Recently, we have witnessed how increasingly small objects like the microchip or other pieces of nanotechnology have had progressively larger impacts on our lives and work. Such is the case for data recorders, or Event Data Recorders, which are found in private passenger automobiles.
The recorders, small enough to fit on a thumbnail, are exerting a big impact on automobile coverage, the single biggest line of property/casualty insurance, with annual revenues of approximately $165 billion in 2006.
The devices are essentially a computer microchip. Silent and unseen, the chips sit in the driver's airbag housing.
So, what does an EDR do? Well, most of the time, nothing. It just sits there. But when a driver brakes hard, swerves suddenly, hits a speed bump, or accelerates rapidly, the EDR revs to life and starts recording.
The data, if standardized and made broadly available, will have an enormous impact on the automobile insurance industry and soon.
Hard breaking, violent swerving, or sudden acceleration is often followed by a crash. When such a triggering event wakes the EDR, it starts collecting data which can be used to determine the nature and at-fault characteristics of a collision.
In the case of many accident disputes, it can put an end to the blame game between plaintiff and defendant.Additionally, early studies consistently show that driver awareness of an EDR reduces the frequency of accidents.
One footnote is that the advent of EDR data will not only impact auto claims handling, but will likely extend into underwriting and even rating arenas with the EDR collision data gathered and analyzed over time to provide detailed damage and repair costs information by specific vehicle type.
Automobile manufacturers began installing EDRs in sedans, SUVs and light trucks more than ten years ago in response to the liability issues associated with vehicle crashes. Currently more than two thirds of all new cars, SUVs and light trucks are equipped with an EDR.
By 2010, EDRs are expected in more than 85 percent of all new cars, SUVs and light trucks. In all likelihood, of any two or more vehicles involved in a collision, at least one will have an onboard operational EDR. It is estimated that by 2010 this number is expected to climb to nearly 100 percent.
That's significant because the data from one EDR can tell much of the story of how the second car behaved in a collision.
Recognizing the enormous potential of collecting such data, the NHTSA published in August 2006 a standard for the capture and transmission of collision data from an onboard EDR.
Part of this ruling "requires vehicle manufacturers to ensure the commercial availability of the tools necessary to enable crash investigators to retrieve data from the EDR." In the event an EDR is present, the NHTSA standard requires the EDR to provide a minimum, standard data set along with a means of retrieving that data.
The NHTSA standard applies to 45 data elements, 15 of which constitute the mandatory minimum rate and direction of acceleration or deceleration during a collision, vehicle speed before a collision, throttle and brake usage and driver seat belt deployment.
Optional data elements include engine RPM, angle of steering, roll angle, passenger seat belt deployment, and data about the seat position as well as driver and front passenger characteristics recorded prior to the collision.
Data is also recorded for up to two collision events, along with the time between the first and second collision, which can help to create a record in the case of multicar pileups.
THE CLAIMS IMPACT
The EDR data can help determine what injuries are likely, and can answer many questions concerning the cause and nature of a collision. Over time, this reliability and accuracy should lead to more accurate claim reserving practices and to quicker, fairer claims resolution.
A variety of claims scenarios should benefit, including:
-- Questionable or fraudulent soft tissue injury claims arising from a collision are now subject to accurate speed and impact data, which are proving to be accurate predictors of injury severity.
-- Failure to stop or yield and driver negligence in a variety of scenarios can be clearly assigned.
-- Collision sequence in multicar accidents can be accurately established.
-- Verification of if or how a "phantom vehicle" collision occurred and the identification of staged collisions.
-- Evaluation of potential mechanical failures such as brakes, cruise control or airbags.
-- Verification that the collision occurred within the policy period, and identification of salvage and subrogation possibilities.
-- Identification of which vehicle occupant was driving at the time of the accident.
The NHTSA standard provides equal access to standardized data, which will become widely available in coming years, and auto insurers need to plan for enhancements to their existing systems and processes to take advantage of this vital new data source.
They need to be able to identify when EDR data could exist for a claim, and to acquire and integrate the tools or services available for EDR data extraction, and create a data repository.
Carriers also need to perfect the data analysis, which by its very nature will likely be presented in support of litigated claims. The early EDR data adopters in the carrier space report that the costs and technology challenges of starting a specialty group based on these capabilities is minimal and that potential paybacks are very large.
Aside from fairness and accuracy in claims handling, the availability of EDR data clearly addresses two major cost areas in the private passenger arena: litigation and fraud. And EDR data has held up in court.
Courts have consistently found EDR data to be scientifically reliable and relevant and to meet admissibility criteria. An EDR is a trusted, impartial witness to the collision event.
The data collected can establish or identify the at-fault nature, severity and injury causation of a crash; questionable or fraudulent soft tissue injuries; the collision sequence in a multivehicle accident; staged collisions and help validate a "phantom collision."
The data can also provide insight into whether the collision occurred during the policy period to verify that it is indeed a covered loss. EDR data has the potential to change the nature of many disputed suspect claims in the high-severity bodily injury arena.
But in order to deliver on the potential of EDR data to reduce litigation and fraud and to increase the accuracy and timeliness of claims settlements, some obstacles must be overcome.
-- First, the advent of EDR data represents a huge threat to the livelihood of plaintiffs' attorneys whose lobbyists have already tried to persuade legislators and regulators to ban EDR data from the courtroom. Now they will try to convince the public that EDRs are a threat to privacy.
-- Second, as with all things insurance related, the availability and admissibility of EDR data will vary from state to state. Education and lobbying will be required to move toward the intent of the NHTSA standard, which is the open and ready availability of standard data.
Automobile insurers should be actively involved in pilot programs, regulatory and legislative education and public outreach in order to ensure early success. Given the stakes, the advantages and benefits of EDR data utilization will overcome these obstacles and EDR data will become a key part of every auto accident claim file over the next few years.
Whatever the long-term impact, one thing for certain is that EDR technology is about to radically change the multibillion-dollar business of automobile insurance claims handling.
GEORGE GRIEVE is CEO and founder of CastleBay Consulting.
June 1, 2008
Copyright 2008© LRP Publications