Automotive Services Association Leadership Takes “Most Favored Nation Clause” Message to Capitol Hill
In June, leaders of the Automotive Service Association (ASA) met with key members of Congress and their staff to discuss the negative effects of most favored nation clauses (MFNs) for shops, consumers and insurers. According to ASA President, Dan Risley, MFNs are “the single most important issue in the collision repair industry today.” Risley added, “Michigan has recognized the damage these clauses can do in a marketplace and acted accordingly with regard to health insurance. This same reasoning should apply to vehicle repair and property and casualty insurance.” Under an MFN clause, a seller agrees to give the buyer the best terms made available to any other buyer. ASA (June 20, 2014).
New Feature from Mitchell Allows Review and Scoring of Processed Claims Handling Closed File Review, a new feature within Mitchell WorkCenter,™ provides claims managers with the ability to analyze and score how processed claims were handled. It also allows for customized file reviews and claims auditing. The feature aims to improve the efficiency and accuracy of the claims process by allowing for easier analysis of historical data. CollisionWeek (April 21, 2014);Yahoo Finance (April 16, 2014). http://www.collisionweek.com/cw/news/2014/0421-mitc.asp http://finance.yahoo.com/news/mitchell-announces-closed-file-review-120000176.html Litigation Will be the Biggest Cost to Telematics Industry As telematics systems become standard in more vehicles, the cost of handling subpoenas and litigation-related information requests will continue to skyrocket. The data collected by telematics systems, such as vehicle condition, time, mileage, location, speed and even aggressive driving behavior, is increasingly becoming key evidence in litigation. From car accidents to divorce proceedings and contested child custody cases, the projected cost for litigation compliance and legal exposure will eclipse $2.1 billion by 2019. This cost does not include the potential class action lawsuits based on privacy concerns stemming from sensitive data collected by these systems. An open question is whether insurers can avoid incurring these costs. Insurance and Technology (June 6, 2014). http://www.insurancetech.com/regulation/telematics-nightmare-scenario-litigation/240168405 Telematics Use Approved by New York Department of Financial Services The New York Department of Financial Services (DFS) identified multiple benefits arising from insurers’ use of telematics, including improved ability to align pricing to risk, enhanced information regarding driver habits and increased safety arising from telematics devices (such as the ability to restrict a driver’s phone use while driving). DFS encouraged insurers to adopt usage-based insurance (UBI) programs that use telematics devices to track driving habits and provide discounts to safe drivers. DFS has approved UBI programs only where they are offered to the consumer on a voluntary basis. New York Department of Financial Services, Insurance Circular Letter No. 4 (May 27, 2014); Department of Financial Services, Press Release (May 27, 2014). http://business.cch.com/ild/cl2014-04.pdf http://www.dfs.ny.gov/insurance/circltr/2014/cl2014_04.htm Massachusetts Auto Damage Appraiser Licensing Board Issues Approval for Appraisals via Digital Images and Video The Massachusetts Auto Damage Appraiser Licensing Board released an advisory ruling announcing that vehicle damage appraisals conducted via review of quality digital videos or photos satisfies Code of Massachusetts Regulations 212 CMR 2.04. This regulation requires “personal inspection” of damaged motor vehicles. The advisory ruling is in response to insurance companies’ increased usage of claimants’ digital photos and videos in the estimating process. Allstate, State Farm, and MetLife have asked claimants to submit photos and videos of vehicle damage from their camera phones for use in writing estimates. In May, Esurance began offering real-time video appraisals through its mobile application. AutoBodyNews (June 25, 2014); CollisionWeek (May 29, 2014). http://www.autobodynews.com/news/regional-news/northeastern-news/item/8538-massachusetts-adalb-issues-positive-advisory-ruling-on-use-of-digital-images-in-appraisals.html http://www.collisionweek.com/cw/news/2014/f0529-mass.asp Rideshare Industry Poses New Challenges for Insurers and Regulators Transportation network companies (TNCs) like Uber, Lyft and Sidecar have created mobile rideshare applications which match participating drivers with passengers. A perceived gap in coverage in between the time a TNC’s commercial insurance policy is in effect and when the driver’s personal auto policy is in effect has triggered an ongoing debate among insurers of TNCs and regulatory agencies. Insurers