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U.S. Car Insurers Have Blood on Their Hands

by Roger Lanctot | 8月 17, 2015

Okay. Okay. Maybe that is a mild bit of overstatement. But in my mind it is true.

When you can’t get a decent discount from your car insurance company for having bought a car loaded with collision avoidance and other safety features it makes you wonder why those systems are there? You can get a discount for an anti-theft system, for good grades (if you are a young student), for combining your car with your home insurance, for being a new graduate, for paying on time, for owning a hybrid, for being newly retired or married, or for working for a particular company…but not for buying a car with active safety technology.

Most of the largest car insurers in the U.S. do not offer a discount for purchasing a car equipped with active safety technology intended to avoid collisions. The safety systems I am referring to include automatic emergency braking, adaptive cruise control, lane keeping/lane departure warning, and blindspot detection. And all of these systems are precursors to autonomous driving technology.

Worse yet, the research arm of the insurance industry in the U.S., the Insurance Institute for Highway Safety (IIHS), clearly endorses government mandates as the primary if not the sole path to widespread consumer adoption of safety systems. This is a position that overlooks, ignores or negates the economic clout wielded by the insurers in the form of discounts.

The IIHS position also suggests that the insurance industry believes it is not in the best interests of the industry to reward consumers for buying safer cars. I don’t even want to think about what that might mean.

The IIHS conducts research to determine the efficacy of different safety systems to establish which features actually reduce the incidence of insurance claims. The problem for IIHS is that much of the research into active systems such as lane departure warning, blindspot detection and automatic emergency braking has produced somewhat ambiguous results – some systems from some car companies seem to work well or better than others.

SOURCE: IIHS

The only system that appears to be universally recognized as a claims-reducer is automatic emergency braking – something the European insurance and auto industry have grasped and embraced with far greater speed than the corresponding U.S. representatives. So Subaru may tout its EyeSight collision avoidance in television advertising, but what is missing is an insurance industry endorsement and a list of insurers willing to offer discounts for consumers that buy so-equipped Subarus.

SOURCE: IIHS

In fact, the IIHS provides detailed databases of cars with available active safety systems. What is missing is a list of insurance companies offering correlated discounts.

The reality is that technology has leaped way ahead of the industry. While the National Highway Traffic Safety Administration (NHTSA) announced years ago that it intended to shift its focus from collision survival to collision avoidance, what sounded like a simple change in strategy poses a logical challenge to NHTSA, the insurance industry and car makers: How to prove a negative? How to prove a technology can reliably prevent claim-producing and life-threatening collisions.

NHTSA and IIHS have collaborated on standards associated with the adoption of technologies such as electronic stability control and anti-lock brakes, roof strength and child safety seats. But the onset and proliferation of active safety systems appears to have blindsided the insurance industry.

(In the context of this new, emerging safety regime of collision avoidance it is worth remembering that car insurers State Farm and Allstate battled all the way to the Supreme Court in support of the mandated adoption of airbags back in 1983. The standard was later adopted under the leadership of Transportation Secretary Elizabeth Dole during the Reagan Administration. This form of advocacy, very much in opposition to the auto industry position at the time, is sorely missed today.)

This is a very big deal because the government appears to have maxed out the life-saving aspect of passive safety systems as the annual number and rate of highway fatalities in the U.S. is no longer declining. The 51,000 highway fatalities of 1966 and correlated 5.5 deaths per 100M vehicle miles driven, has declined steadily to approximately 32,000 lives lost annually at a rate of 1.13 deaths per 100M vehicle miles driven as of 2013.

But the rate and number of fatalities are no longer declining and remain well above fatality rates in Europe. NHTSA and IIHS recognize the value and importance of active safety systems, but can’t seem to concoct a protocol for achieving greater market penetration beyond the system of recognizing cars with top safety ratings or a shift to mandated fitment.

