Car manufacturers must not be able to describe their vehicles as autonomous if drivers are expected to handle emergencies, the Association of British Insurers (ABI) has warned.
These vehicles should instead be said to offer "advanced driver assistance", with passengers held liable for accidents if they are needed to take back control at any moment.
Only when self-driving cars can truly manage all scenarios on their own without the need for passenger intervention, should those on board not be held liable for accidents.
The ABI has submitted its views to the Law Commission, which is helping to determine how the UK incorporates rules for driverless cars once international standards have been set.
"A safe transition to automated driving requires clear definitions to help consumers understand their responsibilities," ABI policy adviser, Laurenz Gerger, said.
"Standards need strict requirements to ensure vehicles aren't rushed onto roads under the badge of autonomy when they may still need human intervention at short notice."
Fully autonomous vehicles are expected to radically improve road safety, and would allow passengers to forget about driving and focus on other tasks while travelling.
The UK government hopes to have legislation in place to allow these vehicles on British roads by 2021, but insurers want to make sure the transition is handled as safely as possible.
The ABI said a system is needed to determine whether vehicles are autonomous or offer advanced driver assistance, while buyers need clear information to know if they are liable for accidents.
In addition, insurers and emergency services must have easily accessible and comparable data for all vehicles to understand whether a person was in charge at the time of an incident.
"Fully autonomous vehicles have the potential to radically improve road safety, and insurers are heavily involved in the trials taking place around the country," Gerger continued.
"There will come a point when the drivers of today are passengers in a vehicle driving itself, and we want motorists to be reassured they won't be held liable for an error made by a vehicle or a piece of on-board technology."