Canadian Underwriter

No Drive-by Trend

May 1, 2012   by Greg Horn, Vice President, Industry Relations, Mitchell International

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The property and casualty claims industry has seen its share of trends in auto collision claims throughout the years. Design fads like the tail fin craze of the 1950s, the landau tops of the 1970s and the pop-up headlights of the 1980s all challenged automobile insurance claim handlers, who were tasked with incorporating these new vehicle technologies into the claims management and settlement process.

If you’ve been around long enough, you might remember many Cadillac models in the 1950s and 1960s that sported a headlight-dimming system controlled by an autotronic eye that reduced emitted light when it sensed oncoming traffic. It was revolutionary at the time, but time has since marched on. Most recently, accident avoidance technology has advanced exponentially. Typically, this includes some combination of the following:

Telematics: a broad range of technology that combines mobile/broadband telecommunications and computing. It produces raw vehicle data that is overlaid with GIS map data, such as road type and speed limits.

“Black box” Technologies: One example is on-board diagnostics parameter IDs. OBD-II PIDs codes request data from a vehicle, which is used as a diagnostic tool.

EDRs: Event data recorders, which developed out of vehicle air bag technology, have made impressive strides.

The impact on automotive claims is and will continue to be significant. Although accident avoidance technologies hold the promise of reducing crashes, and therefore frequency of claims, the complex technologies that are now part of the modern automobile have great potential to increase claims severity.

Vehicle sensors are a good example of the potential for lower claims frequency, but higher claims severity. Carmakers are making them a standard feature of all vehicles going forward. Sensors are located in the rear bumpers of a vehicle. Ideally, they are placed both to detect and prevent accidents before they happen. But they are also well-placed to receive the brunt of the damage. Sensors might help prevent fewer fender benders, but those collisions that do occur will be more expensive and complex to repair.

Why Learn?

Estimates suggest about 70% of 2011 vehicles are equipped with these technologies, which means a lot of auto claims involving telematics will be coming your way. You might think only luxury vehicles like Volvo are equipped with these high-tech systems. True enough, Volvo has pioneered technology in the accident avoidance arena for several years now, particularly advanced driver assistance systems (ADAS) like autonomous emergency braking (AEB), which is associated with the manufacturer’s “City Safety” initiative. Since 2010, Volvo has outfitted the XC60 — also known as “the car that stops itself” — with this system, which is designed to address low speed, front-into-rear accidents like tailgating that commonly occur on our roads.

AEBs use a group of sensors — radar, lidar (light detection and ranging) or camera-based — to monitor the road ahead and identify possible collisions. AEBs play a major role in our tech-saturated society, because they can provide some relief to today’s drowsy or distracted drivers who are tempted to text and tweet via their smartphones while driving. If a situation is beyond the driver’s control or the driver submits to digital temptation, the system will sense a potential collision.

Some systems will first emit a verbal, visual or haptic warning. (A haptic warning describes when the system’s sensor detects a collision is imminent and issues both audio and visual warnings to the driver.) If the driver does not respond to the warnings, the systems will automatically apply the brakes in an attempt to prevent the collision. In some instances, the system can completely prevent a collision, even at high speeds.

IT can also help reduce accident frequency in situations in which speeds are excessive. Next generation systems in the works will even be able to detect pedestrians and animals and help prevent these collisions as well.

Who Says?

The Highway Data Loss Institute (HDLI) and Thatcham, the leading authority in collision repair research for European and Asian vehicle nameplates, believe in the proven ability of AEBs to reduce accident frequency. Thatcham estimates AEBs could prevent a staggering amount of claims for injury and damage (approximately 800,000). HDLI examined AEB effectiveness by conducting its own insurance claims study of Volvo’s X360, which found that the midsize SUVs equipped with City Safety are less likely to be involved in low-speed crashes compared to vehicles without this system. Additionally, study results show property damage liability coverage claims were filed 27% less often for the X360 than for other midsize luxury SUVs. HDLI plans to conduct more of these studies as original equipment manufacturers (OEMs) increasingly adopt these systems across all segments, not just luxury vehicles.

Although Volvo is known to be a leader in this area, other carmakers outside the luxury segment — such as Honda, Toyota, Volkswagen and Ford — are also offering these systems in some capacity. Most manufacturers offer them as trim options, but Ford is making this technology available to masses of blue oval drivers.

Ford’s “Active City Stop” system, which is similar to Volvo’s City Safety, is now offered as an option on the new Ford Focus — bringing AEB technology to millions of drivers. Active City Stop is just one portion of the company’s tech-packed “driver assistance” option, which includes a lane departure warning, lane-keeping aid, driver alert, auto high beam, traffic sign recognition and blind spot information systems.

And how do all of these systems work? In a word: sensors. Consequently, although advanced accident avoidance technologies have a great deal of potential to decrease auto claim frequency, claim severity will correspondingly rise. This is due in large part to all of the sensors involved in making these systems tick.

Sensor placement also plays a large role in the claim frequency/severity dynamic: many sensors are placed in bumpers, where most collision damage occurs. The countless collision claims resulting from common, everyday low-speed collisions make returning a vehicle to pre-accident condition even more complex, and pricier as well.

Effect on Claims Handling

No doubt telematics are changing the industry and, correspondingly, how auto claims are handled. Leveraging telematics data can potentially shorten the claims life cycle and further reduce losses. Data contained in black box technologies can potentially offer insight into driving behavior, thus creating a better match between auto insurance policy risk and pricing.

In the meantime, on the front lines of claims handling, claims professionals must become familiar with how advanced accident technologies can change the claims frequency/severity dynamic. Unfamiliarity with the new inner workings of vehicles is a risk. It could result in a lack of awareness among claims handlers about the real cost of time and labor needed to return policyholder’s vehicle to pre-accident condition.

Accident avoidance systems are expensive to repair. The rear brake light could be perceived as the first example of accident avoidance technology. A rear tail lamp/brake lamp assembly is made up of perhaps an average of $210 in new parts and costs about $60 to replace. Today’s telematics systems, such as AEBs and other accident avoidance systems, can cost upwards of $2,200.

Where Claims Handlers Can Turn

Collision repairers take full advantage of educational opportunities, including online classes that can be scheduled at suitable times or attended during down time. Many insurance companies offer the same options
for collision claims handling personnel. Companies also take the time to make telematics part of their industry updates to employees. Other resources include schools and associations that offer claims-focused courses and seminars. Believe it or not, blogs and social media sites also have telematics content that you can check out on your smartphone — of course, not while you are driving, right?

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