The Future of Cars

Somewhere in Nevada, Google is testing a car that drives itself. “Self-driving cars have the potential to significantly increase driving safety,” a Google spokesperson told Mashable.com, a news source dedicated to covering digital culture and technology. “We applaud Nevada for building a thoughtful framework to enable safe, ongoing testing of the technology and to anticipate the needs and best interests of Nevada citizens who may own vehicles with self-driving capabilities one day.”

And how exactly do cars drive themselves? Simply put, the cars are equipped with a variety of advanced vehicle technologies, including sensors, radar, lidar (a rooftop-ranging system consisting of 64 lasers that paints a 360-degree picture of the car’s surroundings, accurate to 2 cm.), infrared cameras and GPS systems, to name a few. Theoretically, these systems will navigate the vehicles while human passengers sit back and enjoy the ride. The introduction of fully autonomous cars is forecast for 20 years down the road, although it is debatable whether or not the technology will actually take that long to arrive.

In the meantime, semi-autonomous vehicle technology is being tested in the United Kingdom. A project called ‘SARTRE’ (Safe Road Trains for the Environment) is exploring “road trains,” in which drivers latch onto a ‘platoon’ helmed by a professional driver in a lead car. Once attached to a platoon, the following cars enter a semi-autonomous control mode. The lead car directs the driving actions of the cars in the platoon, allowing the ‘motorists’ in following vehicles to do other things that would normally be prohibited for reasons of safety — think, for example, operating a phone, reading a book or watching a movie.

Volvo recently completed the first successful test of the road train concept in Sweden. SARTRE suggests the new technology will be ready for introduction in Europe sometime during the next 10 years.

Quite a bit of media hype has surrounded these new technologies, although autonomous cars have been predicted since the 1950s. And while it may be reassuring to think accidents will end because human error has been eliminated, anyone who uses technology is well aware that it can fail. And when it does, there will be several questions for the insurance industry. How will insurance companies insure cars without drivers? Will the new technologies be complicated to repair, thus driving up claims costs and consequently, insurance premiums? And how will the introduction of truly advanced vehicle technologies affect the relationships of insurers with their partners in the collision repair industry?

EVOLUTION OR REVOLUTION?

Sources contacted for this story note that autonomous vehicle technology is still a long way down the road. Therefore, insurers and collision repair centres have some time to prepare. Many observe that autonomous technology borrows largely on the types of accident avoidance technologies that are becoming standard in some vehicles today. These include, for example, air bags, wheel sensors, cameras and blind spot warning systems that aid in lane changing or backing up, high-strength steels, aluminum, carbon fibre, welding and bonding techniques, batteries in hybrid cars, etc. Given the presence of these technologies already, it’s an open question whether or not Google’s cars represent a revolutionary change or an evolutionary development. “The image you have in your mind is of the latest Tom Cruise movie, in which the cars are zipping along by themselves,” said Andrew Shepherd, director of the Automotive Industries Association of Canada, which runs I-CAR training programs for collision repair centres.

“The Google experiment really does seem futuristic, but I think from the collision repair side, this is still an evolution. As high-strength steels are put in vehicles for fuel economy and safety, crash-avoidance technologies and other things, I think the Google car is only one aspect of the very rapid evolution of the collision sector.”

For Greg Horn, vice president of industry relations at Mitchell International, a provider of property and casualty claims technology solutions, the key shift revolves around the decreasing amount of control human beings will have over the driving process. Already, he notes, advanced vehicle technology is warning drivers when they need to take evasive action to avoid a collision.

“In some cases, these are warning systems and not autonomous systems,” he says. “That is a key difference. The warning system is really that: it flashes a light on the dashboard and it may put an audio warning through the radio speakers, telling me that the driver should pay attention. It still requires interaction from the driver. There may be a delay, because the radio is not very loud, for example, or the person is distracted by texting. The autonomous system does the action for you. It actually steps on the brakes. In some events, it slows the car; in others, it brings it to a complete stop. There is no human interaction required.”

Eliminating human error is thought to be a key element in improving driving safety. “It’s kind of exciting to think about the possibilities,” suggests Dick Luedke, a spokesman for State Farm in the United States. “We don’t pretend to know a lot about that technology and how soon it might actually be functional for a lot of us. But we do know that anything that will make the driving of vehicles safer is something about which we’re very excited.”

All the same, no one believes autonomous cars will be perfect. “When you look at how quickly the technology is changing right now, insurance companies should be thinking about a strategy of how we underwrite this,” Horn says. “Is it truly, completely devoid of accidents? Probably not.”

