VIN as DNA

Detailed vehicle identification is the foundation of accurate damage estimations and effective collision repairs. Without it, there can be incorrect parts ordering and poor workshop planning, leading to inefficiencies, unnecessary cost, delays and, often, frustrated customers. At its worst, an absence of detailed identification can result in poor and unsafe repairs.

For the insurance company, there are implications with respect to risk assessment, pricing, claims assessment, indemnity and expense costs — all of which, clearly, are best avoided.

If one were to “channel surf” the hundreds (or thousands) of stations that are available today via local cable or satellite services, it is unlikely there would be any hour of any day of any week where there is not some program involving C.S.I.-type investigations or crime dramas from which to choose.

Almost invariably, there is some minute clue or detail in these fictional scenarios that helps “solve the case.” And more often than not, DNA evidence is used to help the authorities secure a conviction.

Although the insurance industry is usually not quite so dramatic, there is information available on almost every vehicle on the road that is very much like human DNA: VIN (vehicle identification number), which is continuously being used in more and better ways to create efficiencies. 

UNRAVELLING THE POSSIBILITIES

In the mid-2000s, a number of organizations in Europe began looking at the possibilities offered by using the VIN. When unravelled, this vehicle DNA could or should offer a complete picture of a vehicle as far back as the day that it rolled off the production line. In theory, a VIN allows for more or less instantaneously retrieval of a vehicle’s content, including model, interior, standard equipment, factory-fitted options, original trim and paint.

While this may seem to be a simple concept, for organizations that provide this service, a lot of skilled data development and linking needs to be done. The quality of the result can certainly differ, depending on an organization’s knowledge and skill.

To more accurately underwrite a vehicle or to assess damage from a claim perspective, the first step is to correctly identify the vehicle model, sub-model and options. As vehicles become increasingly sophisticated and the numbers of sub-models proliferate, this is not as simple as it sounds. Take as one example the VW Golf — across Europe, there are currently 67 sub-models on the road with different engines, safety features and options, often semi-customized at the factory in line with the demands of the owner.

Optional equipment can have a major impact on a vehicle’s final value, so understanding it is important. Not only does this equipment help determine if the vehicle repair exceeds the threshold for total loss, it also helps establish correct repair cost, correct parts to order and how to plan the job effectively in the workshop.

Consider that the basic version of a BMW 740i costs about $108,000, while a fully loaded version can run at, say, $121,000. This also holds true for more mainstream vehicles — an Audi A4 has a price tag of between $47,000 and $53,000, depending on the equipment and options chosen by the customer.

So it is little wonder that tools are being developed to inject some “science” into the process to correctly identify vehicles. For example, search tools and software solutions that offer a cascading series of options may be presented to an estimator to identify the equipment and options on the vehicle.

Helpful as that may be, it nevertheless relies on personal knowledge of the vehicle to select the correct options. Furthermore, the process is time-consuming, taking from 15 to 20 minutes on average to complete, and does not eliminate user error.

Products and services are currently available that offer concrete business benefits for claims departments and body and paint repairers, including identification with negligible search errors, perhaps saving 15 to 20 minutes per estimate (assuming there are no vehicle modifications post-purchase); automated selection of correct equipment and repair options; accurate estimates, helping reduce the number of re-calculations and leading to quicker insurer approval; fewer errors in parts ordering and exchange of wrong parts; and enhanced customer satisfaction and retention because of correct repairs and improved cycle times. 

TRANSPARENCY IMPORTANT

There are also direct benefits for an insurer since additional transparency in the process helps reduce errors, re-work and re-approval, contributing to bringing down claim handling costs. Of course, not all VIN identifiers are created equal.

Decoders, often available on the web for little or no money, tend to provide only basis data — vehicle, build year, standard equipment and a list of possible options — which replicates some of the disadvantages of search tools. Since these decoders are not integrated into the estimation system, it can result in time-consuming re-keying and possible input errors.

More sophisticated versions do exist, providing the aforementioned data, the grade and individual vehicle content, and are directly integrated into the estimation system.

The next stage in VIN evolution is likely to be its development as an insurance underwriting tool. Currently, insurers can lack accurate information for setting premiums. If an insurer gets the premium level wrong and over-insures, the offer may not be competitive and the insurer chances losing the customer — be it new business or the renewal of a long-standing client.

If insurers under-insure, they are not covering their risk with adequate premium. This can often be the case when insuring a vehicle that is “second-hand” — even the new owner may not be aware of its features and options.

The addition of vehicle and option prices to VIN will allow insurers to quickly understand the vehicles they are underwriting and establish correct premiums. The VIN will identify the retail price, the options and individual pricing — which is key to understanding different depreciation rates on, for example, high-end equipment such as navigation, audio and drive assist. The potential customer will also benefit from a quick and accurate quotation.

There are now more than 25 major vehicle manufacturers in Europe that are linked to VIN identification systems, including VW, BMW, Audi, Toyota, Peugeot, Renault and MAN (a heavy truck manufacturer). It is estimated that more than 35% of estimations make use of VIN as part of the process.

There are also benefits from a fraud perspective, although that would be via either front-end underwriting or the claims investigative and evaluation processes. Ultimately, the insurance company needs to know the following:

• Is the vehicle we are about to insure being accurately depicted?

• Is this a risk we are comfortable writing?

• Are we getting the right rate for the risk?

Of course, other variables such as a vehicle’s history of drivers/users also play a major role in the underwriting process. Would it not be ideal if a detailed and accurate representation of risk was available with almost every single new business application — or even a renewal — that is processed?

While a VIN may not address the issue of after-market installations or modifications, at the very least, it provides a strong foundation that is part of both the underwriting and claim practices of most insurance organizations.

NEXT STOP: NORTH AMERICA

In Canada and the United States, VIN is mostly limited to European manufacturers such as BMW, Mercedes, VW, Audi and Volvo — with the notable exception of GM. The lower adoption rate is likely as a result of a “who jumps first” attitude on the part of vehicle manufacturers, who m ay have concerns about sharing data.

At the same time, insurers are not pushing vehicle manufacturers, which possibly are not fully aware of the potential benefits that VIN can bring.

That VIN has developed more quickly in Europe than in North America perhaps as a result of four factors:

• the European Union’s regulatory environment places an obligation on vehicle manufacturers to make specific data, such as VIN, available;

• the repair market is under intense pressure from insurers to improve efficiencies and reduce costs (although this is not unique to Europe);

• electronic repair systems, which can fully leverage the benefits of VIN, are highly penetrated in most European markets; and

• the initial vehicle makers to address VIN were the German brands, which have well-developed VIN data structures.

It appears mostly a matter of time before there is higher penetration in North America.

The expanded use of the VIN may not be the “smoking gun” that solves the case on television programs, but it is certainly a tool that promises to assist the insurance industry as a whole today and in the future as technology continues to evolve.