Who Pays When the Car Drives Itself?

Introduction: Human Liability vs Self-Driving Cars

Since the invention of cars, human error mainly determined who was at fault. Distracted driving and speeding are two common reasons a driver gets into an accident. But what happens when there is an empty seat behind the wheel? What once was sci-fi has now become reality. LiDAR sensors and neural networks have created functional self-driving cars.

Insurance for self-driving cars is more about product liability, from defective software to failing sensors. Let’s go over the different levels of SAE liability, how auto policies are dealing with automation, and new tort laws being introduced.

The Liability Spectrum: Levels 1 to 4

The Society of Automotive Engineers (SAE, now known as SAE International) set the guidelines for car automation.

The cars with level 0 have no automation at all, while the others have increasingly more advanced automation features.

SAE Level 1: Basic Driver Assistance

Level 1 cars have some driver assistance, such as braking or acceleration assistance. Adaptive Cruise Control (ACC) is a popular tool in Level 1 driver assistance systems. Level 1 features only usually have a single one active at a time, it cannot help with both steering and speed-control simultaneously.

Some driver assistance and automation systems use LiDAR (Light Detection and Ranging) while others don’t. LiDAR is a remote sensing method in which pulses of lasers are used to measure the surroundings in real-time with incredible precision and speed. Imagine a 3-D map of what’s around the car. While LiDAR is not the same as a radar system, it also functions through a bounce-back method for mapping out the environment.

SAE Level 2: Basic Self-Driving and Automation

SAE Level 2: Partial driving automation. The automation system of the vehicle can provide assistance in acceleration, braking, and steering. The core of SAE Level 2 is typically the Advance Driver Assistance System (ADAS) that is used to take control of these various vehicle functions to make them safer than the average human driver’s experience.

Currently, we have systems like Tesla Full Self-Driving (FSD), Cadillac Super Cruise, and the Ford BlueCruise function. These are Level 2 partial driving automation options.

SAE Level 3: Conditional Automation

Automation has become very advanced already. SAE Level 3 involves the vehicle being able to automate all regular driving tasks, and the human driver does not even need to look at the road the entire time.

However, the self-driving functions of an SAE Level 3 system require the driver to still pay attention in case there is an emergency. The driver also may be asked to take control in case there is any issue that the SAE Level 3 automation cannot safely resolve by itself.

Generally, the system’s manufacturer assumes liability in accidents that occur while the automation is engaged. With modern automation, there are disengagement scenarios that automakers and lawmakers have to consider. A self-driving car could hand control back to a driver mere milliseconds before impact, which could end up triggering legal disputes over who is legally responsible.

SAE Level 4: High Automation and Full Driverless Deployment

Waymo robotaxis are part of the autonomous ride-hailing service that is currently taking California by storm, bringing countless eyes onto the potential success of vehicular automation–or failure. Waymo is a commercial deployment of cars with NO human driver. Waymo is a subsidiary of Alphabet Inc, which is well known as Google’s parent company. The self-driving car project of Google has actually been known since 2009 from its famous Google Self-Driving Car Project.

Waymo currently operates in: San Francisco Bay Area, Phoenix, Los Angeles, Miami, Nashville, Orlando, Dallas, Houston, and San Antonio. Austin and Atlanta also have Waymo experiences through Uber. Waymo has been reliable and popular as it outperforms human drivers in safety stats. However, it has also been controversial as people do not know how to instinctively feel safe around a car that has no visible human operator.

With high automation of vehicles and no human drivers, laws and regulations are needed.

California AB 1777 is a municipal enforcement about vehicular automation on the road. It issues compliance notices directly to manufacturers. The assembly bill also formally codified corporate accountability for traffic infractions and crashes when applicable.

SAE Level 5: Full Automation

Surprise! There is a fully automated vehicle type: SAE Level 5. It does not require any human input or interaction at all, not even needing steering wheels or pedals. However, these cars are not available for public purchase yet. In fact, it is hard to say there are any real SAE Level 5 cars at the moment that we know of.

Humanity has dreamed of robots, AI, and self-driving cars for entire lifetimes. It is amazing that in many states across America, you can walk down the street and see a car with passengers yet no driver. While we don’t have SAE Level 5 vehicles commercially available yet, it is completely possible that in the future, we will be able to protect those inside the cars and pedestrians significantly better through vehicle automation.

Product Liability vs. Personal Insurance

From Personal Lines to Commercial Coverage

The first auto insurance policy was issued in 1897 when Gilbert J. Loomis bought a liability policy. Nowadays, the auto insurance is a $350B+ industry, with personal vehicles accounting for around 80%+ of total auto insurance applications.