FREQUENCY v. SEVERITY

Declining frequencies

How often accidents may happen with autonomous or semi-autonomous vehicles is anyone’s guess. On the plus side of the ledger, some express confidence that advanced vehicle technology will reduce the frequency of collisions.

“Sensors in fenders certainly make replacement of the fender more costly, but at the same time, presumably it’s inhibiting a lot of accidents from occurring,” says Luedke. “I have no idea what the trade-off is there, whether it’s positive or negative, but we do know that auto manufacturers’ technology has reduced the frequency of auto insurance claims and that’s a good thing.”

Horn agrees, citing a recent study of Volvo’s City Safety Technology. Volvos equipped with City Safety can monitor vehicles in front using a laser sensor built into the windscreen at the height of the rearview mirror. Between 2 mph and 19 mph, the car automatically brakes if the driver does not respond in time when the car in front slows down or stops, or if the driver is driving too fast towards a stationary object.

A newly published analysis from the Highway Loss Data Institute and the Insurance Institute for Highway Safety indicates that Volvo XC60s, which use the City Safety Technology, get into fewer low-speed crashes than comparable vehicles. Collision claim frequencies for the XC60 were found to be 22% lower than for all other midsize luxury SUVs. Claim frequencies for injuries involving the XC60 were also filed about half as often compared to all other midsize luxury SUVs.

Increasing severity

A reduced number of crashes, however, may be offset by the expense required to repair the new vehicle technologies. “Depending on the severity of the accident, those forward-looking radar units or scanners that really are the integral part of the accident avoidance technology are extremely expensive,” says Horn.

“They are like buying tw o more air bags, for example. That’s about a $1,200 hit if a radar unit is damaged. That’s just for the unit, not re-calibrating it or installing it. Is it enough to offset the frequency? I wonder. What we are going to see is, you will have a lower frequency, but you will have a higher repair cost.”

From the collision repair perspective, the new technology makes repairs more complicated, time-consuming and costly, reports Terry Bradimore, president of C.K. Collision Centre (Oshawa) Inc. Bradimore gives one example of how car manufacturers are putting air pressure sensors in tires now, a way to help meet regulated fuel economy targets “This is all good, until it goes to the bodyshop,” he says.

“The car comes into the shop. We take the wheel off to do the repair, put the tire down on the ground, and maybe it dropped on the side on the ground. We put the tire back on, and now we have a wheel centre that doesn’t respond to the car,” Bradimore says. Now the sensor, which costs about $85, needs to be sent out, remounted and balanced.

“You put it back on the car. ‘Oh no,’ now you have to get it programmed, so you take it to the dealer. One hundred dollars later, we’ve fixed this tire pressure valve. So now how do you charge that to the insurance company?” he asks.

Fixing a new hybrid car provides yet another example of how much all this new technology can cost. “In the hybrid vehicles, the cost of a battery for a Ford Fusion is $8,000,” observes Ken Boulton, manager of auto claims programs at The Dominion. “If you have to replace that as a result of an accident, it’s going to affect whether the vehicle is reparable or a total loss.”

New technology is expensive. But will the cost remain high, even as it becomes more ubiquitous in the marketplace? It’s an open question, Boulton says. “A lot of these technologies are certainly initially very expensive. But like any new technology, such as laptops and iPads, they seem to come down in price as they age or as more of them come into the market.”

Speaking generally, Canadian insurers have seen claims costs severity increase marginally between 2006 and 2010, although the numbers fluctuate from year to year. It’s difficult to pinpoint what’s driving these numbers. Statistics from the General Insurance Statistical Agency show the average property damage claim for Ontario private passenger vehicles averaged $4,674 over that timeframe. Claims costs were above this average in 2009 ($4,768) and in 2010 ($4,921). In Alberta, the average property damage cost per claim for private passenger vehicles between 2006 and 2010 was $4,590. Severity figures reached the $5,093 mark in 2010. The numbers fluctuated in Atlantic Canada, where the four-year average was $4,403 per claim and the 2010 cost was $4,647.

It’s almost impossible to say whether these claims severity trends correlate with the introduction of advanced vehicle technology, the Insurance Bureau of Canada (IBC) notes. The above figures do not include hybrid vehicles, for example. And the percentage of existing new technology vehicles is so small that these vehicles may not be influencing the numbers at all.

Many other factors can influence the severity of claims costs. “The challenge is that it’s often difficult to measure what caused the change,” Boulton says. “Was it just the mild winter we had this year that had both the frequency and the severity down? Or was it actually the technology itself?”

