Crashcourse 2012

CRASHCOURSE
A REPORT ON FACTORS DRIVING AUTO COLLISION REPAIR AND TOTAL LOSS COSTS
2012
2012 CCC CRASH COURSE
EXECUTIVE SUMMARY
DISRUPTION: [DIS-RUHP-SHUHN] AN ACT OF DELAYING OR INTERRUPTING THE CONTINUITY
ince the devastating global economic meltdown of 2008, and subsequent EU meltdown, through the Arab Spring, Japan Tsunami and more recent weather-related catastrophes, to the astoundingly rapid technology innovations of cloud computing, social networking, big data and mobility, no one word may better summarize our current state than disruption.
All of these events have altered the natural order of things forever, leaving us searching for a new normal or rhythm to how we live, communicate and conduct business. In this edition of Crash Course, we are going to discuss the macro trends that are affecting the automotive claims and collision repair industries and explore the up- and downstream impact of how these interrelated factors are changing how we conduct business today and how we need to be thinking to be successful tomorrow. We will explore ways in which companies within the automotive insurance life cycle are using technology as a way to make sure they get it right, and turn the major disruption of an accident into a wow experience for their customer. At the center of the discussion: our world, the consumer, technology innovation and a close look at the business conditions closest to your bottom line.
2012 CCC Information Services Inc. All Rights Reserved.
OUR WORLD AN ECONOMY INTERRUPTED

ccording to data from Price Waterhouse Coopers (PWC) and Oxford Economics, more global financial crises have occurred in the last 30 years than in the preceding 350 years, with many having longer durations than seen in the past.1 These crises started with the oil shocks in the 1970s and span more than thirty years of debt crises in countries such as Latin America (1982-1987), Japan (1985-1989), and Russia (1998) to the current sovereign debt crisis in Europe.2 The frequency and severity of these crises not only underscore the global nature of our financial systems, but also the challenges facing all businesses today as it relates to managing in periods of economic disruption. Early estimates of the U.S. Gross Domestic Product for 2011 show an increase of 1.7 percent versus the 3.0 percent increase we saw in 2010. Key factors for the slower growth in 2011 were declines in private inventory investment, federal government spending, and exports (See Figure 1). Repercussions from Europes sovereign debt served to disrupt the tepid
growth that had taken hold early in the year in the U.S., as markets reacted to the potential disruption from the feared failure of the euro. Growth picked up in fourth quarter 2011 to 2.8 percent, the fastest rate in eighteen months, but most of the growth was driven by a lift in auto sales as consumers began to fulfill pent-up demand, as well businesses restocking inventory and consumers drawing on savings, two trends not expected to last. In late January 2012, the International Monetary Fund revised its outlook for global growth in 2012 to 3.3 percent, projecting a deceleration in global activity, and a double-dip recession in many advanced economies. The U.S. Federal Reserve on the other hand, projects the U.S. economy will grow between 2.2 percent and 2.7 percent in 20123. And while caveats always exist that would serve to disprove economic projections, todays environment has perhaps some of most weighty ifs that could result in a dramatically different, worse economic picture.
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Figure 1: Percent Change from Preceding Period U.S. Real Gross Domestic Product (2005-Q4 2011) Based on 2011 Annual Revision of NIPAs Seasonally adjusted at annual rates
Source: www.bea.gov
2012 CCC CRASH COURSE 3
POLITICAL UNREST
eginning in Tunisia in January, then spreading to Egypt, Syria, and other parts of the Middle East, people joined forces - often organizing via the use of social networking, to protest oppression and their governments. Citizens in many countries took to the streets and to the internet in Greece, Spain, England, Iran, Russia, and China, protesting everything from austerity programs, political oppression, and government censorship. Global political unrest adds greater uncertainty to the global economic recovery as it struggles to avoid another recession. Back at home people protested in states such as Wisconsin and Indiana, camping out at capital state houses for days on end. The Occupy Wall
Street movement took hold in mid-September, and spread to more than 100 cities across the U.S. At a national level, the U.S. Congress barely reached an agreement to raise the nations debt ceiling and keep the government running. Large deficits, growing national debt, and a lack of confidence in governments ability to take action were among the reasons given by the rating agency Standard and Poors for their downgrade of the U.S. governments credit rating in August. Perhaps nothing underscores the deadlock in Washington better than the small number of bills passed by Congress in 2011 the fewest since 1947 when year-end data were first recorded.4
Heading into 2012, it appears the U.S. may be in for more of the same level of political deadlock, particularly given 2012 is presidential election year. How Congress votes on certain issues such as long-term unemployment benefits and the federal budget could result in market-rattling political crises like those in 2011. Political battles over the health care law, funding for Medicaid and medicare, and social security may ultimately lead to changing cost structures for businesses small and large, and drive employment trends in the coming years. With employment a key factor driving consumer spending in the U.S., the automotive insurance and vehicle repair industries could see recovery slow or even reverse.
isruption was the theme in the energy markets in 2011 as well, a year where the departure of the president in Tunisia in January, and the U.S. military withdrawal from Iraq in December were just some of the developments to not only impact the oil markets in the short-term but that underscore some of the broader structural changes within the industry. Oil prices shot up in the spring of 2011 upon fears of disruption from the Arab Spring, but fell as global growth slowed in the second half of the year (see Figure 2).5 In 2011, the U.S. and Canada both saw significant increases in crude oil production, helping to increase Americas share of non-OPEC crude production growth in 2011, driving Americas oil markets to greater integration and self-sufficiency.6 Slower growth in Europe and further global demand shifts towards developing economies such as the BRIC countries also underscore some of
HIGH (PRICED) ENERGY
CCC INSIGHT
the broader structural changes. Forecasts for 2012 are rife with expectations for further uncertainty and change, as the unresolved dispute over Irans nuclear program between Iran and the United Nations already caused U.S. crude oil futures to jump past $100 a barrel in the first days of 2012. Bank of America analysts project every $10 price rise in cost per barrel trims U.S. GDP by 0.25 percent.7 Given the nature of the fragile economic recovery anticipated for 2012, any increase in the cost of oil will slow U.S. growth at a time when the U.S. can ill afford it.
Figure 2: US Dollars per Barrel of Oil Average of UK, Brent, Dubai and West Texas Intermediate
Source: International Monetary Fund
CCC INSIGHT
With more than 85 percent of drivers in the U.S. today still using their vehicle to get to work, increases in gas prices ultimately cause them to reduce spending elsewhere to offset the necessary fuel purchase. Lastly, consumers are now purposefully selecting vehicles based on their fuel economy as a way to potentially buffer themselves from higher fuel prices in the future.
Figure 3: Miles Driven in U.S. Annually Overall and Per Registered Vehicle 1999-2011
Sources: NHTSA and USDOT and Polk
The more direct implications to the automotive insurance and collision repair industries from higher oil prices are significant, but the degree to which oil prices rise is just as important. In the summer months of 2008, when the average U.S. national price per gallon for gasoline soared to over $4, consumers reacted by driving less, and by dumping vehicles with low fuel economy. In 2011, when gas prices soared again, analysts pointed to a new pain threshold of $4.50 or $5 per gallon, that tempered some of the drop-off in driving. Overall the number of miles driven in the U.S. was higher in 2011 than in 2010, but the increases in the early part of the year dropped off, with overall miles driven down 1.3 percent from 2010, and still down 2.3 percent from 2007 (see Figure 3).
NEW FUEL ECONOMY STANDARDS PUSH FURTHER DEVELOPMENT IN AUTO TECHNOLOGY
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The new fuel economy standards passed by the Obama administration in the summer of 2011 require automakers to meet a corporate average fuel economy (CAFE) standard of 54.5 miles-per-gallon by 2025. These new standards build on those already in place that call for CAFE of 35.5 mpg by 2016. Automakers will need to evaluate their vehicle designs, the materials and power-trains used, while still meeting the vehicle, style, size and functionality demands of consumers.
industry sentiment that the new corporate average fuel economy standards will require more use of higher strength, heat-resistant, lighter-weight materials in automotive construction.9 Most likely to change are the materials used for power train systems, although changes are also anticipated for exterior body panels and chassis components. Some examples of steps taken by automakers include Fords early designs for the 2014 Explorer to include extensive use of aluminum in large body panels such as doors and fenders, extending the use of this material beyond the hood, which was introduced with the 2011 model.10 With a greater number and variety of high tech materials used in the construction of their vehicles, automakers are actively releasing studies and bulletins that underscore the criticality of following the recommended repair procedures and methods to ensure the vehicle is being repaired safely, and will perform as designed in any subsequent collisions.
In 2010, approximately 95 percent of new vehicles sold in the U.S. were gasoline powered, 3 percent were hybrids, and 2 percent were diesel. Ultimately what will determine the propulsion mix of vehicles designed to meet these standards will be the cost of oil and gasoline compared to cost of the different technologies. Higher fuel prices have already helped move more consumers to purchase vehicles with better fuel-efficiency. According to Wards Automotive, vehicles with higher fuel efficiency saw an increase in sales during the first half of 2011 versus the same period in 2010 (see Figure 4).8 A July 2011 survey conducted by Paramount Research of Wards Auto subscribers, commissioned by DuPont, underscores
Figure 4: Change in U.S. New Vehicle Sales 2011 through June versus 2010 through June by Vehicle Fuel Economy
Source: Wards Autmotive
WHERES THE WORK?
he U.S. economy added 200,000 jobs in December, bringing the total number of jobs added in the U.S. in 2011 to 1.6 million. The December 2011 unemployment rate dropped to 8.5 percent, its lowest level since December 2009. However, there are roughly 6.1 million fewer nonfarm payrolls in the U.S. labor market than in January 2008. Over 5.6 million Americans have been out of work for at least six months, and 3.9 million of them have been unemployed for a year or more. And while increased hiring and a falling unemployment sign are good signs, the length and depth of the recent economic crisis have caused long term impacts that will take years from which to recover. For example, a recent paper by two economists at Columbia University estimates that workers that lose their jobs when overall unemployment is below 6 percent lose on average 1.4 years worth of earnings; however, those that lose their job when unemployment is above 8 percent lose twice the earnings 2.8 years worth.11 The income disparity among the U.S. population grew further in 2011, posing greater challenges
within the marketplace. Before-tax household incomes for higher-income households grew by 68 percent between 1979 and 2003, while lower-income households experienced income growth of only 3.5 percent.12 This disparity has largely been the result of a broader structural change within the U.S. workforce, where the occupations experiencing any job growth at all were at the upper and lower ends of the wage distribution. Segmenting occupational categories based on wage into three categories of low skill, mid-skill and high skill, economists at the Federal Reserve Bank of New York underscores the loss in mid-skill jobs between 1980 and 2009 (See Figure 5).13 High unemployment in an environment of major structural labor market tends will continue to be a drag on the economy for years to come. Consumers and businesses will continue to focus on reducing expenses, stretching dollars further. Consumers will be less reluctant to make major purchases such as a home, large appliances, or a vehicle unless they need to and after theyve done a great deal of research.
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Figure 5: Shares of Employment by Occupation

