Ideally, insurance cost for self-driving cars would just be lower than insurance costs now (proportional to risk), and even insurance costs for manual drivers might go down because their risk decreases as well.
There will also be things like not having DWIs and even cheap parking (since the car can drive away and park) that'll net out for self driving. And feedback loops there- the same size police force only pulling over manual cars from a smaller and smaller pool.
This is a very shaky assumption in my view; more realistic would be (to me):
1) Overall accident rate reduction even for manual drivers
2) Reduced damage in accidents even for manual drivers
3) Slight increase in "at-fault" allocation toward manual drivers
It seems very likely to me that those would result in net favorable effects even for manual drivers.
I believe a lot of driving will move to full auto once viable, but not all of it because lots of people like to drive recreationally, and I simply don't see insurance rates for manual drivers spiking out of control-- just compare insurance pricing for less-safe vintage cars, which is also perfectly reasonable.
If automatic driving lowers the floor of risk due to even lower risk than even the lowest risk human driver, insurance premiums will adjust to compensate and accomodate the now higher risk human driver compared to the now lower risk computer driver.
And here's the kicker: Insurance premiums don't even have to increase for the human drivers. Once owners of automatic driving cars pay even cheaper premiums, that becomes the new baseline for "cheap" car insurance and the rest should be plainly obvious. "Want lower rates? Get an automatic driving car."
Also compare vintage-car insurance (which are in many cases drastically less safe): Pricing is perfectly viable there and has been for decades.
And I'm sure the autonomous vehicle will have a go-very-slowly mode for navigating people's driveways and similar places the mapping cars haven't been yet.
And the nice thing about driver less cars is that they can drive wherever and whenever pretty cheaply. There's no driver to pay. Just the electricity bill for charging the vehicle and some servicing/vehicle depreciation and other fixed cost. That's a race to the bottom in terms of cost.
There's no good economical reason to limit this to just small areas. You might charge passengers a bit extra if they are further out or even for the distance the car has to drive to pick them up. But there's no good reason for that to be very expensive as it would be with a paid driver.
Why wouldn't rates go up for drivers driving outside mapped and well-driven territory?
If you watch those dashcam communities you see similar behavior in what feels like half of the accidents. Someone else in the wrong but boy oh boy did the camera driver do nearly nothing to prevent the accident.
Insurance isn't a zero sum game, where "less insurance spent on autonomous vehicles" means the insurance companies have to make up for it somewhere else.
In a way, "car driving getting safer overall" isn't great for car insurers, because they make money financing auto risk, and if there is 50% less auto risk then they have less addressable market.
Consider: if a non-self driving car is in an accident with a self driving car, it'll almost always be the non-self driving car at fault. And with the telemetry from the self-driving car, they can prove it too, so accidents that would have been no-fault or shared fault become fully the non-self driving cars fault. And so I think insurance for non-self driving cars gets expensive fast as there are more and more self driving cars on the road.