UNDERWRITING NEW TECHNOLOGY

Insurers note that they can’t underwrite cars that don’t exist. “This technology is still in the very early stages and a lot of it is just being tested now, so we aren’t seeing these vehicles yet,” says Neal Muschett, national leader of product development in personal insurance at RSA Canada. “We will definitely be looking to get guidance from the VICC [Vehicle Information Centre of Canada] on how to rate these vehicles. Many of the considerations we look at now in terms of underwriting would still be relevant for these new vehicles, such as the value of the car, driver age, safety mechanisms and theft rates.”

Currently, insurers are using the Canadian Loss Experience Automobile Rating (CLEAR) system to assess the likelihood that any given make, model and model year of car will be involved in a claim — and what that claim is likely to cost. As IBC puts it: “Simply put, every model of car and light truck for every model-year is grouped according to assessed risk — expected claims frequency and cost, and the likelihood the vehicle will be stolen.” Data to CLEAR is provided by the IBC, le Groupement des assureurs automobiles, the Insurance Corporation of British Columbia, Manitoba Public Insurance Corporation, Saskatchewan Government Insurance, and Société de l’assurance automobile du Québec.

Horn said his understanding, based on discussions with people at Google, is that Google’s autonomous vehicle technology can be retrofitted to existing vehicles. That means data on existing cars would remain relevant when underwriting autonomous vehicles. “People don’t have to think: ‘Gee I really love my Prius, but I have to trade it in if I want this technology,’” Horn says of the Google technology. “This basically says, ‘I’ve got to go out and spend the extra $1,000, $2,000 or what have you, to get this technology retrofitted.’”

As advanced vehicle technology filters into the market, more collision data becomes available. This, in turn, bolsters insurers’ confidence when it comes to things like underwriting autonomous cars. “In order to get enough data to make some determinations about what their tendency is for collisions claims and what the liability implications are, it takes a year’s worth of data or so,” says Luedke. “Before that, we treat a car neutrally. When the folks at Honda made the Accord, they made some design changes and implemented a safety device. We already have all kinds of data on the Honda Accord and the various types of Honda Accords, so we use the rating that we have until we have reason to change it.”

Autonomous cars also present some intriguing issues in determining liability. “What happens in the instance of a computer malfunction?” Horn says. “We have all had our computers and PCs crash on us. What happens if that happens on the road, unexpectedly? The interesting thing is: where is the liability? Who do I go after to make myself whole? Is it the manufacturer? Google, for example? Or is it the folks who installed it that are potentially at fault? Or is it the carmaker that had some kind of faulty wiring pack? It opens up a whole new idea: ‘Where do I go to subrogate?’”

REPAIRING THE NEW CARS

Beyond the influence on accidents, underwriting and liability, advanced vehicle technology raises interesting issues regarding the relationships between insurers and their partners in the collision repair industry. Some have openly questioned how the technology will affect the relationships between insurance companies and collision repair centres participating in the insurance companies’ direct repair programs (DRPs).

Conflicting parts standards

Under a DRP, an insurance company solicits repair shops, promising to send these shops customers in exchange for the shop’s contractual commitment to discounted repairs using parts and repair guidelines established by the insurance company.

In an effort to keep claims costs down, insurers often ask that collision repair centres in their DRPs repair vehicles using more cost-effective aftermarket auto parts, manufactured by companies other than the Original Equipment Manufacturers (OEMs).

But OEMs often insist that co llision repairers use the manufacturer’s original parts when repairing vehicles with advanced vehicle technology. Whose repair guidelines and standards will carry the day in a conflict between the insurers’ guidelines and OEM standards?

“There’s a bit of a storm brewing,” says Tom Bissonnette, chairman of the Canadian Collision Industry Forum (CCIF). “Whose decision is final on repair processes? Is it the OEM that has the final say? Are collision repairers going to do what the OEM tells us to do? Or are we going to do what the insurance company wants us to do?”

“I’ll tell you who wins,” replies Bradimore, who recounts a recent conversation he had with the representative of one OEM.

“He was telling me: ‘For me to do business with you, this is how you need to repair the cars.’

“I said, ‘I’m sorry, but if you sincerely want me to do that, we won’t be doing business.’

“He said, ‘What? What do you mean?’

“I said: ‘I can do an awful lot more work with an insurance company than I can with you. Not that I don’t want your business, but I cannot put brand new parts on every one of your cars, because that goes against my agreement with the insurance company.’”