Source: Federal Reserve Bank of NY and U.S. Census Bureau
With budgets still tight for many consumers, the number of people that actively shop for insurance (i.e. receive a quote from another insurer) may grow further in 2012. Data from McKinsey & Co.s Auto Insurance Buyer Survey showed a 23 percent year-over-year increase in 2010 alone.14 Customers with older vehicles that do have accidents may continue to live with the damage, especially if they do not carry collision coverage on that vehicle. It is unlikely that the industry will see any lift in either claim frequency or repair volume in 2012; until employment begins to ramp up, consumers will remain extremely price conscious.
CCC INSIGHT
n previous updates to Crash Course, much was written on the implications of the changing demographics across the world and the U.S. The population is aging, becoming more diverse, and moving to different parts of the country. Each of these changes has implications for businesses in terms of how they develop, market, package, and sell their products and services. One of the areas with perhaps the most potential to directly impact automotive claim severity and frequency is the shift in the population towards urban areas. For example, further growth of population within metropolitan areas leads to greater road congestion, and greater use of public transportation. Personal
Source: 2010 U.S. Census
WHERE WE LIVE
SWEEPING DEMOGRAPHIC CHANGES

mobility will reach beyond individual vehicle ownership to an integrated mobility approach, incorporating car sharing, public transportation and greater use of technologies such as telematics, smart metering and navigation.15 Results from the 2010 U.S. Census report that 54 percent of the U.S. population resides in its 10 most populated states, with just over 83 percent living in one of the nations 366 metro areas (core urban area population of 50,000 or more). During the last decade, the metropolitan areas however saw the largest increase, significantly higher than micropolitan areas or areas outside a core based statistical area (see Figure 6).16
Figure 6: U.S. 2010 Census: Population by Core Based Statistical Area Status: 2000 and 2010
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Data from the American Public Transportation Association featured in a January 2012 article in CollisionWeek shows public transit ridership rose three quarters in a row in 2011. Ridership is believed to be up due to higher gasoline prices as well as population growth within urban areas.17 The availability of public transportation is one of the factors believed to be driving down the percentage of teens getting their drivers licenses today.
VEHICLE OWNERSHIP PARADIGM DISRUPTED
As global populations become more urban, the desire/need for every individual to own their own vehicle is expected to drop. Gartner analysts predict that 10 percent of the U.S. urban population will use some form of shared automobile instead of a personal one within four years. The North American car-sharing market part of a broader trend referred to as collaborative commerce, is projected to grow to 1.4 million members in 2012, up from 600K in 2011. Today there are numerous startup companies piloting solutions in different U.S. markets, each with a slightly different product offering and OE partner (Getaround; RelayRides with GM and OnStar; ZipCar with Ford). In Europe, the carpooling website BlablaCar.com has grown in three years to over 1.5 million members in France, the U.K., and Spain. And while each of these companies offers their own insurance coverage for the renters, only two U.S. states California and Oregon, have passed laws to clarify that an owner will not suffer any repercussions should a car-sharing renter have an accident.
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HOW WILL YOU ADJUST YOUR PRODUCTS AND PRICING TO ACCOUNT FOR THIS SHIFT?
Sources: This way up. Entrepreneur, December 2011. Bulkeley, William M. Collaborative Consumption Reaches the Garage. Technology Review, Thursday, January 12, 2012. Espinoza, Javier. European Commuters Embrace Car-Sharing. Wall Street Journal, February 2, 2012. Lending Your Car to Strangers (for Cash), www.nytimes.com, February 19, 2012.
wning an automobile has historically represented a rite of passage into adulthood and freedom for Baby Boomers (born between 1946 and 1964),18 a category still accounting for approximately 45 percent of new-car purchases.19 But there is a growing sentiment that the automobile has been replaced by the Internet and smart phones for those in the Generation Y age group (born between 1978 and 1984); changing the world the same way the automobile did at the turn of the 20th century.20 A June 2011 study released by Sivak and Schoettle from the University of Michigan studied licensed drivers as a percent of their respective age group,
TECHNOLOGY REPLACES THE VEHICLE AS A RITE OF PASSAGE
and drivers in each age group as a percentage of all drivers for the period from 1983 to 2008. Their study had two key findings: fewer young people had drivers licenses in 2008 than in 1983, and there were more people aged 45 and older with licenses in 2008 than in 1983 (see Figure 7).21
Figure 7: Licensed Drivers as a percentage of their age-group population

