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In 1988 California voters adopted Proposition 103. The Proposition moved California into the group of states that regulates and requires prior approval of all automotive rates. Had it done only this, insuring autonomous vehicles would present only modest challenges.

Proposition 103, however, did much more. It entrenched into California insurance law a number of requirements that are incompatible with autonomous vehicles and the rapidly advancing technology they embody. The Proposition mandates the use of some specific rating factors that determine a vehicle owner’s premium. This rating system makes little sense when applied to self-driving vehicles. The Proposition also mandates a 20% discount for people who qualify as “good drivers.” Again, this mandated discount, which must be balanced by charging more to other drivers who do not qualify, presents serious issues when applied to vehicles that drive themselves. In addition, Proposition 103 does not permit the facile adjustment of rates as rapidly changing technology reduces the risks presented by autonomous vehicles.

To the extent liability, and the accompanying insurance coverage, moves to the products liability arena, the provisions of the Proposition relating to automobile polices will not apply. Moving the primary source of compensation for injured parties to suppliers, manufacturers and their insurers, however, presents coverage issues for innovative companies acquired by others. To some extent, moving coverage to suppliers and manufacturers also exacerbates problems of moral hazard and adverse selection.

If automobile insurers are the first line of compensation for injuries caused by defects in autonomous vehicles driven by faultless vehicle owners, they will pass the costs to the suppliers and manufacturers. The suppliers and manufacturers will then pass their insurance premiums back to autonomous vehicle buyers in the cost of the vehicle. Since insurers of suppliers and manufacturers are not constrained by the unique rating factors mandated by Proposition 103, applying Proposition 103 to the insurers of self-driving automobiles is a costly and fruitless exercise.

These challenges would little matter if Proposition 103 were easily adjusted to meet this new technology. It is not. It may be amended only by another proposition or by a 2/3 vote of the legislature, and in the latter case only when the legislation furthers the Proposition’s purposes—whatever that may prove to mean.

Autonomous Vehicles - Appendix A 12.22.11_2.xls (31 kB)
Appendix A - Spreadsheet

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