The Implications of Full Self-Driving on Insurance

Aug 7, 2019   

Tesla hopes to have its Full Self-Driving suite “feature complete” by the end of the year, but are insurers (and regulators) ready for autonomy?

We should start by pointing out that “feature complete” and “fully autonomous” are not interchangeable terms. Tesla may have all of the features that it anticipates as the building blocks to Full Self-Driving ready by the end of the year, such as Summon and Navigate on Autopilot, but those features will still need to evolve over time to meet the demands of true autonomy. Smart Summon (also known as Enhanced Summon), the next evolution of Summon which will enable a Tesla to autonomously navigate a parking lot while avoiding pedestrians and other vehicles to meet its owner, has been delayed numerous times.

The features available in Enhanced Autopilot/Full Self-Driving suite today are fully covered by insurance since the ultimate fault and liability is still placed on the driver. For all intent and purposes, it is crucial to think of Autopilot and all of its associated driver assistance features as glorified cruise control: the vehicle will keep its speed, but it still has to be monitored with the driver ready to overtake at any time. Tesla itself assumes no liability with the current iteration of Autopilot.

This is important because Autopilot has proven itself to be safer than a human driver by a significant degree: a crash only occurs with Autopilot engaged approximately every 2.87 million miles, as opposed to traditional cars being manually driven which results in a crash every 436,000 miles. Tesla’s ability to apply and improve upon that figure with Full Self-Driving depends entirely on the company’s implementation of it, as city driving will be much more complex than freeway driving.

Nonetheless, Tesla insists it’s up to the challenge with software updates planned for later this year that will enable the ability for Tesla’s equipped with the latest FSD hardware to recognize stop signs and traffic lights. The ability to make turns and navigate stop-and-go traffic are also expected to come this year, though we would remain conservative about anticipated timelines.

The risk Tesla owners face is how insurers will respond once the company starts releasing updates to its Full Self-Driving suite. Many insurers are hesitant to see how the company handles new feature releases.

At this time insurance policies don’t include a specific exclusion for driver assistance software or full self-driving technology, meaning drivers don’t need to worry about being covered in the case of an accident. In fact, insurers are beginning to recognize the increased safety statistics by including a “Smart Technology” discount or factoring them into Tesla owners’ rates. All new Tesla’s sold today come with collision avoidance as standard, so they should all qualify for potential discounts.

We only anticipate that issues will arise in the transition to Full Self-Driving if Tesla is overly-confident and rolls out features that aren’t absolutely perfect. The company is using machine learning to collect information on how Tesla owners drive today to support its rollout of future autonomy. Regardless, one fatality or accident caused by a Tesla operating in full autonomy could cause regulators to get involved in an industry that’s largely uncertain and thus unregulated, which could mean increased rates and exclusions in the future. Even Navigate on Autopilot, which is available today and enables a Tesla to automatically change lanes to reach a freeway exit, hasn’t been cited as a perfect technology.

Ultimately, insurers only cover a driver’s own personal liability. When the driver is able to relegate complete control to an autonomous system and driver supervision is no longer required (which may still be several years in the future despite the company’s claims), automakers will be responsible for their vehicles and any collisions that occur.

Since the cars will eventually operate autonomously without a driver, including a version of Summon that enables a Tesla to be summoned from anywhere across the country as well as an autonomous Tesla Taxi Network, it is absolutely imperative that Tesla has its own insurance solution ready that accepts liability for an autonomous vehicle. The company announced earlier this year that they are planning to release an in-house insurance product, which is expected to launch sometime soon after a planned May launch.

Tesla’s upcoming insurance product should take liability for Full Self-Driving into account, which will become a necessary component of achieving full autonomy.

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