have taken the position that TNC drivers are engaged in a “commercial service” from the moment they log into the ridesharing app and begin looking for passengers. TNCs in several states have offered to provide commercial coverage only for the period of time when the driver has a passenger. Insurance Journal (June 27, 2014). http://www.insurancejournal.com/news/national/2014/06/27/332942.htm As a result of this coverage gap, TNCs may face more defined insurance requirements from regulators. Rideshare legislation is being pushed forward in Illinois and California. In Illinois, the legislature passed House Bills 4075 and 5331, which require background checks on drivers, vehicle inspections, chauffeur’s licenses for certain drivers and disclosure to drivers about insurance coverage provided by the TNC. The law would require commercial liability insurance to be the primary coverage while a driver’s app is on and he/she is able to accept passengers. Under California Assembly Bill 2293, TNCs would be required to disclose to drivers that personal insurance may not apply when engaged in TNC activities and require TNCs to defend and indemnify drivers. Insurance Journal (June 17, 2014); Property Casualty Insurers Association of America (June 3, 2014). http://www.pciaa.net/LegTrack/web/NAIIPublications.nsf/lookupwebcontent/37F8657EED9E7BD686257CEC0068188?opendocument http://www.insurancejournal.com/news/west/2014/06/17/332274.htm The Utah Insurance Department is urging users of ridesharing companies to confirm they are covered by insurance in the event of an accident. Some drivers have policies that may not provide coverage for injuries sustained in the passenger seat. Salt Lake City officials are considering modifying their policies to require ridesharing company drivers to purchase sufficient insurance and have their cars inspected. Claims Journal (June 3, 2014). www.claimsjournal.com/news/west/2014/06/03/249698.htm At least 15 states have issued warnings about the risks of using rideshares. While it is tempting to summon a car with the ease in which an e-mail is sent, passengers may be unaware of the risks associated with rideshares should something go wrong. Drivers whose vehicles are for personal use are not required to get commercial liability insurance and, in the event of an accident while ridesharing, would generally not be covered under their own personal auto insurance policies because they are driving for profit. As a result, passengers may be left with injuries and unpaid medical bills. Uber clams that its $1 million commercial ridesharing insurance policy would provide coverage to drivers where personal auto coverage will not. However, states say that the application of these policies has not yet been fully tested under state laws. NBC News (May 28, 2014). http://www.nbcnews.com/business/consumer/states-warn-rideshare-risks-passengers-n116736 Proposed New York Legislation Could Expand Adjusters’ Role The New York Public Adjusters Association is supporting legislation that would greatly expand the well-established appraisal clause that appears in almost every insurance policy contract. Assembly Bill 9346/Senate Bill 4756 would alter the appraisal clause, which currently serves as a method to determine the amount of a loss, to include decision-making on coverage issues. The Property Casualty Insurers Association of America (PCI) opposes this legislation, arguing that it would remove coverage issues from the legal system and put it in the hands of appraisers, which is not something that appraisers are trained to do. According to PCI, this is likely to lead to more litigation and higher costs for consumers. Property Casualty Insurers Association of America (April 28, 2014). http://www.pciaa.net/LegTrack/web/NAIIPublications.nsf/lookupwebcontent/F16C14F19429EF4586257CC80070E5E?Opendocument Federal Insurance Office Seeks Input on Proposed Initiative to Monitor Access to Affordable Auto Insurance The Federal Insurance Office (FIO) announced an initiative to monitor the affordability of personal auto insurance. Under the Dodd-Frank Wall Street Reform and Consumer Protection Act, FIO is vested with the authority to monitor the extent to which low- and moderate-income persons have access to insurance products. As almost all states require automobile owner-operators to maintain a liability policy, particular concern exists regarding low- and moderate-income individuals and minorities’ access to affordable auto insurance. FIO has been working towards the definition of, and approach for, the definition of “affordable auto insurance.” To that end, FIO has sought comment from interested parties regarding the definition and the metrics it should use to monitor affordability moving forward. Insurance Journal (April 17, 2014); CollisionWeek (April 17, 2014). www.collisionweek.com/cw/news/2014/0417-fio.asp