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In recent years, the mainstream move to electric vehicles (EVs) has led to a rise in autonomous vehicles. EVs like Tesla have pushed the boundaries of driving with features that can be automated.

Aside from that, Tesla also launched its own insurance business in 2019 to address the growing rates of auto insurance. Though there are mixed results, this initiative has also prompted other insurance companies to revise existing rates by offering discounts on vehicles equipped with Advanced Driver Assistance Systems (ADAS).

In attempting to address this, two critical issues emerge:

• How does ADAS affect the likelihood of road accidents?
• Are insurance rates directly impacted?

What are Advanced Driver Assistance Systems (ADAS)?

At the heart of EVs are Advanced Driver Assistance Systems. Although ADAS have also been found in non-electric vehicles for decades, their impact on insurance has only been studied recently with the emergence of EVs.

ADAS are car safety features powered by smart technologies. In the past, they were mostly developed in-house by car manufacturers as most didn’t require proprietary tech.

Nowadays, start-ups mainly in the spare-parts space specialize in developing various Advanced Driver Assistance Systems. From Lane Departure Warning and Blind Spot Detection to Automatic Emergency Braking and Automatic Cruise Control, ADAS helps drivers avoid and reduce road accidents caused by human error.

Types of ADAS

Advanced Driver Assistance Systems can be divided into two categories: Active and Passive.

Passive ADAS: These systems are designed to alert the driver of a potential hazard or impending collision. Examples include Lane Departure Warning and Blind Spot Detection, which alert the driver in case of an unintentional lane departure or detect obstacles the driver might not readily see, respectively.

Active ADAS: These systems actively intervene to prevent an accident or reduce the risk of one. Examples of Active Automatic Driver Assistance Systems are Automatic Emergency Braking and Adaptive Cruise Control. These take control in critical situations to avoid or mitigate accidents.

Impact on auto insurance

Automatic Driver Assistance Systems are designed to enhance safe driving by reducing human errors. Studies have shown that vehicles equipped with ADAS experience fewer accidents compared to those without such systems. For instance:

Reduction in rear-end collisions: Automatic Emergency Braking can significantly reduce rear-end collisions by automatically applying the brakes if a potential collision is detected.

Lane departure prevention: This Automatic Driver Assistance System can alert drivers if they unintentionally drift out of their lane, reducing the risk of side-swipe road accidents.

As a result, the integration of ADAS in vehicles can lower the overall frequency of road accidents whose leading cause is human errors. This, in turn, can lead to fewer insurance claims and a reduction in the costs associated with accident-related damages.

Impact on insurance rates

The effect of Advanced Driver Assisted Systems on insurance premiums is multifaceted.

Insurance companies are now using data collected from Advanced Driver Assisted Systems to refine their risk assessment models. This data can provide insights into driving behavior and vehicle performance, allowing insurers to offer more personalized and accurate pricing.

Moreover, such analytics can form the basis for road incident assessments during the claims process.

In terms of premiums, some insurance companies offer discounts on rates for vehicles equipped with certain ADAS features. These discounts are based on the reduced risk of accidents and the enhanced safety provided by these systems.

While Automatic Driver Assistance Systems can reduce the frequency of accidents, the cost of repairing ADAS-equipped vehicles can be higher due to the complexity and expense of the technology. Sensors, cameras, and other components can be costly to repair or replace, potentially leading to higher claim costs.

Insurance initiatives

Tesla’s entry into the insurance market is a notable example of how ADAS and vehicle data can be leveraged to influence insurance. By using real-time data from their vehicles, Tesla aims to offer more competitive rates based on actual driving behavior rather than traditional risk factors.

This approach has the potential to revolutionize the auto insurance industry by making premiums more reflective of individual driving habits, otherwise known as Usage-Based Insurance.

Other U.S. auto insurers, like GEICO and Liberty Mutual, are also incorporating ADAS into their pricing models:

GEICO: Provides various discounts for safety features, including ADAS. Policyholders with vehicles that have advanced safety features like Automatic Emergency Braking and Lane Departure Warning may qualify for reduced rates.

Liberty Mutual: Their RightTrack program offers discounts to drivers who use Automatic Driver Assistance Systems and demonstrate safe driving behaviors. The program tracks driving habits and provides personalized discounts based on the data collected.

Final thoughts

The integration of Automatic Driver Assistance Systems in vehicles is reshaping the landscape of auto insurance. By reducing the likelihood of accidents, these systems can lead to lower insurance claims and potentially lower premiums for drivers.

However, the increased repair costs and the need for specialized knowledge to fix ADAS-equipped vehicles must also be considered.

As technology continues to evolve, so will the insurance industry’s approach to pricing and risk assessment.