In this modern era, we could see that technological advancements have revolutionized various aspects of our daily lives. One of the most promising and transformative innovations nowadays is the development of autonomous vehicles, which is also known as self-driving cars. These vehicles are capable of sensing its environment and operate without any human involvement. As a result, this has caused an impact in the insurance industry as the risks which could be caused by autonomous vehicles are different from those of traditional cars. 

 

Researchers from the US Department of Transportation suggest that the adoption of autonomous vehicles could potentially decrease road traffic fatalities caused by human error by up to 94%. The World Health Organization reports around 1.35 million annual deaths due to road accidents. Just envision the impact if this number was slashed by 90%—the potential to save countless lives is staggering. According to Nick Beecroft, manager of emerging risks & research at Lloyd’s, autonomous vehicles would enable insurers to gain a more thorough understanding of risk factors. This shift would curtail the ability of claimants to embellish or falsify accident causes, thus diminishing insurers' unnecessary payouts on fraudulent claims and eradicating schemes like 'crash-for-cash.'

 

As autonomous vehicles gradually take over the world, many traditional auto-related risks will no longer be as prevalent. Currently, insurance companies price personal vehicle insurances using models which are based on a range of factors related to individual driver characteristics, like driver’s age, gender, number of additional drivers and so on. However, for autonomous vehicles, there is no driver and these factors become irrelevant. At the same time, some traditional auto-related risks, such as reckless or distracted driving, speeding, running stop signs/red lights, unsafe lane changes, tailgating and road rage will then be replaced by new emerging risks caused by autonomous vehicles, like malfunctioning software and cybersecurity. 

 

According to the McKinsey research, the reaction time of self-driving vehicles is a third of that of a human. This means that autonomous vehicles are able to pick up on potential hazards much quicker than a human, hence able to avoid even minor road accidents. Therefore, fewer vehicle crashes will happen and there will be fewer claims to an insurance company. However, autonomous vehicles cannot 100% guarantee that no road accidents will occur because there will always exist the risk of a technical failure. 

 

Considering that internet service will be at the heart of the entire traffic movement system, cyber threat will be one of the key risks. This is because any interruption in the internet service will then disrupt the entire traffic system on the road which will result in a massive traffic jam. Therefore, traffic jams will become a new risk factor that insurance companies have to deal with by considering the pricing. 

 

Another risk which is expected is that an autonomous vehicle could be hacked. It could be criminal or terrorist hijacking through remote control, or personal information and data privacy misuse. Additionally, there is also a risk when an accident occurs due to mishandling by the owner which results in software misbehaving. 

 

The emergence of autonomous vehicles has made it possible that future vehicle insurance will shift from individual policyholders to car manufacturers instead. If this becomes the case, then car manufacturers will face higher operating costs. Therefore, this insurance cost will consequently lead to a higher vehicle price. To bring the prices of autonomous vehicles down, insurance companies, particularly pricing actuaries will have to find a way to balance individual coverage with product liability coverage on the car manufacturer’s part.

 

Actuaries in general insurance pricing are expected to undergo significant changes and challenges with the rise of autonomous vehicles. While other areas of actuarial work will also see shifts, the focus on reserving actuaries will likely witness adjustments due to the decline in claims for general insurance. As these insurers experience reduced claims, reserving actuaries may need to reassess the necessary reserves, albeit cautiously, especially considering the limited data on claims related to autonomous vehicles in the initial years.

 

The decline in road fatalities is anticipated to impact actuaries across various insurance sectors. Mortality rates, for instance, are projected to decrease across all age groups, leading to potential premium reductions in life policies due to lower death probabilities. Conversely, pension policies might undergo a premium increase owing to longer payout periods resulting from increased life expectancy. Actuaries should also anticipate a diminished prominence of the 'accident hump' in mortality curves, typically observed between ages 15-30, attributed to the greater recklessness and inexperience among younger drivers.

 

Furthermore, health actuaries dealing with health insurance should consider a decrease in claims stemming from reduced injuries and healthcare needs associated with road accidents when determining pricing strategies.

 

The advent of autonomous vehicles is ushering in a transformative era across multiple sectors, particularly within the insurance industry. As these vehicles redefine risk landscapes by mitigating traditional driver-related hazards while introducing novel challenges like cybersecurity threats and technical failures, insurers and actuaries face an intricate balancing act. The potential for significantly decreased road fatalities and lowered insurance claims is promising, yet uncertainties surrounding data limitations and emergent risks call for a meticulous reassessment of insurance structures. The evolving role of actuaries, particularly in pricing and reserving, will be crucial in navigating these uncharted territories, anticipating shifts in mortality rates, adjusting policy premiums, and reimagining coverage models to align with the dynamic landscape of autonomous vehicles. Collaboration between insurers, manufacturers, and regulators will be vital in shaping a future where safety, innovation, and insurance sustainability converge harmoniously within the realm of autonomous transportation.