All insurance products constantly evolve to meet the needs of the people. At the moment, it is rapidly facing a shift towards commercial product liability, fleet policies, and even cyber auto insurance as more self-driving cars are entering the market.

A lot of people may be wondering questions like: Who insures Waymo? Who pays if a driverless car gets into a crash? Which insurance company deals with claims if a vehicle with driver assistance features gets damaged?

In general, major commercial auto insurance companies will insure driverless car fleets like Waymo.

Third party auto insurance companies can insure Level 2 and 3 cars.

Telematics Black Box Complication

Event data recorders (EDRs) and proprietary telematics generally hold the answer to who was in control during a crash that involves a self-driving car.

Automakers often lock telemetry data under trade-secret or privacy protections. That means that the typical insurance company will find it hard to assign fault and complete the claim without a court subpoena to obtain the necessary telemetry data.

Cyber Risks & Software Updates

Liability is not longer only for physical accidents. Cyber-hacking is a real concern for any smart car, and definitely a worry if any over-the-air (OTA) software patches could be exposed. Hackers who are advanced may be able to take advantage of OTA exploits, GPS spoofing, sensor jamming, and other methods to attack autonomous vehicles.

Software bugs are another concern for self-driving cars. Software has to stay up to date or else there may be exploits used by malicious parties.

Regulatory Patchwork & Legislative Frameworks

State-Level Fragmentation

In America, each state can implement its own regulations regarding vehicles and auto insurance. Arizona and Florida are relatively permissive states, whereas California has much more heavily regulated environments in general. This results in a messy legal landscape across state borders, which could easily become an issue if you’re thinking about going on a cross-country road trip or visiting a different state.

Federal Interventions

There are currently ongoing federal legislative efforts, such as the SELF DRIVE Act, that are aimed at establishing nationwide safety benchmarks and clarifying NHTSA oversight vs. state tort laws.

The SELF DRIVE act is a bipartisan bill that refers to the Safely Ensuring Lives Future Deployment and Research In Vehicle Evolution Act of 2026. It includes requirements for how self-driving car manufacturers are meeting various performance and risk-reduction standards.

Automaker Guarantees

Many owners and passengers of automated cars are worried who’s going to pay up in case they get into an accident.

A few select OEMs have been choosing to accept legal liability while their certified autonomous systems are being actively engaged. Examples include Volvo and Mercedes-Benz Drive Pilot.

Having the automaker guarantee can create more brand confidence and loyalty as car or fleet owners can feel more confident.

What This Means for the Consumer

Changing Policy Structures

It’s good to know what kind of impact self-driving cars and automation systems could have on your auto insurance policy.

It is expected that driver policies will shift from bodily injury/property damage liability toward comprehensive coverage protecting against uninsured motorists, vandalism, and various system disruptions.

Embedded Insurance Models

It can be tricky for a car insurance provider to offer insurance policies for both self-driven cars and traditional cars. The needs and risks of self-driving cars can be very different and require special products.

However, if the auto insurance is bundled with the rest of the self-driving vehicle, then the convenience and value could make it much superior.

It is very possible that consumers will buy coverage directly from the automaker at the point of sale (e.g., subscription-based coverage bundled with the self-driving package). This makes sense if a company wants to buy a fleet of self-driving vehicles and does not want to spend enormous amounts of money insuring each individual vehicle.

The Uninsurable Transition Period

Self-driving cars aren’t going to magically appear across the country overnight. There is going to be a decade-long, or even multi-decade long transition period during which traditional human drivers and autonomous vehicles will share the same roads.

Did you know that cars were considered quite dangerous when they first appeared? There was significant cultural backlash throughout the 20th century as they slowly became more commonplace. There was a huge cultural shift as cars became adopted as the main mode of transportation, and even then “going fast” was considered reckless. With the implementation of government regulations and automaker standards, cars became completely normal and desirable.

Over time, the acceptance of automation will become more widespread. Of course, the safety concerns shouldn’t be ignored; anything new entering the market and our actual roads themselves should be carefully ensured to be safe. There may be some bumps on the road, so to speak, but eventually autonomous vehicles are expected to be much more securely insured in the future like regular cars are today.

Conclusion: The Future of Roadside Accountability

Autonomous transportation is an ambitious goal, but it’s looking like an achievable one. Humans and regulatory bodies are gradually determining what sort of rules they are comfortable with when it comes to self-driving cars and their accountability nuances. The auto insurance industry is getting ready for new types of insurance claims and product liability concerns against manufacturers, which can have much higher financial stakes.

The new question that insurance adjusters are going to need to ask going into the future will no longer be “how was the driver at fault”, but rather “what is the regulation for this accident”. Check out the latest, best auto insurance policies to ensure your vehicles are covered.