of reach for many Americans and
slowing their adoption. Conversely,
underpricing these vehicles will
force the other drivers—in pre-
sumably less-safe vehicles—to
subsidize these vehicles’ insurance
Those medium-term predictions
about how personal auto insurance
policy will evolve in the next few
years mask a bigger structural issue,
however, of how insurance in general
may evolve in the next few decades.
“The biggest open question is the
liability regime,” said Nyce of KPMG.
At current levels of technology,
personal liability is still very much
at play because cars cannot be reliably trusted to avoid accidents
on their own. However, what happens when accident rates are at
or near zero?
“There’s a chance a regulator may step in with a broad no-fault
system” in an effort to lower premium costs and avoid costly litigation or court battles over injuries, Nyce said. However, he added
it’s also a possibility that the industry will move wholly in the other
direction and rely on product liability law wherein a manufacturer
can be held accountable for defective or damaging products.
“I was at a conference and a lawyer got up and said, ‘I don’t
know why everyone is worried about liability with self-driving
cars. This is a classic product liability situation, and the liability
system is now pretty efficient at compensating victims,’ ” Nyce said.
“That’s the point of view of the lawyer, of course, and I think a lot of
corporations and insurance companies would disagree with that.”
These are longer-term questions to answer, Nyce said, but the
insurance industry had better start thinking about them now
given that KPMG has predicted that a tipping point of sorts will
hit the auto industry around 2024. That’s when technology will
be deployed for mass market use and adoption will finally make
autonomous vehicles a mainstream transportation option.
According to KPMG research, total auto losses are expected to
decline from about $192 billion in 2017 to about $150 billion by
2024 and then plummet to roughly $80 billion by 2044 as adoption
of autonomous technologies continues.
A lack of accidents and a corresponding lack of claims represent
a huge change for insurers across the coming decades. And that
kind of change will take years of preparation and evolution if the
industry is to meet it.
What Does This Mean for Actuaries?
There’s a lot of uncertainty about self-driving cars, which in turn
creates big uncertainty for actuaries who work at car insurance
companies. After all, their jobs exist because the industry needs
their insights on how to properly price the risk of human-caused
accidents on the roadways.
So what do these professionals do when faced with a future
where autonomous cars greatly reduce
human error behind the wheel?
The first, most industry experts
agree, is to not panic or worry about
your job disappearing anytime soon.
“Self-driving technology is already here in many ways,” said James
Lynch, chief actuary at the Insurance
Information Institute. “But driverless
vehicles in which human beings are
not responsible for any activities of
the car—when you simply get in the
back seat and take a nap—are a long
Lynch points to a 2016 crash in
Florida where a driver was killed while
operating his Tesla Model S sedan in
computer-assisted “Autopilot” mode—but which, despite the software’s name, still requires drivers to regain control of the vehicle
in the event of difficulties. A nearly yearlong investigation into
the event found that Tesla’s software repeatedly warned the driver
to take control of the vehicle before the fatal crash.
The fact that only a very limited number of vehicles like the
Model S have “conditional automation” and we are still in the
learning phases of truly autonomous technology shows just how
far we are from widespread consumer adoption that would create
a serious threat to the industry, Lynch noted.
“There is a thought that the individual will no longer be responsible for accidents, but that day is not coming soon,” he said.
And even if your vehicle is truly self-driven, there is still a need
for comprehensive coverage that protects against things such as
a tree falling on the hood or a need for insurance against other
motorists who may not have a policy themselves.
Another important factor is that even if the technology is a
few years away, most motorists are far from ready to turn over
their keys to a machine. According to recent polls, a vast major-
ity of Americans aren’t interested in or trusting of self-driving
cars just yet; a survey conducted by auto industry group AAA[ 23]
showed that 78 percent of respondents wouldn’t want to ride in
an autonomous vehicle—saying they would be “afraid” to do so.
A separate Massachusetts Institute of Technology poll showed just
13 percent would be comfortable with “features that completely
relieve the driver of all control for the entire drive”—and, in fact,
only 59 percent wanted “features that actively help the driver,
while the driver remains in control.”
That’s a far cry from the stance you see from advocates like
Tesla’s Musk, who told the BBC in 2016 that “any cars that are being
made that don’t have full autonomy will have negative value.”[ 25]
Musk added that in the near future owning these vehicles will be
“like owning a horse. You will only be owning it for sentimental
As Nyce at KPMG pointed out, older and less-trusting driv-
ers will eventually age out. But that demographic shift will take
time—and we are a long way from the tipping point. That means
According to KPMG
research, total auto
losses are expected to
decline from about $192
billion in 2017 to about
$150 billion by 2024 and
then plummet to roughly
$80 billion by 2044 as
adoption of autonomous