In response to the request for comments by FIO, the National Association of Mutual Insurance Companies (NAMIC) urged caution regarding imposition of price controls on auto insurance. NAMIC cited the affordability of auto insurance in states with “no pay, no play” laws which limit the extent of recovery for non-economic damages and studies produced by the Bureau of Labor Statistics which reveals that household consumer spending on non-essential goods like alcohol and tobacco continues to outstrip spending on auto insurance. InsuranceNewsNet (June 9, 2014); NAMIC (June 9, 2014). http://insurancenewsnet.com/oarticle/2014/06/09/namic-urges-caution-on-federal-auto-insurance-affordability-efforts-a-515625.html http://www.namic.org/newsreleases/140609fd05.asp?utm_source=NR&utm_medium=email&utm_campaign=fed&utm_content=fioU.S. House Committee Hearing Considers Confidentiality of Insurers’ Data The Housing and Insurance Subcommittee of the U.S. House Financial Services Committee held hearings to discuss reforming domestic insurance policies. The agenda included discussion of the Insurance Data Protection Act, a bill that would limit the authority of the Federal Insurance Office (FIO) and the Office of Financial Research to subpoena data from insurers. The proposed legislation mandates that federal entities and state regulators maintain the confidentiality of non-public data shared with other regulators. It also addresses the current uncertainty as to whether data submitted to FIO loses its privilege if FIO shares it with other federal or state regulators. Insurancenewsnet.com (April 17, 2014). http://insurancenewsnet.com/oarticle/2014/05/24/us-house-committee-holds-insurance-data-hearing-a-509183.html Bill Would Ban Ohio Auto Insurers’ “Preferred Lists” of Repair Shops Two Ohio lawmakers have introduced House Bill 526 that would prohibit auto insurance companies from keeping a “preferred list” of repair shops and requiring, recommending or suggesting certain repair shops to claimants. Current Ohio law does not limit consumers’ choice of body shops unless insurers say so in their policies. If a claimant obtains an estimate for repairing a vehicle to its pre-crash condition that is higher than the insurer’s estimate, the insurer can pay the difference or provide the name of a body shop that will fix the car for that price. Cleveland.com (May 5, 2014). http://www.cleveland.com/open/index.ssf/2014/05/bill_would_ban_ohio_auto_insur.html Consumer Groups Ask Insurance Commissioners to Ban Rates Based on Shopping Habits At the recent National Association of Insurance Commissioners (NAIC) national meeting, the Consumer Federation of America (CFA) and the Center for Economic Justice (CEJ) asked regulators to stop insurance companies from using so-called “price optimization” techniques when setting rates and premiums, calling it unfair and discriminatory. Price optimization is a data mining tool used by insurers to charge higher premiums to consumers least likely to shop for a new policy in the face of a rate increase – technologies that consumer groups claim insurance companies appear to be using without disclosure to state regulators. These groups claim price optimization violates state laws that prohibit insurance companies from unfairly discriminating against customers with the same risk profile. They further assert it ignores the actuarial requirement that insurance rates be based on risk. Consumer groups contend that low-income customers – who have fewer market options due to geography, time available and financial literacy – tend to shop less than wealthier consumers and would be most harmed by price optimization. CollisionWeek (April 2, 2014). http://www.collisionweek.com/cw/news/2014/0402-cfa.aspAir Bag Explosions Still a Mystery to Auto Industry, Parts Maker In the last five years, Japanese car makers Honda Motor Co. and Nissan Motor Co., and the world’s second-largest maker of auto safety parts, Takata Corp., have recalled 10.5 million vehicles. The recall is due to Takata’s faulty airbags, which can explode and shoot burning hot shrapnel inside cars during an accident. The auto companies and manufacturer are still puzzled over the cause and extent of the faulty air bags. In June, Japanese car makers recalled another 2.9 million vehicles globally. U.S. safety investigators are examining whether the cause of the malfunction goes beyond the manufacturing glitches previously identified and they speculate that humidity may be a factor. Until Takata can make enough replacement parts available, automakers are disabling passenger-side air bags, deciding that inoperable air bags are safer than potentially defective ones. Reuters (June 22, 2014). http://www.reuters.com/article/2014/06/22/us-autosrecall-airbags-insight-idUSKBN0EX0K820140622 Growing Recalls on GM Ignition Switch Defects