February 1, 2004 by Ivor Kaye
The property & casualty insurance industry has taken its share of “lumps” these past two years, and is still now very much in the financial doldrums. As insurance industry participants, we are told that the economic pressures being felt are largely international in nature and therefore little can be done at the local, Canadian level to ease this strain. However, it is clear that much of the financial resources of Canadian insurers are being drained specifically by the auto insurance product, which is not a “global factor”.
Notably, the “fraud cost” in this line has grown at a worrisome pace, with the “rewards” of quick payouts/settlements having drawn an increasingly sophisticated and organized crime element into the equation – i.e., bodily injury claims and vehicle theft rings. From fraud through to enhanced operational efficiency, there are several ways insurers can reduce wasteful financial overhead through better technology application.
P&c insurance IT applications are more complex than many other vertical industries. Apart from the business relationship with brokers, there are multiple levels of “outside reporting” required by companies – for instance, providing statistical data to bodies such as the Insurance Bureau of Canada (IBC) and government data-bases such as MVRs (motor vehicle records).
Currently, much of the secondary data is handled manually, and is not part of the primary transaction. Coming up with an effective technology solution could be relatively simple. Convincing insurers there is a better way, is a much more difficult task. This is not surprising. The insurance industry has been disappointed by systems providers on several fronts after having invested significant resources in terms of both time and money.
A well-designed integrated system would take in not only the major players, i.e. the underwriter and the broker, but would include every dynamic aspect of the system, from the customer through to details of the insured vehicle. Up to this point in time, few systems have included customer and/or vehicle modules, thus leaving a “big hole” in the system design: the omission of the biggest potential problem area being potential for fraud. It is time to fix these omissions.
If the problem of fraud is as serious as we are led to believe, it may be worthwhile diverting some research and development funding into the technology side of claims management. There is no doubt that technology can help to reduce fraud, and in some cases even determine the cause and party or parties at fault in an accident situation.
Not so long ago, such an application would have been either impossible or impractical. Today, low-cost microprocessors can be “implanted” and made to function much like a simplistic version of an airplane “black box”. Such a device would store current “data snapshots” which would be available to investigators and when processed would create a “crash history”.
In the case of multi-vehicle accidents, data available from vehicles carrying microprocessors could be processed to display the steps leading up to the accident. Using the same techniques, “staged accidents” are more likely to be detected. The employment of leading edge technology, especially in the application integration, and data communications areas are of prime importance, and can quickly return the development costs, leading to ongoing profit gains.
Auto theft, especially when carried out by “professionals”, is difficult but not impossible to combat, and the chances of quick recovery can be improved. Currently, built-in alarms and disabling systems, plus a plethora of after-market products, are effective in some cases, but are not the answer to the overall problem.
Bearing in mind the auto industry’s trend to get rid of direct control systems (mechanical linkage cables etc.), and substitute them with so called “drive by wire” electronics, we are beginning to see new computer-based products on a regular basis. Many vehicles currently have three or more microprocessors, performing mainly primary functions, such as motor and drive train management, and navigation systems coupled to global positioning satellites (GPS). A few years from now, transponders and “black boxes” will be added to the list of auto computer peripherals.
What is a transponder, you may ask? For our purpose, it is a “box” that receives and stores specific static and dynamic data (i.e., VIN number; license plate number, owner’s name and address, etc.). Dynamic data would include speed and snapshots of specific performance details at the time of the crash. After an incident the transponder “locks in” the data to be retrieved by an investigator. If there were a practical application, a vehicle with an active transponder could also be equipped to be queried while in motion, via an appropriate wireless network, used by an authorized source. The transponder will respond by transmitting its current contents.
No doubt, there will be significant debate over “vehicle status transponders”, but, with available technology, the development and implementation costs would be relatively low when the production volume is taken into consideration. If the industry is looking to cut costs, vehicle transponders are just one way to do it. The seriousness of the fraud and theft problem would suggest that now is the time for the insurers to get together with auto manufacturers and determine the specification requirements.
Obviously, vehicle status transponder systems could not be implemented effectively without close co-operation between auto makers and the insurance industry, but the overall gains to all segments – owners, brokers, auto makers, and insurance companies – would go a long way to ensuring acceptance all round. In addition, the peripheral gains during police investigations would allow for a high level of efficiency and cost savings for police investigators. Ongoing R&D will shed more light on the nature of injuries which are factual, and those which are dreamed up by enterprising lawyers. On the one hand, the system would make it more difficult for abusers to collect on fictional claims, while on the other hand, deserving claims could be approved more quickly, thus boosting customer satisfaction.
The introduction of such technology will no doubt have some drivers screaming over what they might consider a breech of privacy. But, these systems should work in a “trip by trip” mode – the only time the data is stored and usable, is when the vehicle has been involved in an accident, as defined by specific events created as a result of the accident forces. For many insurers, this kind of advanced information technology would fill the gaps in fraud control, and rebuild the road leading to profitable underwriting.