The advent of automated vehicles (AVs) has been variously described as a cultural watershed moment that will change society in deep and meaningful ways, or as an overhyped flavor of the day—and everything in-between. The ultimate truth is likely somewhere in the middle but there is no question that AVs have the potential to significantly alter transportation, and even society at large if the technology is introduced efficiently, effectively, and responsibly.Executive SummaryIf automated vehicle technology reduces insured losses, accurate pricing of risk and insurance provides a financial incentive for consumers to purchase automated vehicles, notes Rick Gorvett, a member of the Casualty Actuarial Society’s Automated Vehicles Task Force. Using a current automobile insurance pricing model and illustrative assumptions, however, the task force concludes that it will take a long time—possibly many years—for the improved performance of automated vehicles to result in a significant insurance premium discounts for auto policyholders, absent more data. The Task Force therefore argues for collaboration between insurers and manufacturers to accelerate recognition of the evidence and promote pricing accuracy.
Recently, the Casualty Actuarial Society’s Automated Vehicles Task Force (CAS AVTF) published a research report on its website: “Automated Vehicles and the Insurance Industry—A Pathway to Safety: The Case for Collaboration.” The overarching theme of this report is that the insurance and risk management industries, and actuaries in particular, have a critical role to play in responsibly and cost-effectively bringing new technologies such as AV to market.
Among the key areas of CAS AVTF research included in the report is insurance pricing—the potential impact of the evolution and emergence of AV technology on an individual’s auto insurance premium. Quantifying this impact ultimately depends upon collaboratively defining, collecting, and analyzing data related to AV safety and performance.
Here, we describe the actuarial issues associated with the pricing of AV risk, and summarize the modeling approach employed by the CAS AVTF in its research. The key question being asked in this research is “what discount to auto insurance premiums is justified if AVs turn out to be safer than vehicles currently on the road?” (See related summary, “Pathway to Safety: Actuarial Analysis,” for an outline describing other aspects of the report.)