Alarming figures regarding safety issues involving the recall of General Motors’ (GM) ignition switches have been released. GM initially recalled 2.6 million older vehicles earlier this year to fix faulty ignition switches. Evidence now suggests that the auto company knew about these faulty switches for more than a decade. The switches have the potential to slip out of the “run” position, resulting in engine shutdown and loss of power steering and brake control, causing drivers to lose control of their vehicles. The automaker recalled an additional 3.4 million older model vehicles in June for a similar issue. Thirteen deaths have been linked to the faulty ignition switch problems. The National Highway Traffic Safety Administration fined GM $35 million for concealing the defects. Claims Journal (June 20, 2014). http://www.claimsjournal.com/news/national/2014/06/20/250570.htm Google Highlights Benefits of Self-Driving Cars in Pursuit of Driverless Car Future Self-driving cars are expected to go on sale by the end of the decade. While traditional car manufacturers have introduced computer-controlled vehicles, which still leave some driver autonomy, Google’s latest ‘transformative’ prototype completely removes the driver from the equation. This prototype, designed from the ground up, will rely on sensors and software to perform all driving functions and will lack a steering wheel, accelerator or brake pedal. Google has been quick to push the safety, efficiency and cost benefits of a driverless car world as part of its efforts to carve a niche in the auto industry. Google’s $258 million investment in on-demand taxi service Uber has led to speculation that it has plans for a driverless car that can be summoned with the click of a smartphone. However, before Google’s vision of driverless cars can become a reality, safety, liability, privacy and regulatory concerns must be addressed. CollsionWeek (May 28, 2014); Advisen FPN Digest Edition (June 17, 2014). http://fpn.advisen.com/?resource_id=2198007952222#top www.collisionweek.com/cw/news/2014/0528-goog.asp New Automobile Technology May Pose Problems for Insurance IT Departments As the insurance industry continues to respond to advances in auto technology, their information technology departments are faced with their own set of challenges. Three areas identified as core concerns of Chief Information Officers in which they should be preparing for now are: • The massive influx of data that will be generated by technology-like self-driving cars and telematics – that will need to be stored, analyzed and integrated with existing IT systems; The need to develop and release new products rapidly in order to address customer demand and stay ahead of their competitor’s offerings. Companies must deploy new products customized from the information provided by, and safety features of, new auto technology; and • Reducing their cost structures as auto safety technology will lead to fewer accidents, and in turn, will result in customer demand for lower premiums. Insurance Networking News (June 9, 2014). www.insurancenetworking.com/news/how-auto-tech-will-alter-it-34412-1.html Autonomous Vehicle Technology May Lower Insurance Rates, but Raises Ethical Quandaries and Liability Issues A panel on autonomous vehicles (AVs) at the Casualty Actuarial Society’s Ratemaking and Product Management Seminar concluded that driverless car technologies could lower insurance rates by up to $475 a year. The implementation of driverless car technology eliminates the potential for human error, which contributes to over 90% of crashes each year. However, the new technology also poses novel issues. AVs are expected to transmit 750mb of data per minute, which must be scrutinized by actuaries to identify variables necessary for predicting accidents. Flaws in driverless car hardware or software contributing to accidents may lead to greater exposure and higher insurance rates for manufacturers of the technology. Costs associated with the technology may also pose barriers to widespread implementation. Insurance Networking News (May 16, 2014); Carrier Management (May 21, 2014). www.insurancenetworking.com/news/insurance_network/driverless-cars-telematics-and-acuarial-science-34334-1.html www.carriermanagement.com/news/2014/05/20/123377.htm The development of AV technology poses ethical questions. For example, software for robot cars is designed to make optimal choices to minimize harm in crashes. A programmer of an AV can code the program so that in an unavoidable collision, the AV swerves and hits a heavier vehicle as opposed to a lighter one. This could result in unintended consequences, such as penalizing owners of larger, more durable vehicles. A possible solution is to program AVs that make decisions randomly so that the process is not discriminatory. However, this would undermine