However, as an increasing number of OEMs introduce advanced new technology into their vehicles, collision repair centres may not have the same option in the future to turn down the business. For example, if an individual OEM accounts for only 5% of a collision repairer’s business, it is relatively easy for the repairer to forego the business rather than jeopardize its relationship with an insurer that accounts for the remaining 95% of its business.

But what happens when more OEMs begin to enforce their repair part standards as they start to introduce new technologies in their vehicles? asks CCIF administrator Michael Bryan. “What happens when it’s Honda, and then it’s Toyota, and then it’s Ford, and then it’s somebody else?” Bryan says. “Your opportunities [as a collision centre] are narrowing because you have chosen to exclude some brands from your business.”

Investment and Training

In order to repair new technologies, collision repair centres have to invest in new technologies to make the repairs.

One investment might be in information technology, notes Bissonnette. “We’ve noticed in the past few years that the repairs are getting quite a bit more complex. We are finding ourselves having to buy subscriptions to different web-based systems like All-Data, or sometimes we have to go right to the dealers, to the manufacturer, and pay a fee to get information.”.

Other investments come in the form of new equipment. Bissonnette says his company bought a new spot welder for about $25,000 that determines the kind and thickness of the metal to be welded. The new machine takes technicians right out of the loop, he notes, freeing them to do other work.

Similarly, Bradimore says his company bought new frame equipment years ago. In doing so, he may have unintentionally penalized his own company, he said, because the insurer factored the shorter time estimates into its payments for the collision repairer’s labour.

In addition to investing in equipment, collision repairers also invest heavily in training, so that their employees can make safe repairs. “One aspect that comes closest to my heart is the amount of training required in the shops right now,” says Shepherd. “Up until the advent of the unibody [frame construction] 25 or 30 years ago, this was really a craft operation. You learned it in your father’s garage and the bodywork and the refinishing work really had an artistic, craft element to it. Frame welding was really chaining it up to a tree and eye-balling it as it straightened.

“The difference between that 30 years ago and now is — well, they are called ‘technicians’ for a reason. The education and the amount of reading they have to do in a day and the amount of electronics they deal with — not only in the car, but in their repair equipment — is really quite astonishing. They [insurers] have a vested interest in the skill capacity of the shops.”

And yet, who is responsible for supporting this training and investment? The insurers or the collision repairers?

“Basically, when we reinvest in our company, insurers just say it’s a cost of doing business when we talk to them,” says Bradimore. “I’ve been frustrated over the years because I would reinvest, reinvest, reinvest and other shops wouldn’t, and they were still on the insurance [DRP] list, making the same labour rate that we were making. What I decided in my own mind, quite frankly, is to do what I needed to do to fix cars properly. And if the insurance company chooses to do business with the gentleman down the street that doesn’t do it, there’s not much I can do about that.”

Like other collision repairers, Bryan wonders if insurers can use their DRP lists in a manner that supports collision repairers that do make substantial investments in training and equipment. “Should the insurer have some sort of responsibility, not just through its DRP choices, but perhaps by narrowing these choices a bit, to really work with the shops that are investing and equipping themselves to be able to do a good job on behalf of that insurance company?”

Boulton notes The Dominion does offer some compensation for collision repair shops in its direct repair program if they are I-Car Gold Class. And The Dominion is responsible for making sure its own inspectors are at an I-Car Platinum level. But ultimately collision repair centres must bear some responsibility for their own training and investment, he says.

Certainly it would be nice if insurers could compensate collision repair centres for the financial burden required to repair increasingly advanced vehicle technology, but collision repairers make up only one portion of a larger claims universe. Ultimately, the issue comes down to fairness for all of an insurer’s claims vendors, Boulton says. “It would be nice for us to be able to support [collision repairers] for the entire amount [of training], but I have to look at it and say: ‘Am I required to do the same thing for contractors, doctors, lawyers, paramedics, therapists and all of the other vendors that we support?’”

Despite these and other issues still open for discussion, Boulton expresses confidence the collision repair industry is well-suited to adapt to the upcoming changes in technology.

“When unibody construction came in the 80s, people were saying: ‘The sky is falling, the sky is falling,’” he says. “And to give repairers credit, they are very adaptable. The sky hasn’t fallen, and they have found ways to correct or repair unibody construction. As another example, they’ve adapted well to water-based paints. In fact, quite often I think it’s the repair facility and not the OEM that actually finds the solution to some of these problems. I have every confidence that progressive collision repair facilities will continue to do the same.”