Source: Sivak and Schoettle. Recent Changes in the Age Composition of U.S. Drivers. UMTRI
Additionally, among the different age groups, those aged 16 to 30 were the least likely to use their vehicles to commute to work in 2009.22 This research also noted that by 2033 there would be an increase in the oldest drivers by 2033, and that might hypothetically lead to an overall decrease in number of trips taken, distances driven, and decrease in expenditures for personal transportation.23
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A different study from the same researchers released in December 2011 looked at the changes in the frequency of crashes and in the change of severity as an outcome of crashes. Their research found a nearly identical reduction in both the frequency and severity of accidents between 2005 and 2009 (a drop of 10.6 percent, and a drop of 10.8 percent respectively). Their analysis included an examination of variables such as time of day, lighting conditions, vehicle body type, speed limit, atmospheric conditions, driver age, accident maneuver, manner of collision, driver drinking, work/construction zone, and airbag availability and deployment.24 Their conclusion was that the decrease in frequency and severity could be attributed to changes within economic conditions, a greater prevalence of crash avoidance technologies and passive-safety technologies, licensing of teen drivers, and driver distraction.25
TECHNOLOGY REPLACES THE VEHICLE AS A RITE OF PASSAGE (CONTINUED)
These major demographic shifts may ultimately lead to a disruption in the historical trend of vehicle accident frequency and severity. A greater share of the population will fall into the youngest and oldest age groups, where driving patterns may result in diverging patterns of frequency and severity. As the population shifts further to urban areas, increased congestion could lead to higher frequency, although increases in use of public transportation would do the direct opposite. Accident severity tends to be lower in traffic accidents occurring in congested urban areas, and the advent of crash avoidance technologies like the Volvo City Safety system have been shown to reduce both the frequency and severity of low-speed accidents. Economic conditions and the technology in vehicles have been shown to lead to decreases in vehicle accident frequency and severity, and will continue to do so in the future.
Insurers and repairers that will be successful in this disruptive demographic environment are those that have plans in place to market and serve these different age groups, and have looked at whether their current geographies are positioned to shrink or grow, and have adjusted their growth plans accordingly. While factors such as atmospheric conditions may be difficult to project, understanding employment trends (i.e. time of day), vehicles purchased in your market (vehicle body type, accident avoidance technology and airbag availability and deployment), and driver age patterns will be critical to assessing market growth opportunity in the future.
MOTHER EARTH PROVIDES HER OWN DISRUPTIONS
he March 11, 2011 earthquake and tsunami in Japan spread terrible destruction in its wake, leaving thousands dead and many more homeless. 2011 also saw numerous other natural disasters and political unrest in various parts of the world. All of these events served as a wakeup call to businesses regarding their supply-chain stability, and the disruption that can occur when key partners in your supply chain are impacted. In 2011, the U.S. experienced 171 catastrophe events, the fifth highest number on record, for a total insured economic loss of $35.9 billion, a 51 percent increase over the $23.8 billion in 2010.26 According to the
CCC INSIGHT
Insurance Information Institute, the spring 2011 tornado and storm season was the fourth costliest event in U.S. history, and Hurricane Irene was the 11th costliest hurricane in U.S. history.27 A total of 99 Federal Disaster Declarations were made in 2011, the highest number since 1953.28 This year has already started out with a great deal of storm activity 70 tornadoes were reported in January 2012, the third-highest in January since accurate tornado records began in 1950, and according to the National Climatic Data Center, almost 2800 record-high temperatures were either tied or broken in January.29
The 2011 APEC CEO survey conducted by PwC asked CEOs to identify whether they were impacted to a great extent or to some extent by the Japanese earthquake and tsunami, and what actions they took in the aftermath; 50 percent of the CEO respondents indicated they both increased ability to respond more quickly to disruptive events and revised business continuity plans, 28 percent indicated they built redundancies in supply chains, and 24 percent indicated they reduced geographic concentration of supply chain.30 A survey released December 2011 of 559 companies across 62 countries sponsored by Zurich Financial Services Group and conducted by the Business Continuity Institute showed 85 percent had experienced at least one supply chain disruption in the last 12 months; 51 percent were affected by adverse weather, while IT or telecommunications outages affected 41 percent.31
Collision repairers are also challenged to prepare themselves for the increased volume and severity of storms the U.S. As more and more of their data and processes move to digital formats, backup and redundancy plans become critical. Repairers -like all businesses- must also be assured that their suppliers such as parts dealers, paint companies, or system vendors, have capabilities to quickly restore themselves and the repairer to pre-business disruption as quickly as possible. Companies such as HP provide an excellent example of supply chain management: while the devastating earthquake/ tsunami in Japan and flooding in Thailand left many of its competitors short of essential components for their products, HP had aggressively anticipated potential shortage and had secured supply ahead of its competitors.
Disaster recovery is expected to be a key driver behind cloud computing adoption in 2012 the ability to have highly available, cross-geography deployments can help companies survive outages better than machines they own.33 Cloud computing was identified as one of the Top 10 CIO Priorities published by InformationWeek. Nearly 80 percent of the CIOs surveyed said they are already using some form of software-as-a-service (SaaS), up from 60 percent two years ago, with these primary benefits identified: ease and speed of implementation and upgrades; the ability to scale up and down quickly; and the ability to eschew some supporting capital investments.
And while a supply chain can be at risk of business interruption, it also plays a critical role in the ability to plan for and avoid business disruption. The large volume of storms and catastrophe activity has created challenges for insurers in an environment where staffing has been reduced to meet overall lower levels of frequency. In fact, insurance commissioners from WA, CA, and NY will actually now require insurers to disclose how they plan to respond to the risks their businesses and customers face from more severe storms and wildfires.32 Many insurers in addition to assessing overall risk are turning to low cost high impact technologies that can provide quick wins for claims in an environment where it is difficult to ramp up and down their traditional claims handling given expense constraints and the need to still manage loss costs effectively.
For example, in addition to referring customers to collision repair shops that are part of their regular direct repair program (DRP), insurers may refer customers to an extended group of repairers that through technology have similar capability to upload appraisals, validate business guidelines, and provide status updates. Either through a shop of choice or owner-obtained model, insurers are looking to not only cater their claims service options to new consumer demands and demographics, but to put in place process and procedures than can be ramped up and down easily post-catastrophe.
CCC INSIGHT
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THE ACCIDENT IS THE ULTIMATE DISRUPTOR
he average consumer today has an auto accident once every seven to 10 years, well behind the average vehicle trade-in cycle of every five years. Due to the nature of the product being sold, auto insurers and collision repairers subsequently have very limited interaction with consumers. Insurers certainly interact with their customer at policy issue, at bill time, and sometimes through other services such as banking or games in apps. However, the real moment of truth for the auto insurer and the repairer is at the time of an accident.
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For the automotive insurance and collision repair industries, the challenge is to take the infrequent and unexpected negative experience of an auto accident and turn it into an experience where the customer is delighted. No one wants to have their
vehicle damaged, and few consumers know what to expect in the auto claim and vehicle repair process. However, they come to this experience the same way they come to any other experience with expectations that you know who they are, that you will fulfill your commitments to them, and that you will create a positive experience. For insurers, the claim is one of the most significant opportunities to retain or lose a customer. For repairers, a positive vehicle repair experience can create a customer that will share their experience with friends and family, and help your business grow. Effective use of technology not only enables companies to meet the minimum set of expectations of their customers, but can also facilitate the delivery of a personalized experience that delights your customer.
Two former Google executives started a company called Climate Corporation that used the enormous amount of free data published by the National Weather Service on heat and precipitation patterns, as well as detail data on crop yield and soil type from the Department of Agriculture to create insurance products sold to farmers for things such as drought, early freeze, or too much rain. The company used MapReduce, a software technique designed to work with very large data systems and unstructured data to turn 60 years of crop yield data, 14 terabytes of data on soil types, and other data into a product sold through 10,000 agents nationwide.
CAN DATA MITIGATE MOTHER NATURE?
ARE YOU USING DATA TO PREDICT BEHAVIOR AND TO CREATE PRODUCTS CONSUMERS WANT?
Source: Quentin, Hardy. Big Data in the Dirt (and the Cloud). www.nytimes.com, October 11, 2011.
THE CONSUMER
he 2011 Crash Course report and most recent 2011 autumn update explored the changing and expanding role of the consumer in new product development, pricing and marketing strategies for all companies. The recession which severely limited personal spending - has made consumers much more discerning in how and with whom they spend their money. And, the role of social networking for the sharing of information, attitudes and opinions on a variety of topics, including your products and service, cannot be understated. Experts call this rapid fire, 24-7-style of networking, disruptive technology. In the social era, two things are critical: you need to find ways to disrupt the disruption to get your message heard; you ought to be listening too as there is a lot to hear in terms of
how consumers behave online that can be found in having and analyzing key data. According to Craig Weber of Celent, a research consulting firm, The promise of CRM was to help companies get a better view into how their customers behaved, and to generate a unified customer view across lines of business and systems, says Craig Weber, SVP at Celent, a research and consulting firm. Insurers that have thought these issues through over the past decade probably have in place many of the tools they need. But recent behavioral shifts, such as the exploding popularity of social media and mobility tools, have put more useful data in play. So re-evaluating the tools and data sources, and taking a fresh look at behaviors, makes sense.
CONSUMERS LOOK TO INFORMATION FROM TRUSTED SOURCES IN THEIR DECISIONS
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ompanies within the automotive, insurance, and vehicle repair industries are already trying to address this new paradigm. For example, one of the key consumer trends in todays environment is Decision. Knowing what ones friends or others with shared interests like or dislike about a product has proven to be something consumers have come to rely on. The rampant growth of online content has helped consumers get access to product recommendations, and websites such as www.hunch. com are designed to connect people based on their affinity for things such as books, art, fashion, vacation spots, etc.34
such as sexliesandbacon.com, dadlabs.com, and thegarageblog.com to try and reach consumers outside of traditional automotive media.35 Ford asked the bloggers to write whatever they wanted good or bad, and on the first day of the show alone, these bloggers generated over 2000 tweets about the show, reaching 7 million people online, and commanding a 40 percent share of voice for Ford that day.36
Numerous insurers and repairers are embracing the model of their customers sharing their experiences with others. Companies such as Travelers include Customer Stories on their Facebook page where consumers can watch video clips of customers talking about their claims experience with Travelers. Front and center on Nationwides Facebook page are their Customer Reviews. At the January 2012 Detroit Auto Show, Ford Motor Co. brought 150 bloggers
Consumers increasingly rely much more on feedback and information from friends or independent sources. Companies must be engaged in the discussion without appearing to be driving it in order for consumers to trust their messages.
HAVING IT YOUR WAY WITH EVERYTHING
onsumers are also wanting products to cater to their specific needs and desires through customization. Customization has disrupted the traditional model of one-size-fits-all. According to Mashable, more than 35 percent of U.S. online consumers like to customize product features; and March 2011 study from The NPD Group shows consumers are willing to spend at least 25 percent more for customizable products.37 One of the benefits of pay-as-you-drive insurance policies is that the consumer can adjust their premium based on their own choice to drive more/less. Depending on the policy, other criteria such as frequency of rapid stops, rapid acceleration, time of day, etc. may also be factored into the premium calculation.