a key purpose of AVs, which is to engineer a car that makes better decisions than humans. The greatest challenge, however, may be to educate the public about the ethical dilemmas involved in AVs to ensure accurate expectations. Wired (May 6, 2014). http://www.wired.com/2014/05/the-robot-car-of-tomorrow-might-just-be-programmed-to-hit-you/ Finally, the auto industry must address liability for car accidents involving AVs. While it is predicted that AV technology will save thousands of lives and billions of dollars, crashes and litigation stemming from them are inevitable. This may increase automaker liability, but how such litigation will be resolved has not been addressed in the courts. One proposed solution involves the creation of a fund to compensate victims of driverless vehicle accidents similar to the Department of Health and Human Services’ vaccine injury compensation fund. National Journal (March 25, 2014). http://www.nationaljournal.com/tech/who-gets-sued-when-your-robot-car-crashes-20140325 Car Hacking a Danger for Connected Vehicles Google Inc. revealed a new operating system for cars, Android Auto, a prototype for a fleet of self-driving cars. As automobile manufacturers work more closely with Google, questions arise regarding potential vulnerabilities to hacking attacks on vehicles and the collection of personal consumer data. According to a survey by Seapine Software, more than half of drivers worry hackers might figure out how to get past the security in driverless cars, The National Highway Traffic Safety Administration (NHTSA) said it would research automated vehicles and the cyber security issues they present to develop a set of baseline requirements. The University of Michigan plans to build a 32-acre simulated city to test automated cars, including a lab that tests vehicles’ security and firewalls to identify hacking risks. Advisen (July 11, 2014). http://fpn.advisen.com/fpnHomepagep.shtml?resource_id=2204465622222&userEmailConsumers Believe Connected Vehicles Will Be Safer; Concerns Over Security, Privacy Exist The University of Michigan conducted a survey that asked respondents about their familiarity with connected vehicles and their perceived benefits and concerns with the technology. The findings of the nearly 1,600 respondents revealed: • 30% are very concerned about vehicle security breaches by hackers and data privacy, with another 37%“moderately concerned” and nearly a quarter “slightly concerned”; • A majority expressed concern about system failure and performance - especially during bad weather - and drivers’ reliance on the technology, which could lead to distraction; • Despite these concerns, 75% of respondents believe connected vehicles will reduce the number and severity of crashes, improve emergency response times and result in better fuel economy; • More than 60% expect less traffic congestion, shorter travel times and lower vehicle emissions; and • 62% of respondents have a positive opinion about connected vehicles, while about 33% are neutral. CollisionWeek (April 14, 2014). http://www.collisionweek.com/cw/news/2014/0414-conn.asp?pageoption=pda Progress Made in Adoption of Front Collision Avoidance Systems The Insurance Institute for Highway Safety (IIHS) has seen significant improvement from automakers in the development of frontal crash prevention systems since instituting its front crash prevention ratings system. Twenty-one of 24 cars and SUVs (2014 models) received an advanced or higher rating. The front crash prevention ratings, which rate a vehicle’s forward collision driver warning system, speed reduction and auto brake capabilities, were introduced last year. IIHS believes that front crash prevention systems reduce accidents and save lives, and will require an advanced or better rating to qualify for a 2015 Top Safety Pick+ Award. CollisionWeek (May 30, 2014). www.collisionweek.com/cw/news/2014/0530-iihs.asp An analysis performed by the Highway Loss Data Institute, an affiliate of the IIHS, concluded that the combined forward collision and lane departure warning systems have reduced insurance claims. The rate of property damage liability claims for damage caused by insureds to someone else’s vehicles was 14% lower for vehicles with forward collision and lane departure warning. The system also reduced claims for injuries to occupants of the vehicles with this technology by 27% and claims for injuries to other motorists by 40%. Additionally, collision claim severity fell by $409 with the warning systems indicating that for crashes that are not avoided entirely, damage is at least reduced. Claims Journal (June 10, 2014). http://www.claimsjournal.com/news/national/2014/06/10/250079.htm Auto Insurers Look to Overcome Telematics Challenges Turning raw driving data into action is a major challenge facing any carrier trying to write usage-based