frequency and cost of crashes. There is a lot to fix.
“If you have expensive equipment that needs to be replaced in the event of a crash… then you may find insurers reluctant to offer lower rates,” Smith said.