boundaries to appeal to new customers. One insurer, State Farm, has taken the concept on consumer engagement one step further by introducing its answer to the disruption in the digital world. State Farm Next Door is a physical space for use by one local neighborhood that features three key things: coaching, classes, and community.
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Insurers are also introducing a variety of solutions to address the consumers increasing orientation for self-service. One example is the introduction by numerous insurers of mobile apps that allow the customer to do things such as pay your insurance bill, manage your banking, have a copy of your insurance ID card, access pay-as-you go roadside assistance, create a home inventory, or report a claim. In an effort to engage with their customers or potential customers in a less serious manner, insurers have created apps that aid the guinea pig getaway, add a caveman to your photos, or score your driving and get tips to help improving driving skills. These apps and the Facebook pages like those for Allstates Mayhem, Progressives Flo, the Geico Caveman, and Farmers University, reinforce the advertisements run on TV, and allow consumers to engage with an insurer in a creative and engaging manner. According to a study published in the Journal of Interactive Marketing, the intimate nature of interacting with an app essentially flips advertising communication so the consumer talks to the brand not the other way around.38 This study found that apps could be a way for advertisers to reach across traditional product or gender
The concept of applying game design to non-game applications to make them more fun and engaging is called gamification. 39 By 2015, U.S. companies are projected to spend $1.6 billion on gamification products and services.40 Research firm Interpret released survey results that showed 24 percent of people that play casual games went on to click on an ad in a social game and make a purchase. 41
Perhaps one example more than any other in 2011 speaks to the collaboration of traditional technology and consumer-driven technology than Foldit, an online game through which one of its players discovered an enzyme involved in the reproduction of AIDS in Rhesus monkeys. Scientists had attempted to do so for years, using more traditional approaches such as computer simulations, but had been unable to find the right protein structure . Through Foldit, players were encouraged to try various combinations of protein folding, and through the kind of human intuition and reasoning that cannot yet be replicated by computers, were able to make the discovery.
ENGAGEMENT THROUGH GAMES HELPS SOLVE REAL PROBLEMS
HOW CAN YOUR CUSTOMERS HELP YOU DEVELOP THE NEXT BEST THING?
Source: Online Gamers Crack Aids Mystery. InformationWeek, Oct 10, 2011, p. 20.
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THE BIG 4: TECHNOLOGY ENABLERS
o respond to the disruption in consumer expectations, businesses are racing to create their own type of disruption in the form of innovation. As if to sum up the fact that whatever was delivered in the past has become irrelevant, Alan Kay provides this definition of technology: Technology is anything that was invented after you were born.42
This new paradigm innovation, requires companies to deliver fast, fail quickly, and continuously improve. Innovation means different things to different people, but at its most basic, the definition is to pioneer, shift, break habit, or metamorphosis. The opposite of innovation is stagnation, whose basic definition is inertia. Disruptive innovation requires four key things: making the complicated simple, making the expensive affordable, transforming what already exists, and creating what doesnt. The technologies forecasted by Gartner and other analysts that will be central to the paradigm of disruptive innovation in 2012 are the four big IT trends of analytics, mobile, social and the cloud.43
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BIG DATA TO GAIN MORE INSIGHT
According to International Data Corporation (IDC), the total size of the digital universe (all the digital information created or replicated) grew by a factor of nine over the past 10 years reaching 1.8 zettabytes in 2011 (a zettabyte is a trillion gigabytes).44 Through advanced statistical and predictive analytics, companies are beginning to harness their growing and diverse data sets to improve their operations, interaction with customers, and development of products. Use of new programming languages such as NoSQL enables companies to more quickly and affordably manage the large volumes of unstructured data pouring out of the web. Numerous companies are using these analyses of online behavior. Comcast for example looks for outburst of anger to detect and respond to service outages; Derwent Capital, a hedge-fund in London makes trades based on social media financial comments, and even China has attempted to rein in citizen protests through measured responses to specific online complaints about issues such as pollution and police corruption.45
ANALYTICS
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Predictive analytics is one area where many insurers have made significant investment in the last year, and are expected to do so even more in 2012. According to the IVANS 2011 Carrier Automation Trends study released September 2011, 37 percent of carriers are currently using or plan to integrate predictive modeling and business intelligence into their organizations in the next 12 months, with the goal of greater consistency and accuracy in business decisions in less time.46 Carriers are implementing numerous predictive models, integrating them into their business processes, including claims, where predictive models can go a long way with process compliance and prediction of outcomes, particularly when they coexist with real-time transaction processing. 47
Carriers that compare real time claim information to industry data, vehicle history and carrierspecific rules can more quickly determine whether a vehicle surpasses their loss threshold or if it is repairable. Once this important decision has been made, total loss vehicles can be routed to a salvage yard, and repairable vehicles can be routed to the most cost-effective appraisal source. The ability to use data to predict the outcome for an insured or claimants vehicle at FNOL helps reduce overall cycle time, driving up both customer satisfaction and reducing loss adjustment expenses.
CCC INSIGHT
One social-media analytics company, BlueFin Labs has focused on identifying what people are talking about in social media during the three-hours before and after a television show to tease out nuances in the way context affects the extent to which an ad generates buzz. 48 10 million of the nearly 300 million public comments made online worldwide everyday are related to television, changing what has historically been a one-way dialogue. 49
SOCIAL MEDIA
What if insurers and repairers did something similar i.e. looked at social media activity around the time of the loss, at first notice of loss, at appraisal completion, vehicle drop-off, and vehicle pick-up. Could some nuggets of information be found that would help direct best FNOL or appraisal/repair process for different type of individuals, or help fight fraud? Tapping into a broader range of data such as mobile website usage, bill payment behavior, and social media transactions, companies could potentially target certain types of users with specific types of products. 50 Insurers could potentially engage themselves earlier in the process and improve retention and lifetime value of their customers i.e. while the consumer is still researching which vehicle to purchase; or about to embark on one of lifes big milestones where their needs will change think keywords such as bachelor party, baby crib, or houses for sale in zipcode.
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CCC INSIGHT
MOBILITY
In 2010, smart phone sales exceeded PC sales for the first time ever; and in 2011, the launch of the iPad and other tablets drove down demand further for desktops, laptops, and notebooks.51 As of August 2011, more than 116 million people in the U.S. (nearly half the population) were mobile media users, using mobile to browse the web, access apps, or download content.52 Mobile devices and smartphones have led consumers to expect easy access to information, this not only means the easy retrieval of information, but being communicated with pro-actively, using information based on past preferences, receiving status details of a particular transaction or with details on a special offer. Regardless of the device actually used, consumers now have nearly ubiquitous access to the internet and a new level of communication and connectivity: The world isnt moving away from the PC, its just transitioning from the PC being defined as a personal computer to pervasive computing.53
In order for mobility to really deliver disruption innovation it must do more than simply take content or capabilities that might be available on a companys website. Companies need to embrace the tools that consumers like to use, observe and learn how people work best, and provide systems and apps that fit. There are also inherent challenges a company faces in knowing where the biggest pay-off from investment in mobility will be is it best to optimize an existing website for use on hand-helds? Which mobile operating system should the apps be developed on, iOS, Android, or Windows Phone 7? How is security addressed?54
MOBILITY DISRUPTS THE DIGITAL DIVIDE
Mobile technology is featured as number four on IBMs IBM 5 in 5, the companys annual list of five life-changing innovations that have the potential to change the way people work, live, and interact during the next five years. Its estimated that in five years there will be 5.6 billion mobile devices sold, roughly 80 percent of the 7 billion people inhabiting the world today, greatly reducing the digital divide between the haves and the have-nots. The ability to use mobile devices to provide ubiquitous voice recognition and translation capabilities are among the technologies expected to have the most dramatic impact in the future. Additionally, the ability to use a mobile device to not only store your personal information, personalized information filters and search engines will flip the conversation with companies, where the consumer reaches out for information versus being sent information he/she may or may not be interested in.
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ARE YOU TAKING FULL ADVANTAGE OF MOBILE TECHNOLOGY TO IMPROVE CUSTOMER INTERACTION AND SERVICE?
Source: Taft, Darryl K. IBMs new 5 in 5 list covers technological innovations that will change the way people live and work over the next five years. www.eweek.com. 12/19/2011. Hardy, Quentin. Behind I.B.M.s Big Predictions. www. nytimes.com, December 19, 2011.
Insurers that have implemented mobile solutions are looking for productivity improvements in sales, support, and claims.55 Travelers conducted a study of sixteen months of claims filed over a mobile device and reported an uptick of three times the number of claims reported in the first four months of 2011 via a mobile device than the same period in 2010 the vast majority (70 percent) of these claims were for personal auto insurance.56
Mobility allows companies to bring their customer into the loop sooner in a way that they are used to being contacted. For instance, a repairer previously might have been given one phone number to use to provide updates on a consumers vehicle repair. Rather than reaching the appropriate person needing the update right away, this could have triggered the need to call several other numbers. Instead, via mobile updates, repairers can send regular status updates their customer, keeping them informed, and raising overall customer satisfaction.
CCC INSIGHT
By combining innovative technologies that improve business processes, with the ability to fine-tune the messages delivered to customers at the right time, on the right device, businesses can place themselves in a position to meet the expectations of todays consumer in a way that can provides them value. Effective use of technology not only enables companies to meet the minimum set of expectations of their customers, but can also streamline the overall claim and repair processes. For example, companies that have the technology in place to let consumers report the claim via a mobile device can capture a wealth of information on the facts of the loss, including photos. Incorporating this data into predictive analytics tools can help the insurer assign the claim to the best resource equipped to return the customer to pre-accident condition as quickly as possible. The ability for a repair technician to send messages to the claims adjuster electronically, versus calling and trading voicemails, can ensure speedier resolution to questions or issues that might otherwise hold up the repair. With customer satisfaction closely tied to the overall time it takes to return their vehicle to pre-accident condition, mobility can play a key role in reducing inefficiencies in the overall process.
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study released in January 2012 by Accenture reports that consumers desire more technology in their vehicles for both safety and infotainment purposes. Data from the 7,000 individuals across seven countries surveyed indicates that nine of the 12 most desired in-vehicle technologies were safety-related, and that survey respondents have expectations that in-car technologies are no longer limited to luxury vehicles.57 Automakers are responding to customer sentiment such as that expressed in the Accenture study by quickly adopting advanced technologies such as more active and passive safety systems, and infotainment systems.
survey conducted by Allstate Corp. in July 2011 showed 64 percent of survey respondents felt they were excellent or very good drivers, yet 70 percent reported they had either braked hard, swerved to avoid an accident, missed a traffic signal, or actually caused an accident as a result of being distracted while driving.58 Data from the National Safety Council shows the rate of fatalities from auto accidents has been on the decline over the last several years. However, despite an overall reduction in the number of accidents
DISTRACTED DRIVING
and fatalities, the percentage of crashes involving some sort of distraction has increased from 10 percent in 2005 to 16 percent in 2009 according to NHTSA. Most experts however believe that the number of accidents involving distracted driving is under-reported due to large differences in the range of detail captured in the police report (today only 34 states actually capture this type of information at all on their police reports).59
AUTOMAKERS DISRUPT THE CONCEPT OF AUTO AS TRANSPORTATION ONLY
DISRUPTION WHILE DRIVING HAPPENS MOST WITH MILLENNIALS