auto insurance (UBI) profitably. Carriers seek to base their underwriting and pricing decisions in part on direct data culled from actual driving behavior. The goal will be to determine how these data points can result in information that can be correlated to the potential for an insured loss. UBI has already significantly disrupted the auto insurance market as more carriers look to change the way they assess and price risks based on telematics data, and UBI will continue to evolve as carriers seek to differentiate their UBI offerings by generating more data and gaining additional experience analyzing it. The goal for both UBI carriers and those with more traditional underwriting criteria will be to remain competitive in a society where behavioral monitoring may become the rule rather than the exception for a growing number of insurance companies and policyholders. Property Casualty 360 (June 18, 2014). http://www.propertycasualty360.com/2014/06/18/auto-insurers-look-to-crack-the-code-with-telematiSurvey Shows Divided Consumer Opinion on Telematics and Usage-Based Insurance A survey conducted earlier this year by Deloitte explored prospective consumers’ opinions on telematics and usage-based insurance. The survey identified three groups of consumers ranging from those that would allow monitoring without a discount to those who would never allow monitoring at all. Of the 2,193 respondents, over 50% would allow monitoring. Respondents under 30 were nearly twice as likely to allow monitoring with a small or no discount. Also, women expected a marginally higher discount than men. Income did not play a significant factor as 30% of those in the lowest income group indicated that the size of a discount would not affect their willingness to be monitored. Property Casualty 360 (May 19, 2014). www.propertycasualty360.com/2014/05/19/how-big-is-the-market-for-usage-based-insurance-an?t=tech=management Telematics May Make Monitoring Consumer Driving Habits the New Norm Insurers have warned that, within the next decade, motorists may be forced off the road or face higher insurance premiums unless they agree to have their driving monitored by technology. Such technology would track the number of trips drivers’ take, their speed, and braking habits, and will be standard in all new cars under EU regulations beginning October 2015 to help emergency services find vehicles involved in a crash. The Boston Consulting Group estimated that by 2020 roughly half of all cars will have telematics equipment. Such technology will be a part of the vehicle. Advisen (July 11, 2014). http://fpn.advisen.com/fpnHomepagep.shtml?resource_id=218276799-948777967&userEmail Telematics Offer Carriers a Competitive Advantage The Deloitte Center for Financial Services asserts that early users of insurance telematics reap the benefits of long-lasting competitive advantages. In its whitepaper, “Overcoming Speed Bumps on the Road to Telematics,” Deloitte concludes that even those carriers who choose not to embark on usage-based insurance (UBI) will likely have to execute plans to address those insurers employing telematics. Deloitte states that, although UBI programs may not immediately appeal to customers, the insights garnered from analyzing driving behavior and incorporating those findings into pricing models could still counteract the investment in a data-pooling arrangement. Insurance Networking News (April 24, 2014). http://www.insurancenetworking.com/news/ubi-confers-competitive-advantages-34228-1.html Georgia Collision Industry Association to Conduct New Labor Rate Survey The Georgia Collision Industry Association (GCIA) has selected National Auto Body Research, Inc. (NABR) to conduct a statewide body shop labor rate survey in the state. The survey is being conducted because the GCIA is calling into question the methodology and validity of the labor rate survey conducted by the state’s largest private auto insurer. Roy Barrett, Founder and CEO, Auto Damage Experts, believes that the “one size fits all” rate generated by the insurer is “unrealistic and unjust.” The methodology developed by NABR for purposes of this survey can be viewed on their website. CollisionWeek (June 16, 2014). www.collisionweek.com/cw/news/2014/0616-gcia.asp Multi-Regional Shop Operators Continues Expansion with New Acquisitions Service King and Boyd Group, two of North America’s largest multi-regional, multiple shop operators (MSOs) announced acquisitions, significantly increasing the total number of repair shops throughout the nation for their companies. Service King acquired 62 Sterling Collision Centers from Allstate, raising their total number of locations to 174. Boyd acquired 25 Collision Revision shops, raising their total number of locations to 290. CollisionWeek (April 17, 2014). http://www.collisionweek.com/cw/news/2014/f0417-mso.asp