IIHS only compounds the ambivalence of NHTSA by publishing research with ambiguous results which insurers can then use to justify their decision not to offer discounts. IIHS has given its research-based blessing to automatic braking systems, but don't expect your insurer to offer you a discount any time soon (with some exceptions).

The issue is especially poignant in the context of the onset of autonomous vehicles or self-driving cars. Representatives of the US Department of Transportation (and auto makers) are fond of blaming 95% of collisions on drivers – which would suggest that the faster we can remove driving responsibility from the driver the better off we will all be.

Active safety systems are designed to achieve precisely that end. The IIHS broadly endorses a mandate-driven path to adoption of active safety systems. But the insurers that finance IIHS won’t offer discounts. (Some insurers, including my insurer Liberty Mutual, do offer discounts for active safety systems. But most, including the two largest State Farm and Allstate, do not.)

The implication is that the broader adoption and market penetration of safety systems actually threatens the livelihood of the insurance companies. Fewer claims means a smaller overall market as premiums inexorably decline.

The reality is that claims are on the rise as the number of older drivers grows and as texting and driving among all demographic segments remains a challenge to driving safety. To combat these challenges the insurance industry is looking not to its own IIHS-run research, but to the data gathered from individual drivers participating in usage-based insurance programs.

UBI programs have been shown to have an impact (participants drive less and more carefully), but their intrusive nature remains a major turn off to consumers as does the complexity of plugging a device into a diagnostic port on the car. But UBI is more fundamentally flawed even than this. UBI perpetuates the blame-the-driver approach to driving safety.

Years of mandated improvements in passive safety systems have proven that car makers play an important role in and bear significant responsibility for the mitigation of fatal crashes. I seriously question the rigor behind the research attributing blame to the driver in 95% of cases. The point of mandating safety systems is to recognize the need to assist drivers and passengers as much as possible in the hazardous task of manipulating a motor vehicle – especially as the driving population ages.

A real revolution in vehicle safety might be achieved if insurance companies and NHTSA used an outcome-based process of safety assessment to rate individual cars and vehicle manufacturers. What if consumers could access NHTSA’s FARS (Fatality Analysis Reporting System) data by car maker and car model to make their own determinations?

Better yet, what if safety ratings of individual car makes and models were based on actual historical data? What if car makers competed based on their progress toward Volvo-like zero fatality goals – not unlike the CAFÉ (Corporate Average Fuel Economy) objectives maintained by NHTSA?

If car makers had fatality reduction goals they alter their interest in and support of driver training and licensing standards and guidelines – including better customer orientation at the point of sale. It’s not enough to equip a car with safety systems if the customer is unaware of how to activate the system or interpret its messages.

Could federal fatality-reduction guidelines lead to new forms of customer engagement? Yes. Could auto makers use these new connections to their advantage? Definitely.

These ratings could be integrated into car insurers’ underwriting strategies thereby creating a market-based and, better yet, competitive environment more likely to attract and reward consumers. Imagine car makers having annual fatality reduction objectives not unlike emission reduction and fuel efficiency goals!

Yes, it’s a radical idea. But the system we are working within now is actually rewarding insurers who choose not to reward consumers for buying cars with safety systems. And the overriding message to consumers is that those advanced safety system that they are hearing so much about and increasingly seeing in television ads have not sufficiently impressed the insurance industry.

http://tinyurl.com/ob3ro5j - Consumer Willingness to Pay for ADAS Remains Modest as Interest Rises Sharply -  Strategy Analytics

http://tinyurl.com/ob3ro5j - Safety is Key to Vehicle Appeal in J.D. Power Study - Mediapost

And, by the way, Strategy Analytics and J.D. Power & Associates consumer research consistently shows that advanced safety features sell cars. Consumers highly value safety and are willing to pay for it. Imagine how consumers will feel if they are further rewarded with an insurance discount?

A final note, car makers are increasingly adopting active safety system technology across their vehicle line ups. It would be wise of those car companies to steer their business exclusively to insurers that reward consumers who buy cars equipped with those systems – regardless of what the IIHS research says.

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