A Pew Internet survey conducted in mid-year 2010 found that 82 percent of American adults (aged 18 and older) now own cell phones an increase from the 64 percent from the survey conducted in 2004. 58 percent of adults also now send or receive text messages with their cell phones. The results of the survey, published as Adults and Cell Phone Distractions, reported that 47 percent of all adults that use text messaging say they have sent or read messages while behind the wheel. A comparison by age group shows the Millennials (ages 18-33) are most likely to text while driving.
Source: Pew Internet & American Life Project, Pew Research Center
Pew Internet & American Life Project 2010: Adults and Cell Phone Distractions
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Source: Madden, Mary and Rainie, Lee. Adults and Cell Phone Distractions. June 18, 2010. Pew Internet & American Life Project, Spring Change Assessment Survey conducted from April 29 to May 30, 2010, a project of the Pew Research Center. http://pewinternet.org/Reports/2010/Cell-Phone-Distractions.aspx.
study on texting while driving that was conducted by Texas A&M Universitys Texas Transportation Institute showed that texting or emailing while driving may be more dangerous than previously thought. 60 The average reaction time to react to a flashing yellow light (the cue for the driver to stop the vehicle while driving around an 11-mile test track course) was 1 to 2 seconds for a driver that was not texting. The driver that was texting took on average 3 to 4 seconds to react, and was 11 times more likely to miss the light altogether. In 3 to 4 seconds, a vehicle driving at highway speeds can travel the length of a football field. And while tests such as this provide good data on how the use of cell phone to call or text while driving could lead to driver distraction, there is limited evidence to date that cell phone or texting bans have actually reduced crashes. In fact, in their review of the 350 papers published from 2000 to 2011 on distracted driving, the Governors Highway
Safety Association (GHSA) found existing research incomplete or contradictory.61 This is consistent with data published by the Insurance Institute for Highway Safety released in September 2010 that showed the frequency of insurance claims for vehicle damage actually increased in 3 out of 4 of the states studied where texting bans had been instituted.62 Ultimately the best answer to driver distraction may be to remove the driver from the equation altogether. Google announced late 2010 that its self-driving cars had logged over 140,000 miles on California roads with only one accident and that was when one of their self-driving vehicles was rear-ended by a vehicle driven by a human.
ver the years, automakers have added a great many features to their vehicles to protect the vehicle occupants during a crash. This has resulted in more and more airbags added to their vehicles: for example the 2011 subcompact models such as the Chevrolet Sonic, the compact Buick Verano, and the mid-size Toyota Camry include front-seat knee air bags. The Ford Explorer will soon have inflatable shoulder belts, and GM will include a center-mounted airbag to keep front-seat occupants from bashing heads.63 And while the benefits of these occupant safety features has been well documented, a great deal of focus today is on how to avoid the accident altogether.
CRASH AVOIDANCE = FEWER ACCIDENTS OR IMMINENT DISRUPTION TO COLLISION REPAIR?
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can be achieved the Highway Loss Data Institute projects as many as 1 in 3 fatal crashes could be avoided.64
The cost of many of these crash avoidance systems has also come down in the last several years. Suppliers such as Bosch, Continental and TRW believe the retail price of a next-generation crash avoidance system could be as low as $500 in the next several years.65 Lower costs will increase adoption among automakers and consumers; and while it may not eliminate every accident, it should help reduce the severity of the crash. However, data release by the Highway Loss Data Institute in September 2011 showed that it typically takes up to three decades before 95 percent of the vehicles on the road have a given safety feature offered as either a standard feature or available option.66 For example, 95 percent of all registered vehicles will finally have frontal airbags by 2016, many years after the manufacturers began adding them in meaningful numbers in the mid-1980s.67
Automakers have begun adding technology to the vehicle itself to either warn or over-ride the driver to avoid a crash. These include systems such as forward looking radar, lane departure warning, blind spot detection, and vehicle-to-vehicle communication. The effectiveness of these systems has been tested at length by the automakers and safety organizations, and show dramatic reductions in accident frequency
And, electronic stability control, a safety feature NHTSA has mandated be standard on all passenger vehicles as of model year 2012, is likely not to reach 95 percent penetration until 2029.68 HLDI estimates that it would take roughly 24 years under current conditions for the 240 million registered passenger vehicles in the U.S. to completely turn over.69 The drop-off in new vehicle sales from the ten-year average of 16 to 17 million annually that was triggered by the Great Recession has also been a factor that will slow this eventual transition of the U.S. vehicle fleet. As it stands now, the U.S. for perhaps one of the first times in recent history has experienced a disruption in the typical turnover of its fleet. As new vehicle sales begin to ramp, many of those vehicles will likely include crash avoidance technology; however, they will be traveling alongside a fleet that has aged, where vehicles are not equipped with the same type of technology. So while these crash avoidance technologies will continue to be a growing factor driving down accident frequency in the U.S., the other factors that have historically helped to reduce accidents will continue to play important roles including factors such as aging U.S. population, graduated teenage licensing programs, more forceful crackdowns on drunk-driving, and fewer miles driven.
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THE CONNECTED VEHICLE
odays consumers expect to be able to connect to their friends, work, and the internet 24/7, and demand that capability whether they are at home, at the mall or in their car. In the 2011 U.S. Automotive Emerging Technologies Survey from J.D. Power, 86 percent of smart phone owners use their devices in their vehicles, and two-thirds of consumers surveyed indicated they wanted their vehicle to have internet connectivity.70 Over the last two years, nearly every automaker has ramped up their smart phone-integration solutions. In fact, according to PwC, 93 percent of model year 2010 vehicles offered standard or optional wireless connectivity for mobile devices. 71 Wireless internet connectivity could also bring the
cloud to the auto, potentially turning it into a personal assistant. 72 This would essentially take vehicles yet another step beyond the types of telematics that exist today through systems such as OnStar and Sync. The expanded data storage and connectivity from the cloud might hold data that could potentially do things like tailor the driver experience to an individual or route based on connection to the vehicles GPS, or sync with the drivers calendar to automatically heat/ cool the vehicle before the driver got in the car.73 Cloud capabilities would also facilitate vehicle-tovehicle and vehicle-to-road functions.74 And while automakers estimate this full capability to be four to five years out, suppliers are gearing up already. Broadcom, a company that manufactures and sells about 3 billion communications chips used for mobile
As the number and types of electronic gadgets increases inside a vehicle, automakers are increasingly aware of the need to ensure they distract the driver as little as possible. Numerous companies, including insurers, have responded to driver distraction by releasing apps that disable mobile capabilities within the car. As consumers become increasingly aware of the dangers of driver distraction through media campaigns led by people such as Oprah and Justin Bieber, automakers, governments, and insurers will face increased pressure to respond through vehicle design, regulations, and modifications/additions to policy language.
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devices and the Internets backbone, announced in December a series of products that would bring to vehicles the same communications connectivity available in home appliances and large data centers today. Their offering is less costly, includes a reduction in wires, and provides an increase in communication capability that will ultimately make it easier to efficiently support the plug-in of numerous electronic devices and communication with the cloud.75 As vehicles support more connectivity with the outside world, scientists are increasingly concerned with the potential for the vehicle computers used for entertainment to be used to manipulate the safety systems within a vehicle.76 Whether it is hacking into
CCC INSIGHT
a cars systems to remotely unlock or start a car, or loading an infected CD to infect a cars control safety systems, NHTSA has begun to look more closely at auto cybersecurity, and the industry is already working on engineering standards that would address this. NHTSA is also working on a series of guidelines for the design of in-vehicle multimedia systems aimed at reducing driver distraction in response to escalating concerns about the growing number of devices either brought into the vehicle or resident in the vehicle. And by 2013, NHTSA will have completed its pilot studies and will have enough data to decide whether to pursue new regulations governing vehicleto-vehicle communication that would allow vehicles to send signals to one another to avoid collisions.77
PROPERTY & CASUALTY

