Can Prop 103 handle driverless cars?

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Earlier this year, Google announced the introduction of a completely driverless car. On this blog, Eli Lehrer took time to discuss the insurance implications of such a development. Among other things, he posited that, as drivers become less involved in the decisions made by their car, the associated risks of operating the vehicle will go down.

It stands to reason that a reduction in the risk presented by a driver’s behavior may lead to a reduction in the amount that a driver will pay for auto insurance – provided that the current model of individual vehicle ownership and auto insurance coverage persists.

Insurance products designed to cover autonomous vehicles will likely need to parallel whatever evolutionary course of technological development autonomous vehicles take.

In the near-term, the autonomous vehicles taking to the roads will likely be incremental in their approach to reducing driver involvement. For the sake of continuity alone, those vehicles will look and operate more like the Lexus SUVs driving around Mountain View today than they will the grinning ovoid pods touted on Google’s blog. Early adapters of autonomous vehicles will still enjoy the presence of steering wheels and pedals that will allow them to maintain control over the vehicle.

In California, it is an open question as to whether and how early autonomous vehicle adapters will enjoy auto insurance rates that reflect the reduced risk their limited involvement will represent.

The current system for determining rates and premiums for auto insurance policies is dictated in code by 1988′s Proposition 103. California Insurance Code Section 1861.02(e) lays out with great specificity a list of rating factors that insurers are obligated to use as they develop auto insurance rates. The list of rating factors is divided between mandatory and optional factors. Today, there are three mandatory factors and 16 optional factors. Additional rating factors may be adopted via regulation by the insurance commissioner, so long as those factors have a “substantial relationship to the risk of loss.”

What is significant about Prop 103′s mandatory rating factors is that they have very little relationship to the risk of loss presented by the operator of an autonomous vehicle. Consider, in decreasing order of importance, what the three rating factors are now:

  1. The insured’s driving safety record.
  2. The number of miles he or she drives annually.
  3. The number of years of driving experience the insured has had.

As operator influence over the course and speed of a vehicle wanes, so too will the importance of an operator’s driving record and the number of years of experience they have sitting in their vehicle. Of Prop 103′s three mandatory rating factors, only the number of miles annually driven will bear directly on the risk presented by autonomous vehicle operation.

Because of Prop 103′s rigid control of rating practices, absurd scenarios involving autonomous vehicle insurance policies are not hard to imagine. For instance, an autonomous vehicle operator with a poor conventional driving history who operates her Google car very little could pay more for her insurance than another adopter with a better history who operates his autonomous vehicle a great deal. Both drivers would present the same risk, but old rules would make one pay more, unnecessarily.

To avoid absurdity, policy makers, regulators and stakeholders will have to craft a new system that can accommodate the risks presented by autonomous vehicles. And yet, while it seems inevitable that some changes will be needed, changing Prop 103 is not a straightforward task. On the one hand, a legislative fix would require a two-thirds vote of the Legislature on a measure that courts could deem “furthers the purposes” of Prop 103. On the other hand, interested parties could qualify an initiative and work to convince 50.1 percent of Californians of the merits of their new system.

In either case, the sooner that all parties can agree upon a system and an approach, the better.

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