By Jeff Sanford
Toronto, Ontario -- September 11, 2016 -- Sean Carey, principal of SCG Management Consultants, was the guest speaker on the most recent VeriFacts Guild 21 conference call. Carey predicted that driver assist technology is about to force real change in the traditional claims management model that will benefit the collision repair sector while the power of insurers wanes.
It was a really interesting call.
Carey spoke during a break from a connected car insurance conference he was attending. According to him, the talk at the conference is all about telematics and connected car technology.
Today, of course, cars are being connected digitally to home computer systems, other cars and to OEMs who will gather vast amounts of information from drivers through these networks. The rise of the connected car and telematics means that “significant disruptive forces will be prevalent as soon as 2020 and will change the claims management market forever,” according to Carey.
That is, the change in the industry driven by digital technology will happen long before fully automated vehicles appear. “It's already happening,” said Carey. “Vehicle tech is moving at a rapid pace. Don't get lost in the whole AV thing. That's 2020, 2030, 2040. Advanced driver safety assistance technology is here. Ride sharing is here. No one can agree when the AV arrives. But this other stuff is here now. Sure, a lot of people out there will say, 'This is never going to happen.' Trust me … 16 floors down at the conference they're saying this. At this international conference … everyone is in agreement. It's becoming ubiquitous. Whether these are new vehicles we're talking about or retrofits, we're connecting to apps, vehicle-to-vehicle and connecting cars to homes. The connected car will change the landscape forever. And change happens quick.”
Carey cited the well-known KPMG report that found connected car (so-called advanced driver assistance and safety, ADAS) tech will be prevalent by 2020. Adoption is happening now at a compound annual growth rate of 45 percent.
“Out of 215 million drivers in America, by 2020, 85 million will have active users using connected cars to talk with outside sources. That's great growth,” Carey said.According to the report, the number of accidents will decline by 29 percent by 2020, but over that time accident severity will increase as technology becomes ubiquitous on cars.
“By 2040, we’ll probably be in the full autonomy stage, with crash frequency down by 80 percent but severity up 250 percent,” said Carey.
The new technology in cars will see the complexity and the cost of the repair increase, and according to Carey that means “the shops will still make their money” even as the overall number of accidents decline. It's in the insurance industry where things are really going to get weird.
According to Carey, vehicle technology “requires different repair methods and procedures creating a technical tsunami.” As the amount of digital technology on a car increases the current claims management model will begin to change in response. ADAS technology will “pull forward how it is collision claims work,” said Carey.
The change will happen for a couple of different reasons. As the complexity and cost of repairs increase, OEMs will have to step-up and offer certification programs to ensure cars are fixed properly. The OEMs will respond to market forces and will want to protect their brand reputation, so they will find it necessary that they become much more involved in the collision repair space than has been the case previously.
ADAS technology will see car companies themselves enter the insurance market. It's been said that Google is researching the insurance market as it develops its self-driving car. The company thinks it will be able to roll the cost of insurance into the car itself, which would be an attractive selling point for end consumers.
Carey pointed out in his presentation that just last week Tesla announced an insurance-based project. Carey also mentioned that Toyota has just created a whole new insurance management company based on telematics.
“These aren't the traditional players in the insurance landscape,” said Carey.The change is already occurring. Carey noted that OEMs are “already beginning to respond by requiring pre- and post-repair scans.” According to Carey collision repairers will want to forge closer ties to the OEMs in the years ahead as the influence of insurers wanes. “The OEMs will be in the insurance industry … automakers will be your most valuable partner,” according to Carey.
“The stakeholders are changing. As brand reputation shifts, we’ll see shops get behind the OEM brand and the repair procedures,” said Carey. His more remarkable prediction? “In four years time this will become the operating model,” he says.Those in the insurance industry seem to recognize the shifts taking place.
Carey also discussed the results of a recent survey of insurance company executives. When these executives were asked, 'Who will be a major provider of insurance?,' the answer was that, “58 percent of C-suite insurance executives think OEMs will be in the industry and 38 percent think Google will be.”The coming changes will reshape the industry, and need to be considered. “Imagine having to plan your business right now with 30 percent less consumption? That's not a stat many want to look at. But the reality is, if you’re not preparing for a different supply chain model, then you should be. I can say that with every confidence,” said Carey.
An example of the type of changes coming is a new feature from GM being offered through OnStar. The company now scans the telematics generated by the car and the driver. This was data that some insurance companies began collecting through the use of dongles plugged into the car’s computer, with good drivers securing better rates. In the future it'll be the OEMs gathering the telematic information, and that's going to reduce the power of insurers. In the case of the new OnStar feature, if a scan of the telematics find that the driver is a good one, “GM is contacting the customer and telling them their score should get them a better insurance rate, and takes them to that insurer,” said Carey.
As OEMs continue to deploy this telematic data they'll find that it is “worth it to get into first notice of loss,” said Carey. Traditionally it's been the insurer that manages first notice of loss. In the future it will be the OEM doing so as the claims management model shifts. According to Carey, OEMs will replace insurers as the ones making the initial claims decisions and recommendations. Connected cars will do all of this in real-time, cutting out the need for insurers to find a shop.
“The shop will already determined … that's my opinion. You will have to use OEM procedures to repair these cars. For the first notice of loss, the car will do it. There is no need to find a shop. Analytics will do that. The repair will be what it is. The car will tell you what parts are needed and will schedule the repair into the shop nearly in real time as the accident has happened,” says Carey.
The benefits of this emerging system will go to shops that keep up with the ability to repair next-generation vehicles to OEM standards. Consumers will also benefit according to Carey. He noted that a current trend in the industry is that MSOs have been partnering with insurance companies. “Those two entities are forging relationships. That's leaving the independents a bit adrift,” said Carey. “I do believe telematics will improve claims management. The consumer is back in control of their situation and happier as a result.”
Those on the call were polled about whether or not they thought telematics would change the industry. A little more than half of the collected crowd said they thought this would be the case.
Carey clearly thinks anyone not expecting change is going to be surprised. “To a man, we are experiencing radical change in our business. Anyone who is thinking this is a 20 year evolution is crazy. This is seven to 10 years. It is profound change, and it will happen faster than people expect.”
For collision repairers who can see the opportunities, the prospects are actually good. “This isn’t a daunting future. It's actually an exciting future,” said Carey.