total of 12.78 million new vehicles were sold in the U.S. in 2011, an increase of 10 percent from sales in 2010. Sales for 2012 are projected to climb to between 13.5 million and 13.8 million. Sales in the last several months of the year were especially strong, after shoppers with pent-up demand returned to the showrooms whose inventory had the product they were looking for (see Figure 8). The seasonally adjusted annualized sales rate (SAAR) began the year at 13 million, then dropped in May through August to 12 million, then rose again in the last four months of the year, closing out in December with a 13.57 million SAAR (see Figure 9).78 Analysts blame the drop-off in sales mid-year 2011 to concerns of fallout from the European sovereign debt crisis and the devastating earthquake and tsunami that hit Japan in March, causing significant vehicle supply disruption. The Detroit 3 automakers (GM, Ford and Chrysler) each experienced strong sales in 2011. GM resumed its title as global automaker with the most sales in 2011. Honda and Toyota the automakers that experienced
NEW VEHICLE SALESA BRIGHT SPOT FOR THE U.S. ECONOMY IN 2011
the most disruption from the earthquake/tsunami in Japan and the flooding in Thailand, both lost market share in 2011, while Nissan, Hyundai/Kia, and VW all experienced further growth in 2011 (see Figure 10).79 With sales expected to remain stagnant or decline further in 2012 in Europe, and Chinese auto sales growing at a much more moderate rate, analysts expect all automakers to ramp up their marketing efforts and inventories in the U.S. in 2012. With the average age of vehicles in the U.S. soaring to 10.8 years in 2011, analysts expect pent-up demand will drive strong new vehicle sales in 2012, and every automaker wants a piece of that. January 2012 sales kicked off the year with a bang up 11 percent from January 2011, and registering a seasonally adjusted annualized sales rate of 14.18 million. This is the highest SAAR the industry has experienced since August 2009s sales surge with the Cash for Clunkers program.
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Figure 8: U.S. New and Used Sales by Calendar Year

Source: CNW Marketing Research, Inc.
Automotive research firm R.L. Polk points to the drop-off in new vehicle sales and the propensity for people to hold onto their vehicles longer as the key reasons why the average age of vehicles in the U.S. increased more rapidly in the last five years than it had been since 1995 (see Figure 11). Between July 1999 and July 2007, the average age of vehicles on the road increased one full year; but after 2007, it took just four years for another year to be added to the average. In fact, the average length of ownership of new and used vehicles grew to more than 53 months, an 18-month increase since 2001.80 With an average of 12 million vehicles scrapped each year in the U.S., the drop-off in new vehicle sales also led to a contraction in the overall U.S. light vehicle population as well, according to Polk (see Figure 12).
Figure 9: U.S. New Light Vehicle Sales 2011 Seasonally Adjusted Annualized Sales Rate in the 000s
Source: Automotive News
Figure 10: Annual Share of U.S. New Light Vehicles by Automaker 2006 - 2011
Source: Automotive News
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Figure 11: Polk Average Age of U.S. Passenger Cars and Light Trucks 1995-2011
Source: Polk (figures are from July 1 each year)
2012 CCC CRASH COURSE 2012 CCC CRASH COURSE 25
Figure 12: U.S. Passenger Cars and Light Trucks Vehicles in Operation (in millions)
Source: Polk (figures are from July 1 each year)
ew car sales fell dramatically in 2008 with the recession after a decade long run of 16-17 million annual new sales immediately preceding. And while there has been some recovery in sales from the low point in 2009, annual new vehicle sales are still down over 3 million from the high of 16 million. Between 2008 and 2011, on average nearly 4 million fewer new vehicle sales were sold in the U.S. annually. During that same period used vehicle sales also fell, but not nearly as far as new sales (see Figure 13).
LOSS IN NEW VEHICLE SALES LEADS TO DISRUPTION IN USED VEHICLE SUPPLY
Every new car ultimately becomes a used car - so a drop in new car sales directly impacts the volume of used vehicles available for sale. The drop in sales from the 16 million mark between 2008 and 2011, which equals 15.9 million sales, equates to 9.5 million fewer vehicles available for sale ultimately as
used vehicles. NADA points to a drop in 2011 of five percent in the used vehicle supply at auction; they estimate another seven percent drop in 2012, with nearly all vehicle segments expected to see supply losses in the double-digits in 2012.81 Another factor driving higher prices paid by dealers at wholesale auction was the overall reduction of 23 percent in the total volume of vehicles aged five years and more sold at auction a by-product of tight supply encouraging dealers to either hold onto trade-ins or trade in via the internet. Data from CNW Marketing Research Inc. tracking the supply-demand of used vehicles sold across all channels (franchise dealers, independent dealers, and private-party) shows how the number of shoppers versus the total available inventory was at its lowest point in 2011 since 2000, reflecting just how tight supply of used vehicle inventory was in 2011 (see Figure 14).
Figure 13: U.S. New and Used Vehicle Sales 1996 to 2011 Percent Change from Prior Year
Source: CNW Marketing Research Inc.
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Figure 14: Number of Used Vehicle Shoppers versus the Available Used Vehicle Inventory Used Vehicles All Channels CY 2000-2011
Source: CNW Marketing Research Inc., Document 1603.
The tsunami and earthquake in Japan on March 11, 2011, followed by the flooding in Thailand, resulted in shortages of new vehicles for the Japanese automakers in the spring and summer months of 2011. Dealers scrambled to get used vehicles to help fill their lots, further driving up prices, and leading to a significant spike in used prices. There was some
moderate fall-off in wholesale used vehicle prices in fourth quarter, largely driven by the de-fleeting by rental car companies; however wholesale used vehicle prices were up again in December 2011, and are not anticipated to fall significantly (see Figure 15).
Figure 15: Wholesale Used Vehicle Values (ADESA & Manheim) and Bureau of Labor Consumer Price Index for Used Cars and Trucks (Jan 06-Dec11)
Sources: Manheim, ADESA, www.bls.gov
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Because economic growth is expected to be slow in 2012 in the U.S., and because many consumers will need to replace an older vehicle, demand for used vehicles will remain high in 2012. This translates to continued high demand and low supply that will keep used vehicle prices high in 2012. Analysts project vehicles sold for $10,000 or less, historically sold in a buy-here pay-here (BHPH) businesses, will be in especially high demand once tax returns are issued, as strapped consumers continue to look for low-cost vehicles.83 Historically, analysts have pointed to a ceiling the point at which it no longer made sense for consumers to purchase a used vehicle versus a new vehicle pinned where the average cost of a used vehicle is 50 percent of the average cost of new. In 2011 however, analysts were surprised to see a break in this trend. As Tom Kontos of ADESA points out, the threshold appears to have been pushed to 60 percent. Whether
it was the lack of credit availability, consumer mindset, or simply lack of funds to cover the remaining 40 percent of the cost to purchase new, it is difficult to say. However, Kontos believes it is unlikely that consumers will continue to push this threshold much higher in the future. Credit has freed up, consumers are starting to feel more optimistic, incentives are starting to grow some, and the supply of available vehicles for sale has been restored after the Japan earthquake/tsunami and flooding in Thailand. This should help provide some counter-weight to the continued dearth of supply of used vehicles as we head into 2012, thereby making it unlikely that used prices will exceed the peaks seen in the spring of 2011. Early data on wholesale used vehicle demand in 2012 underscores the demand is still present in the market as retail new and used vehicle sales continue to ramp up Manheims wholesale used vehicle value index rose in January 2012 0.5% from December 2011.
New and used vehicle sales are essentially the starting point for all downstream auto insurance and collision repair transactions. The quantity and types of vehicles purchased in a given market will ultimately drive demand for insurance and collision repair. Insurers and repairers must understand how new and used sales have trended in the past and how they are expected to trend on a go forward basis to ensure they are targeting the right types of vehicle owners, markets, and price points based on whether the vehicle purchased is a replacement vehicle or an additional vehicle to a household. For example, in markets where consumers tend to buy a lot of light trucks, the value of those vehicles might drop if gas prices spiked as they did in 2008. Anticipating the potential impact this might have to a total versus repair decision in those markets, and adapting staffing and settlement expectations accordingly will help ensure customer service does not suffer.
TOTAL LOSS VEHICLE VALUES RISE
Figure 16: Total Loss Valuations - Vehicle Mix Statistics by Calendar Year
Source: CCC Information Services Inc.
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CCC INSIGHT
otal loss vehicle values rose 7.1 percent in 2011 from 2010. During this same period the industry saw an increase in several vehicle categories that have historically had higher values: light trucks (specifically SUVs), Asian and European vehicles, current model year vehicles, and luxury vehicles (see Figure 16).
ne of the factors impacting total loss costs in 2011 was the volume of storm and catastrophes. The high volume of total losses stemming from storm and catastrophe activity drove up comprehensive losses share of volume in 2011, subsequently helping to drive up the overall total loss cost (see Figures 17 and 18). The impact of the large volume of totaled vehicles coming from Hurricane Irene on the east coast for example can be seen in the spikes in total loss values that occurred in the August-September 2011 timeframe (see Figure 19). Overall comprehensive total losses saw a lift in vehicles aged current model year and
newer in 2011 from 2010 (up to 10.1 percent from 9.6 percent). While the majority of total losses are based on the economics of repair versus total, during a flood, it is not uncommon for the mix of vehicles totaled to move to a newer mix overall. Figure 20 illustrates the lift in newer vehicles seen in total loss valuations in the northeast in August and September 2011. With a difference in vehicle value of $5,311 for vehicles seven years and older versus $26K and $18K for vehicles of current model year and ages 1-3 respectively, any swing of this volume will have an impact on costs overall.
Figure 17: Final Valuation Amount Average Total Loss Valuations by Loss Category 2006-2011
Figure 19: CCC Total Loss Final Valuation Amount Average January 2006 - December 2011 by Loss Category
Figure 18: Share by Loss Category of Total Loss Valuation Count by CY 2006-2011
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Figure 20: U.S. Northeastern States - Total Loss Valuation Count by Vehicle Age Group Jan 10 to Dec 11
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While the dynamics that occur in the marketplace in terms of used vehicle prices certainly impact the costs incurred for total loss claims, there is an important distinction that must be considered. Many of the broader automotive industry indices that look at wholesale or retail used vehicle price data focus predominantly on vehicles that are aged seven years and younger. Total loss vehicle costs however are driven by a much different mix of vehicles 70 percent of all total loss vehicles are aged seven years and older. In fact, the share of total loss valuation count for newer model year vehicles has dropped nearly every year since 2000, as vehicles on the road in the U.S. last longer and consumers hold onto them longer (see Figure 21). Additionally, total loss vehicle costs are also impacted by claim frequency patterns such as catastrophes that can lead to a dramatic shift in vehicle mix and subsequently drive up average values. Lastly, newer model year vehicles are much more subject to the influences of market trends for new vehicles, and subsequently experience more volatility in pricing than older model year vehicles where demand is much more constant in nature (see Figure 22).
Figure 21: CCC Information Services Inc. Share of Total Loss Valuation Count by Vehicle Age CY 2000 versus CY 2011
CCC INSIGHT
TOTAL LOSS VEHICLE VALUES RISE (CONTINUED)

