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Insurance and Self-Driving Vehicles

How Insurance Companies are Outpaced by Innovation

Advances in self-driving car technology have gotten ahead of insurers’ ability to factor the systems into auto premiums.

So at least for now, coverage for cars using self-driving technology works the same way as coverage for traditional vehicles, according to the insurance industry.

A recent fatality involving a Tesla Model S electric sedan using the company’s Autopilot system has focused attention on the risks of new “autonomous driving” technology. But the insurance claims process for cars using the systems generally works the same way as for cars without them, said Robert Hartwig, president of the Insurance Information Institute, an industry group.

That is, when an investigation of the accident is completed, the insurer of the driver at fault pays for injuries and damage to the others, up to the limits of the policy. (Mr. Hartwig said he was speaking generally, and was not privy to the details of any applicable insurance in the Tesla accident.)

While there is a potential question about whether the driver or the software was at fault, he said, in practice the insurer would typically pay the claim and then have the right to “subrogate,” or file a claim against someone else, like the manufacturer or another insurer, to recoup its payment. (There is no exclusion in auto policies for software defects, he said.)

Khobi Brooklyn, a Tesla spokeswoman, said in an emailed statement that the company’s Autopilot system “does not turn a Tesla into an autonomous vehicle and does not allow the driver to abdicate responsibility.”

Tesla markets its cars to the public, and drivers generally must carry state-mandated minimum liability insurance, which pays for damage to other people, cars and property. (New Hampshire is the sole state that doesn’t require liability coverage.)

However, Mr. Hartwig said, insurers may not know they are providing coverage for a potentially self-driving car. Generally, the owner of a new car contacts the insurer to request a quote for coverage. The owner typically provides the vehicle identification number, which identifies the specific make and model of the car — in this case, a Tesla Model S. But the identification number would not necessarily inform the insurer of the various options chosen on the car, Mr. Hartwig said, or whether the owner had activated the Autopilot software.

Insurers are likely to begin inquiring about those details more often, he said.

Paul Grieco, a lawyer representing the family of the deceased Tesla driver, Joshua Brown, said on Sunday that Mr. Brown had a “standard” auto insurance policy covering the Tesla, but he declined to identify the carrier.

Mr. Brown, 40, of Canton, Ohio, was killed on May 7 when the Tesla he was operating collided with a tractor-trailer in Williston, Fla. Tesla has confirmed that the Autopilot feature, which the company described as being in a “public beta” test, was activated before the crash.

Florida authorities and the National Highway Traffic Safety Administration are investigating.

There are proportionally few cars with self-driving features currently on the road, so the issue is a new one. Fewer than a dozen states, including Florida, have enacted regulations specifically addressing self-driving cars, according to the National Conference of State Legislatures.

Many truly self-driving cars are part of fleets being tested by auto manufacturers or companies like Google, rather than cars sold to private buyers. Such companies typically self-insure or carry special fleet insurance that applies if the cars are involved in an accident, said Hilary Rowen, a lawyer with Sedgwick in San Francisco who represents insurers.

Features like Tesla’s Autopilot, Ms. Rowen said, should really be considered driver-assisted systems, rather than true self-driving technology, which allows the driver to be a mere passenger. Tesla’s system is a sophisticated combination of various driver-assist features, she said, but Tesla warns drivers to “keep their hands on the wheel and eyes on the road.”

Mr. Hartwig said it was too soon to say how self-driving systems would affect insurance rates. “The technology is so new that there’s not a lot of actuarial data” to determine whether it significantly affects the frequency or severity of accidents, he said. Insurers, as they have done with other advances, from seatbelts to newer features like airbags and rollover prevention systems, gather information over time and adjust rates to reflect the impact of the changes, if warranted, he said.

But the very nature of self-driving technology may make it challenging to apply data from the cars to insurance premiums, Ms. Rowen said. “This is going to be a disruptive technology for the insurance industry,” she said. That is because computer software running the systems is continuously updated. So while insurers generally track trends with a certain make and model of car, the safety performance of an individual self-driving car may actually change over time, as software updates correct problems.

These issues will probably take as much as a decade to sort out, she said. In the future, during the claims process insurers may seek data from more sophisticated versions of black-box recorders to shed light on the cause of an accident. “Is it a driver problem?” she asked. “A software problem? Or some sort of muddle of the two?”

The Insurance Information Institute, in a report last year on self-driving cars, said the industry must study whether accidents with autonomous cars lead to more product liability claims, in which drivers blame car makers or suppliers for accidents, rather than their own driving behavior. “Liability laws might evolve,” the institute noted, “to ensure autonomous vehicle technology advances are not brought to a halt.”

Correction: July 8, 2016
A picture with an article on Monday about the challenge of self-driving vehicles to the automobile insurance industry was published in error. The self-driving system shown was in a Continental test vehicle, not a Tesla.

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