In 2015, Tesla introduced its Autopilot mode. Nearly every manufacturer's vehicles will soon be equipped with some form of accident avoidance technology. Like cars with seatbelts and airbags, it will shortly be impossible to buy a car without some form of accident avoidance technology. The inability to buy cars without some form of accident avoidance technology will overcome, over time, the fear of some drivers to use this safety technology.

Lower insurance premiums may also motivate drivers to purchase cars with accident avoidance technology. According to the IIHS, it's anticipated that there will be 3.5 million self-driving vehicles by 2025, and 4.5 million by 2030. Some studies suggest that nearly all vehicles will be self-driving by 2050. Some insurance company actuaries predict that auto accidents may drop by as much as 80 percent by 2040.

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The risk of accidents will not be completely removed by driverless cars. Some drivers, who enjoy driving, may disable the accident avoidance technology. In addition, the accident avoidance systems may fail.

Nevertheless, auto insurers are already making plans to confront an anticipated drop in revenue. The industry is predicting that auto premiums will likely plunge by as much as 60 percent in the next 15 years as car owners will need less coverage. In fact, numerous insurers on their regulatory filings have noted that self-driving cars could hurt their businesses.

Impacts beyond auto insurance market

The impact on insurance company revenue may transcend the auto insurance market. The number of vehicle-related workers' compensation claims, as well as health care and disability insurance costs related to auto accidents will also decrease, possibly resulting in a reduction of these insurance premiums as well. However, as more crash avoidance features are incorporated into vehicles, the cost of replacing damaged parts is likely to increase because of the cost and complexity of these components.

Although the number of legal cases related to auto accidents may decrease, they will become more complicated. (Photo: iStock)

Litigation will continue

Driverless cars will not end litigation. While the new technology will reduce accidents significantly, it will not be perfect. When the accident avoidance technology fails, the companies who manufactured that technology or provide the software will face liability. Litigation may also center on the training of drivers as this new technology is intergraded into their cars.

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Although the number of cases will decrease, they will become more complicated as nearly all auto accident cases will focus on how the accident occurred and whether the driver, product manufacturer or both caused the accident.

The insurance industry is already planning for the reduction of premiums by exploring other markets. Some predict the drop in premium could approach $60 billion by 2030 based upon the increase in ride sharing and the use of autonomous cars. Personal auto insurers like Allstate, GEICO and State Farm will have to find a place for the loss of premium revenue from safety technology and the use of ride-sharing services.

New insurance markets created

There will certainly be new insurance markets as a result of driverless cars. For example, one potential market is insuring manufacturers and software providers of accident avoidance systems who will be sued should those systems allegedly fail as their potential liability. As a result their need for insurance will increase.

There's also a potential for cars being hacked as they become more networked. This could lead to the need for cyberliability insurance for both the manufacturers and software providers of the accident avoidance systems as well as the owners of these cars for not protecting their cars from being hacked.

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The advent of driverless cars may also increase competition in other insurance markets as traditional auto insurers enter markets now dominated by business insurers looking for other markets to replace policyholders and lost premium revenue.

There are certainly challenges ahead for the insurance industry as more drivers start using driverless cars. Consumers should benefit in two important respects. First, the roads will be safer as human error, the major cause of auto accidents, is virtually eliminated. Second, consumers will benefit from a substantial reduction in premium.

Ronald L. Kammer is the co-partner in charge of the Miami office of Hinshaw & Culbertson and the national business unit leader of the firm's insurance practice. Contact him at [email protected].