The WSJ Law Blog (sub req.) recently posted a story about how self-driving cars might wipe out the car insurance market. I think this does not go far enough. It will wipe out the whole auto-tort industry.
It's pretty obvious that when a car crashes, passengers are in ordinary circumstances not liable. Fault rests with the driver. (Or if there are multiple cars, one or more of the drivers.) If Google is driving your car and you are essentially a passenger, Google should be liable.
That means there is little point in requiring individuals to carry insurance. If something happens, Google will pay everyone. Even PIP won't make sense --if you get hurt, it's Google's fault and they'll pay.
But proving Google made a mistake will be very different from proving a person make a mistake. People (myself included) are terrible drivers. People drive cars while distracted or tired all the time. People also have poor reflexes, poor perception, and rarely have any professional driving training after they learn how to drive. That's why people keep crashing cars.
If Google is driving your car, none of that will be true. Google will pay perfect attention because Computers do not get distracted. Google will always be alert because computers do not get tired. Google will have perfect reflexes because computers can react faster than humans. Google will have perfect perception because Google will use tons of cameras to get perfect visibility. And Google's algorythm will be constantly tested and improved by Google's expert engineers. Bottom line: Google will be a really really good driver. (It will also have the whole thing on camera, so there won't be any dispute about what the car did.)
So, assuming that cars still crash (and Google makes it sound like they won't), what will an auto tort look like? Products Liability. You sue Google for negligently designing driving software. It's a class action (because Google mass produces the car and a defect for one car is a defect for all cars.) You produce a small army of car experts. Google produces its small army of experts.
Lucrative? If you win. Expensive to play? Insanely.
Compare that to a the present system. The triable issue is which driver was negligent. For small crashes, this rarely involves experts. You have a bunch of fact witnesses fighting about what they remember about the crash. You fight about who was the bad/worse driver. Low cost to put it on, relatively simple legal and factual issues, and no class actions. Auto torts against autonomous vehicles will be a completely different ballgame than torts against bad drivers.
I think wiping out personal auto insurance will be the least of the changes.