New vehicle demand and prices also impact used vehicle values. As vehicles see greater demand, not only are automakers able to see a higher MSRP and transaction price, but will also see their residual values of those vehicles rise, which ultimately impacts what they sell for as used vehicles. According to data from CNW Marketing Research, dealers have seen an increase in their average new vehicle transaction price as a percent of MSRP grow from 80.6 percent in December 2007 to 84.1
percent in December 2011.84 Market demand for used vehicles dictates what consumers are willing to pay. The supply-demand equation also then drives how quickly used vehicles sell in the market. The historic way to measure this is via the days supply of used vehicles in the market. CNW Marketing Research Inc.s report tracking used vehicle days supply averaged about 45 days in December 2011, 16 percent lower than December 2010 (see Figure 23).85
Figure 22: CCC Information Services Inc. Total Loss Valuations CY 2000 to 2011 Final Valuation Amount Average by Vehicle Age
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Figure 23: Annual Average Used Vehicle Inventory Days Supply 1997 to 2011
Source: CNW Marketing Research, Inc.
DISRUPTION OR RETURN TO HISTORIC CLAIM COST CYCLE?
utomotive claim frequency also experienced a disruption in its historic pattern of flat-todeclining auto claim frequency and severity, driven largely by the significant catastrophe and storm activity throughout the world. Comprehensive losses have seen regular increases in claim frequency since 2009, and while collision and property damage claim frequency also saw some minor increases, their trend appears to be on a continuum of a flat-to-declining pattern (see Figure 24). From a claim cost perspective, outside of the erratic changes in comprehensive losses tied to erratic weather patterns, loss costs for liability and collision appear to be returning to their pre-recession levels of year-over-year increases of approximately one to three percent. The recession had extended the length of the downward turn historically seen every two years to more than four years (see Figure 25). The question as we head into 2012 is whether or not we will now see claim costs continue to experience moderate increases of one to three percent annually through 2014, where we would expect to then see moderate adjustment downward. Based on all of the economic and vehicle market data available, that is the most likely scenario.
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Figure 24: Claim FrequencyChange from Same Quarter Prior Year (Where quarter is the rolling 12 months ended that quarter)
Source: Independent Statistical Service, FastTrack Reports Private Passenger Auto
Figure 25: CCC Information Services Inc. National Industry Trend in Vehicle Repair and Vehicle Total Loss Costs: Jan 98-Dec 11
Figure 26: Percent of Vehicle Appraisals Flagged as Total Loss by Method of Inspection CY 2000 to CY 2011
Total loss frequency for the industry has risen steadily over the last several years. In 2011 however, total loss frequency leveled off, largely due to higher used vehicle values which push the repair/total loss threshold decision point higher (see Figure 26). Historically, total loss claims accounted for approximately 40 percent of the overall claim spend. With the increase in total loss costs up sharply, and repair costs experiencing moderate increases, total losses as a share of the overall spend has increased nearly two to three percentage points of the overall
spend, driving up overall claim costs (see Figure 27). As the overall share of spend increases, the ability to identify total loss claims accurately and earlier in the process becomes table stakes. With customer satisfaction levels typically lower for total loss claims, it becomes increasingly important for insurers to insert themselves earlier in the claim lifecycle to potentially prepare policyholders for the higher likelihood of total losses as the vehicle ages and to offer products or services that can help restore customers to the pre-disruption of a total loss claim.
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Figure 27: CCC Information Services Inc. Five Year Trend for Overall Claim Costs 2006-2011
Source: CCC Information Services Inc. Note: Claim Costs calculated based on mix of total loss and repairable vehicles using aggregate total loss percentage for customers using CCC appraisals for all appraiser types.
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s consumers begin to purchase more new vehicles, the industry can expect some moderate tempering or leveling off of overall total loss frequency. However, many of those individuals purchasing new vehicles either trade/ sell their old vehicle to a new owner, or continue to keep the older model year vehicle. Embracing these older model year vehicles and the potential to wow a customer if/when a total loss claim occurs, could lead to some new and differentiating products for insurers in the marketplace. Shortage of vehicles in the used space has led to higher prices, flattening total loss frequency, and leading to fewer vehicles scrapped and available for part sourcing. Strategic partnerships
that manage this symbiotic relationship between market values of used vehicles, salvage returns, and recycled parts prices can be expected to gain steam in the near future. Additionally, as newer model year vehicles are now of increasingly higher content/ higher cost/ more complex material makeup, the market may see a lift in repair costs and in those instances when accident avoidance systems are not present or do not help avoid or mitigate the accident, vehicle repair may be overall more costly, and for heavily hit vehicles may even result in total loss.
REPAIRABLE CLAIMS ALSO IMPACTED BY DISRUPTION IN U.S. NEW VEHICLE SALES
he disruption in the pattern of 16-17 million new vehicle sales that coincided with the recession created a break in the historic sales cycle that essentially led to greater disparity within the vehicle fleet. With fewer new cars sold, the average age of vehicles increased, leading to a historically older vehicle population. At the same time, new vehicle sales are beginning to ramp up, leading to a modest surge in new vehicles on the road. This disparity or disruption of the vehicle fleet not only created waves in the used vehicle market and subsequently total loss costs, it also created a similar divergent pattern within repairable vehicles. The breakout of repairable vehicle appraisal data by the age of the loss vehicle underscores the shift that has occurred in the last five years to a markedly older mix (see Figure 28). Nearly 39 percent of all repairable appraisals were for vehicles aged seven years and older in 2011 the highest ever recorded
in the last fifteen years, and nearly 12 percentage points higher than in 2005. A comparison of annual change in U.S. new vehicle sales to current model year vehicles share of appraisal volume underscores the relationship of new vehicles sold to the age of insured vehicles with claims. When U.S. new vehicle sales slipped in the 2001 and 2002, the appraisal count share of current model year vehicles also fell; a similar, yet more severe pattern in 2008 and 2009 (see Figure 29). Over the last two years (2010 and 2011) as new vehicle sales have started to grow, new vehicles share of the repairable appraisal volume has grown as sales ramp up further in 2012 and 2013, it will also grow. The implications of a newer fleet are essentially the reverse of what we have discussed in the past regarding an aging fleet: more replace versus repair, lower non-OE parts utilization, and more labor hours per appraisal, which all lead to higher repair costs.
Figure 29: Comparison of YoY Change in U.S. New Vehicle Sales to Current Model Year Share of CCC Annual Appraisal Volume (CY 1997 to 2011)
Sources: CCC Information Services Inc. and CNW Marketing Research Inc.
Figure 28: CCC National Industry Repairable Appraisal Volume Share by Vehicle Age CY 1997 to 2011
35
n increase in U.S. new vehicle sales is also a factor contributing to an increase in the overall insurance industrys growth in private passenger auto premiums in 2010 and 2011 (see Figure 30). New vehicles typically have a higher premium, and owners of new vehicles typically carry non-compulsory coverage such as collision and comprehensive. Strong underwriting discipline and modest price increases have also helped lift premium growth in the last two years, although data
from the Insurance Information Institute shows that the rate increases are smaller coming out of 2011. While more likely related to increases in frequency particularly comprehensive losses, collision repairers have also begun to report better sales. CollisionWeeks quarterly survey of collision repairers business conditions shows the percent of repairers reporting that their sales were lower in the current quarter than in the same quarter prior year has fallen consistently for seven quarters (see Figure 31).
Figure 30: Private Passenger Auto Net Written Premium Percent Change from Prior Year 2000-2013E
Sources: A.M. Best; Insurance Information Institute
36
Figure 31: CollisionWeeks Collision Repair Facility Business Conditions Percent of Shops Reporting Lower Sales versus Same Period Prior Year
Source: CollisionWeek
THE DISRUPTION IN REGULAR INCREASES IN REPAIR COSTS HAS COME TO AN END
he national industry average for repair costs in 2011 rose 2.5 percent from 2010 (see Figure 32), an increase more consistent with those seen annually before the recession, where repair costs rose on average 1.9 percent annually between 1997 and 2007 (see Figure 33). Distribution of repair cost dollars remains largely unchanged from where it has been over the last fifteen years; with the primary shift towards more dollars for non-paint labor, non-OE parts and paint materials, and a lower dollar share for OE parts, and paint labor (see Figure 34).
Figure 32: Repairable Vehicle Damage Appraisals - Vehicle Mix Statistics by Calendar Year
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Figure 33: CCC National Industry Repairable Appraisals Average Total Cost of Repairs and YoY Percent Change (CY 1997 to 2011)
ith labor accounting for the largest share of overall repair costs, understanding both the trends in the number of labor hours and the labor rates charged is important. The average number of labor hours per claim fell in 2009 to just over 22 hours per appraisal that remained virtually unchanged through 2011. The one key difference in 2011 was the large lift in the use of paintless dent repair (PDR) - included on just over one percent of overall appraisals in most years, to more than three percent of claims in 2011. Over sixteen percent of comprehensive loss appraisals included PDR in 2011, versus only nine percent in 2009-2010 and seven percent in 2008. The yearover-year increase in hourly labor rates was smaller in 2011 than in several years prior, and the five year average reflects a rate of increase that was at, or below, the overall rate of inflation (see Figure 35)
38
LABOR
HOURS VS RATES
Figure 34: Repair Dollars Distribution by Category (CY 97 - 11)
he Autumn Update to Crash Course 2011 included a discussion on the impact of the aging fleet on parts utilization, and showed that the increase in industry-wide nonOE part utilization was driven in large part by the growing share of older model year vehicles, where non-OE parts availability is higher. As consumers begin to purchase more new vehicles, and as more manufacturers provide price-matching programs for their dealers, non-OE share of parts dollars will likely taper or decline (see Figure 36). The average age of vehicles on the road in the U.S. reached an all-time high in 2011. The 16-17 million annual new vehicle sales sold in the U.S. between 1999 and 2007 means the industry can expect to see similar types of vehicles and loss costs as it had prior to the recession. The recession led to a drop-off in driving, reduction in claim and fatality frequency,
and a larger number of consumers opting to cashout versus actually repair their car. As consumers begin to ramp up new vehicle purchases, and see moderate upticks in employment, the industry will gradually return to an environment that more closely resembles the market pre-recession. Over time this will lead to moderate increases in customers opting to actually repair their vehicles versus live with the damage (i.e. moderate increases in volume of vehicles actually repaired), but the gradual infusion of crash avoidance technologies in new vehicles will likely flatten-out any inflections in accident/ claim frequency. With the exception of storm or catastrophe-driven claims activity, it is unlikely the market will see any dramatic change in the current patterns of claim frequency and severity over the next 18 to 24 months.
Figure 35: Average Labor Rates per Labor Category CY 2007 to CY 2011
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Figure 36: CCC National Industry - Percent of Total Part Replacement Dollars by Part type (CY 1997 to 2011)
SUMMARY
FACTOR
U.S. Economic Growth
TREND
Economic growth will remain tepid in 2012. Spill-over from the European sovereign debt crisis could hamper growth further. Unemployment levels still high due to recession and broader shifts within the U.S. labor markets. Federal and state governments will continue to slash jobs, so employment growth will have to come from the private sector. The U.S. will continue to see demographic shifts towards an older, more urban population.
CCC INSIGHT: Insurers and repairers that will be successful in this shifting demographic environment are those that have plans in place to market and serve different age groups, and have looked at whether their current geographies are positioned to shrink or grow, and have adjusted their growth plans accordingly. Understanding employment trends (i.e. time of day of commute), vehicles purchased in your market (vehicle body type, accident avoidance technology and airbag availability and deployment), and driver age patterns will be critical to assessing market growth opportunity in the future.
40
Private Passenger Auto Premium
Moderate growth expected in 2012, however, the results for the first 9 months of 2011 show that losses and LAE grew nearly 1.5 times faster than premiums.
CCC INSIGHT: The personal and commercial auto markets will remain extremely competitive in 2012. Consumers remain price sensitive, and the continuous stream of advertising reminds them that there may be a lower price out there. Selective rate-taking and expense reduction will be part of the playbook again in 2012; however, insurers that can retain and grow customers with the best lifetime value will be best positioned for long term growth.
Auto Claim Frequency
From a claim cost perspective, outside of the changes in comprehensive losses tied to erratic weather patterns, loss costs for liability and collision appear to be returning to their pre-recession levels of year-over-year increases of approximately one to three percent. The recession had extended the length of the downward turn historically seen every two years to more than four years.
CCC INSIGHT: The recession led to a drop-off in driving, reduction in claim and fatality frequency, and a larger number of consumers opting to cash-out versus actually repair their car. As consumers begin to ramp up new vehicle purchases, and see moderate upticks in employment, the industry will gradually return to an environment that more closely resembles the market pre-recession. Over time this will lead to moderate increases in customers opting to actually repair their vehicles versus living with the damage (i.e. moderate increases in volume of vehicles actually repaired), but the gradual infusion of crash avoidance technologies in new vehicles will likely flatten-out any inflections in accident/claim frequency. With the exception of storm or catastrophedriven claims activity, it is unlikely the market will see any dramatic change in the current patterns of claim frequency over the next 18 to 24 months.
FACTOR
Vehicle Repair Costs
TREND
Parts and labor costs (which account for 85 percent of repair cost) have been consistently trending up at or below the rate of overall inflation in the U.S.
CCC INSIGHT: Outside of the increases in comprehensive losses tied to erratic weather patterns and catastrophes, loss costs for liability and collision are returning to their pre-recession pattern of year-over-year increases between one and three percent. Inflation in replacement parts and labor have accelerated slightly as the U.S. emerges from the recession, but still point to overall increases in repair costs of one to three percent. As new vehicle sales grow and ultimately show up in claims, repair costs will see some inherent lift. The juxtaposition of greater vehicle complexity in terms of electronics and materials with greater prevalence of crash avoidance systems may ultimately result in fewer but more expensive repairs in the future.
Total Loss Vehicle Values
A combination of higher demand and lower supply for used vehicles lifted used vehicle prices in the U.S. over the last two years. The high volume of total losses stemming from storm and catastrophe activity drove up comprehensive losses share of volume in 2011, which subsequently helped drive up the overall total loss costs.
CCC INSIGHT: Historically, total loss claims accounted for approximately 40 percent of the overall claim spend. As the overall share of claim dollars paid out for total losses has increased, the ability to identify total loss claims accurately and earlier in the process becomes table stakes. The shortage of used vehicles in the market, as well as the higher MSRPs for new vehicles will continue to keep used vehicle prices strong over the next several years. Evaluating existing auto policies to account for potentially higher total loss costs will be critical for insurers to ensure they are anticipating the appropriate loss costs.
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Total Loss Frequency
Higher vehicle values have raised the threshold used in the economics of the repair versus total decision. However, as vehicles age, there is a natural depreciation that occurs, so while total loss frequency in 2011 was essentially flat with 2010, it did not go down, and will remain high until new vehicle purchases help drive down the average age of vehicles on the road in the U.S.
CCC INSIGHT: With customer satisfaction levels typically lower for total loss claims, it becomes increasingly important for insurers to insert themselves earlier in the claim lifecycle to potentially prepare policyholders for the higher likelihood of total losses as the vehicle ages and to offer products or services that can help restore customers to the pre-disruption of a total loss claim.
THE ROAD AHEAD
42
Disruption became the new normal in 2011. The breathtaking speed of advancement in consumer electronics has become the new baseline for companies in terms of speed to market, price, and desirability of product. The most recent recession still drags the global economy, and continues to make consumers acutely aware of their finances, and the danger of living with too much debt. Consumers have become increasingly sensitive not only to price, but also to each individual product or services share of wallet. Technology such as smart phones, tablets, and social media has given individuals the ability to have their voice heard loud and clear. The channels for reaching and interacting with consumers have changed. It becomes increasingly difficult for businesses to remain relevant, to get their message heard, and to get the consumer to pay them any attention. Broader trends within the political, economic, demographic, and environmental arenas will create new challenges for businesses in 2012 and beyond. Companies must ensure that they and their suppliers are prepared for any business disruption stemming from political unrest, sharp economic downturn, or catastrophic weather or events. They must also evaluate how their products reach and cater to a divergent population in terms of age, race, and technical comfort and/or aptitude. Companies must also at a minimum evaluate the application of the major technology
disruptors (mobility, social, cloud, and analytics) to their business; then prioritize, and implement those that have the best potential to drive their results ahead of their competition. Companies must also embrace the new disruptive paradigm where competition will emerge from outside their historic range of competitors. Take for example, Amazons emergence as one of the largest providers of cloud computing, and the disruption Apples iPhone created in the mobile phone market. Companies should be taking queue from recognized leaders in the consumer products and services area, but also be aware of where start-ups are focusing their efforts. The average consumer today has an auto accident once every seven to ten years. Auto insurers and collision repairers subsequently have very limited interaction with consumers and few opportunities to show the value of their products and services. The real moment of truth for the auto insurer and the repairer is at the time of an accident. To be successful in todays environment, companies must tap into the notion of disruption where companies develop innovative technologies that improve business processes, and finetune the messages to customers so they are delivered at the right time, on the right device, with the most customized content, and place themselves in a position to meet the expectations of todays consumer in a way that delivers value.
ENDNOTES
1 2 3 4
Price Waterhouse Cooper (PWC), 2011 APEC CEO Survey. Ibid. http://online.wsj.com/article/SB10001424052970203806504577182941621926780.html?mod=djemalertNEWS. Pershing, Ben. In 2011, fewer bills, fewer laws and plenty of blame. The Washington Post, December 5, 2011. Dinan,Stephen, Congress logs most futile legislative year on record. The Washington Times, January 15, 2012. U.S. Energy Information Administration. 2011 in Review. Released: January 5, 2011. http://www.eia.gov/oog/info/twip/twip.asp. Ibid. Epstein, Gene. Get Ready for $150 Oil. Barrons Cover, Saturday, July 2, 2011.
7 8
Amend, James M. Obama Makes 54.5 MPG Rule Official; Engineers, Designers Wary. WardsAuto.com, Jul 29, 2011. Drive to Meet CAFE Regs will Demand Materials Innovation. Wed, 3 Aug 2011, CollisionWeek. Mayne, Eric and Page, Byron. Ford Puts Pedal to Metal with Aluminum F-series Body Panels. Wardsauto.com, January 3, 2012. Casselman, Ben. Unemployment Scars Likely to Last for Years. The Wall Street Journal, January 9,2012. Deloitte Consulting LLP and Deloitte & Touche LLP. The Profit Margin Squeeze: Structural strategies for consumer product companies, p. 16. http://www.deloitte.com/view/en_US/us/Industries/consumer-products/8966719a2232431 0VgnVCM3000001c56f00aRCRD.htm?id=us_email_CP_DVC_010412. http://libertystreeteconomics.newyorkfed.org/2011/11/job-polarization-in-the-united-states-a-widening-gap. Auto Insurance Report, April 11, 2011. United States 2010 Census Briefs Population Distribution and Change: 2000 to 2010. Issued March 2011. Public Transportation Staging a Comeback. CollisionWeek, Fri, 20 Jan 2012. http://www.collisionweek.com/cwnnews/2012/f0120-pub.asp. Kids on Cars: Who Cares? Automotive News, June 7, 2010 12:01 am EST. Finlay, Steve. New Auto Research Looks at Generational Differences. Wardauto.com, July 13, 2010. Kids on Cars: Who Cares? Automotive News, June 7, 2010 12:01 am EST. Michael Sivak and Brandon Schoettle. Recent Changes in the Age Composition of U.S. Drivers: Implications for the Extent, Safety, and Environmental Consequences of Personal Transportation. Report Number: UMTRI-2011-23, June 2011. University of Michigan Transportation Research Institute. Ibid, p. 14. Ibid, p. 19-20. Michael Sivak and Brandon Schoettle. Recent Major Improvements in Road Safety in the U.S.: Changes in the Frequency of Crashes or the Severity of the Outcome of Crashes?. Report Number: UMTRI-2011-46, December 2011. University of Michigan Transportation Research Institute, p. 8. Ibid., p. 20.
10
11 12

13 14 15 16 17
43
http://libertystreeteconomics.newyorkfed.org/2011/11/job-polarization-in-the-united-states-a-widening-gap.

18 19 20 21

22 23 24

25 26
Hartwig, Robert P., PhD., CPCU. 2011 Catastrophe Loss Activity: Impacts on P/C Insurance Markets. January 20, 2012. www.iii.org.
27 28 29 30 31
Ibid. Ibid. http://www.usatoday.com/weather/storms/tornadoes/story/2012-01-30/january-tornado/52893512/1. Price Waterhouse Cooper (PWC), 2011 APEC CEO Survey. Ruquet, Mark. Survey: Significant Number of Companies Deal with Business Interruption. December 1, 2011. www.propertycasualty360.com. http://www.nytimes.com/2012/02/02/business/energy-environment/three-states-tell-insurers-to-disclose-responses-to- climate-change.html?_r=1. Croll, Alistair. Top 12 Cloud Trends Of 2012. InformationWeek, January 4, 2012. http://www.informationweek.com/ news/cloud-computing/infrastructure/232301203. This way up. Entrepreneur, December 2011, p. 61. Wernle, Bradford. Ford, seeking BFFs, picks up bloggers tabs. Automotive News, January 23, 2012, p. 8. Ibid. This way up. Entrepreneur, December 2011, p. 64. Dialing for Dollars with Phone Apps. Strategy + business, November 2011. Discusses study by Steven Bellman (Murdoch University), Robert F. Potter (Indiana University), Shiree Treleaven-Hassard (Murdoch University), Jennifer A. Robinson (Murdoch University), and Duane Varan (Murdoch University). The Effectiveness of Branded Mobile Phone Apps. Journal of Interactive Marketing, vol. 25. No. 4. This way up. Entrepreneur, December 2011, p. 67. Ibid., p. 67. Ibid., p. 67. http://www.ted.com/talks/kevin_kelly_on_how_technology_evolves.html. Henschen, Doug. 12 Enterprise IT Resolutions for 2012. InformationWeek, 12/27/2011. http://www.information week.com/news/galleries/software/enterprise_apps/232300366. Orcutt, Mike. The Year in Numbers. Technology Review, Wednesday, December 28, 2011. Ibid., p. 47.

33
32

34 35
36 37
38

39 40
44
41 42 43

44 45 46
Underwriting, Consumer Portals Among Top Technologies for Carrier Investment: IVANS Survey. Property Casualty 360, September 22, 2011. ODonnell, Anthony. Claims Gets Smarter. InformationWeek Analytics and Insurance&Technology, May 2011. Copyright 2011 InformationWeek Financial Services Inc., Page 7. Talbot, David. A Social-Media Decoder. Technology Review, November/December 2011, p. 44. Ibid, p. 44. Violino, Bob. The CRM Shift. Insurance Networking News, January/February 2012, p. 18. Henschen, Doug. 12 Enterprise IT Resolutions For 2012. InformationWeek, 12/27/2011. Comscore. Digital Omnivores: How Tablets, Smartphones and Connected Devices are Changing U.S. Digital Media Consumption Habits. October 2011. Source: http://www.pcworld.com/article/221407/are_we_really_living_in_a_postpc_world.html. Kenealy, Bill. What Do 1 Billion Mobile Devices Mean for Insurers? Insurance Networking News, April 7, 2011.
47
48 49 50 51 52

53 54
55

57
Underwriting, Consumer Portals Among Top Technologies for Carrier Investment: IVANS Survey. Property Casualty 360, September 22, 2011. Travelers Customers Relying on Mobile Devices to File Claims. June 17, 2011. http://www.claimsjournal.com/news/ national/2011/06/17/187221.htm. Stephani, Justin. Technology Expectations Soar Among Drivers. Insurance Networking News, January 9, 2012. Survey: Americans Think They Are Great Drivers; Habits Show Otherwise. Insurance Journal, August 2, 2011. http://www.insurancejournal.com/news/national/2011/08/02/209059.htm. Kessler, Aaron M. Distracted driving numbers dont tell the whole story. Detroit Free Press, July 31, 2011. Forsyth, Jim. Texting while driving more dangerous than thought, study says. Thomson Reuters 2011, Wed., Oct 5 2011. Hemenway, Chad. Study: No Evidence Cell Phone, Texting Bans Reduce Crashes. PropertyCasualty360, July 8, 2011. Insurance Institute for Highway Safety. Ban Texting. Status Report, Vol. 45, No. 10, Sept 28, 2010. Phelan, Mark. Surprising safety and fuel efficiency innovations to watch out for this year. Detroit Free Press, January 1, 2012. Insurance Institute for Highway Safety. Status Report, May 20, 2010. Sedgewick, David. Crash prevention to get easier on car shoppers wallets. Automotive News, August 1, 2011. Insurance Institute for Highway Safety. Estimated Time of Arrival. Status Report, Vol. 47, No. 1, Jan 24, 2012, p. 1. Ibid., p. 2. Ibid., p. 2. Chappell, Lindsay. Automakers trail in the great gizmo race. Automotive News, June 6, 2011. Kavanaugh, Tom. PwC-Diamond Advisory Services. Redefining the Customer Experience: Mobile telematics and the future of automotive insurance. January 2011. Henry, Jim. Storing data outside vehicles could reduce clutter inside. Automotive News, October 24, 2011. Ibid. Hardy, Quentin. The Coming Car Electronics Revolution. www.nytimes.com, December 8, 2011. Keane, Angela Greiling. Auto hacking seen as growing risk with electronics frenzy. Automotive News, January 3, 2012. Priddle, Alisa. Cars communicating to avoid collisions? NHTSA said time is now. www.freep.com. January 31, 2012. Source: Automotive News. Source: Automotive News.
56

58

59 60

61

62 63

64 65 66

67 68 69 70 71
45
Ibid., p. 5.

72 73 74 75 76
Ibid.

77

78 79 80
Emerson, Danielle. Average age of U.S. light vehicles reaches record high, Polk says. Automotive News, January 17, 2012 12:05 p.m. ET. NADA Used Car Guide. Guidelines, p. 6. January 2012
81
82 83 84 85
Ibid., p. 7. http://www.autoremarketing.com/wholesale/beggs-reflects-2011-sees-possible-wholesale-lift-2012. CNW Marketing Research Inc., Doc 136m, Transaction Price as Share of MSRP. CNW Marketing Research Inc., Doc 112m, Used Vehicle Days Supply.
46
47
2012 CCC Information Services Inc. All rights reserved. CCC and the CCC logo are registered service marks of CCC Information Services Inc. All other trademarks, service marks, and trade names are the property of their respective owners.
CCC Crash Course 2012

The information and opinions in this publication are for general information only, are subject to change and are not intended to provide specific recommendations for any individual or entity. Although information contained herein has been obtained from sources believed to be reliable, CCC does not guarantee its accuracy and it may be incomplete or condensed. CCC is not liable for any typographical errors, incorrect data and/or any actions taken in reliance on the information and opinions contained in this publication. Note: Where CCC Information Services Inc. is cited as source, the data provided is an aggregation of industry data collected from customers that use CCCs products or services and/or that communicate electronic appraisals via CCCs electronic networks.
For questions, please contact Susanna Gotsch at 312.229.2952.
CCC Information Services Inc. 222 Merchandise Mart, Suite 900 Chicago, IL 60654 312-222-4636 www.cccis.com

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CRASHCOURSE

2012 CCC CRASH COURSE

OUR WORLD AN ECONOMY INTERRUPTED

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2012 CCC CRASH COURSE 3

HIGH (PRICED) ENERGY

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2012 CCC CRASH COURSE 5

2012 CCC CRASH COURSE

NEW FUEL ECONOMY STANDARDS PUSH FURTHER DEVELOPMENT IN AUTO TECHNOLOGY

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WHERES THE WORK?

Figure 5: Shares of Employment by Occupation

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2012 CCC CRASH COURSE 7

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SWEEPING DEMOGRAPHIC CHANGES

VEHICLE OWNERSHIP PARADIGM DISRUPTED

TECHNOLOGY REPLACES THE VEHICLE AS A RITE OF PASSAGE

Figure 7: Licensed Drivers as a percentage of their age-group population

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2012 CCC CRASH COURSE 9

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TECHNOLOGY REPLACES THE VEHICLE AS A RITE OF PASSAGE (CONTINUED)

MOTHER EARTH PROVIDES HER OWN DISRUPTIONS

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2012 CCC CRASH COURSE 11

2012 CCC CRASH COURSE

THE ACCIDENT IS THE ULTIMATE DISRUPTOR

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CAN DATA MITIGATE MOTHER NATURE?

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CONSUMERS LOOK TO INFORMATION FROM TRUSTED SOURCES IN THEIR DECISIONS

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HAVING IT YOUR WAY WITH EVERYTHING

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ENGAGEMENT THROUGH GAMES HELPS SOLVE REAL PROBLEMS

THE BIG 4: TECHNOLOGY ENABLERS

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2012 CCC CRASH COURSE 15

BIG DATA TO GAIN MORE INSIGHT

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MOBILITY DISRUPTS THE DIGITAL DIVIDE

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2012 CCC CRASH COURSE 19

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AUTOMAKERS DISRUPT THE CONCEPT OF AUTO AS TRANSPORTATION ONLY

DISRUPTION WHILE DRIVING HAPPENS MOST WITH MILLENNIALS

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CRASH AVOIDANCE = FEWER ACCIDENTS OR IMMINENT DISRUPTION TO COLLISION REPAIR?

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PROPERTY & CASUALTY

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Figure 8: U.S. New and Used Sales by Calendar Year

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LOSS IN NEW VEHICLE SALES LEADS TO DISRUPTION IN USED VEHICLE SUPPLY

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2012 CCC CRASH COURSE 27