Risk Insider: Martin Frappolli

The Future of Motoring

By: | March 15, 2017 • 3 min read
Martin J. Frappolli, CPCU, FIDM, AIC, is Senior Director of Knowledge Resources at The Institutes, and editor of the organization's new “Managing Cyber Risk” textbook. He can be reached at [email protected]

The advent of driverless cars on demand, such as an autonomous Uber, might reduce the total number of cars on the road by 90 percent. Take that statistic and imagine that you are Ford, Toyota, CarMax or Midas.  You have a big chunk of a big market.  What happens to your financial future if the market shrinks by 90 percent?

However, even as the car count falls, the total number of miles driven may actually increase.  When human error is removed from motoring, accidents are eliminated and traffic jams minimized with the choreography of movement by autonomous vehicles. Passengers may willingly accept longer journeys and commutes because the ride is smooth, stress-free and presents no demand to stay engaged with the road.

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How many miles do you put on your car annually? The average American drives less than 15,000 miles each year; our cars are idle most of the time. The main reason that autonomous cars on demand will permit such a reduction in car count is that autonomous vehicles will be in much more frequent use.

A car will pick you up and take you to work, then pick up some children to go to school, then take some seniors to the mall, then deliver some packages for Amazon.

By some estimates, the future driverless Lyft car or ZipCar will cover ground at a rate approaching 300,000 miles each year. Without some dramatic advance in the durability of vehicle engines and suspension parts, an autonomous on-demand car will be used up in less than a year.

What is the downstream implication for car insurers?  At first blush, it looked grim.

So for carmakers, the total product demand may not change much at all. One might expect, though, that the shell of the car — doors, hood, trunk — might be reclaimed and outfitted with new power trains and suspensions, and put back on the road.

What is the downstream implication for car insurers?  At first blush, it looked grim. Auto insurance is, after all, primarily about financial compensation for damage resulting from human error. When you remove human error, the accident rate should plummet. When you reduce the car count by 90 percent, it would seem that the total market size also shrinks dramatically.

However, if the annual miles for each vehicle is 300,000 instead of 15,000, the exposure is dramatically larger. And for the transition period when the roads will be shared by cars with human operators and autonomous cars (whether owned individually or part of an on-demand fleet), collisions won’t entirely vanish.

In the long run, it’s all very promising for human safety, convenience and for the environment; cars can be made lighter and smaller when there is no need to make them crash-proof. Established carmakers may have time to adjust as we move from an ownership model to an on-demand streaming model, much as consumers have already done with music and movies.

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But at some future point, human error will be eliminated from motoring. We will look back on the first 125 years of the automobile as a brutal and primitive time, and wonder how we endured the carnage inflicted by human operators.

Auto insurers need to prepare to transition to that future. Accidents will be rare, and it’s probable that autos will be owned less by individuals and more by commercial firms operating fleets of autonomous cars on demand.

Not only will exposures be dramatically different, but all the data and skills we now use to underwrite auto will be obsolete. No crystal ball has a perfect vision of this future, but every auto insurer should be studying and planning for it.

More from Risk & Insurance

More from Risk & Insurance

2017 Teddy Awards

The Era of Engagement

The very best workers’ compensation programs are the ones where workers aren’t just the subject of the program, they’re a part of it.
By: | November 1, 2017 • 5 min read

Employee engagement, employee advocacy, employee participation — these are common threads running through the programs we honor this year in the 2017 Theodore Roosevelt Workers’ Compensation and Disability Management Awards, sponsored by PMA Companies.

A panel of judges — including workers’ comp executives who actively engage their own employees — selected this year’s winners on the basis of performance, sustainability, innovation and teamwork. The winners hail from different industries and regions, but all make people part of the solution to unique challenges.

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Valley Health System is all-too keenly aware of the risk of violence in health care settings, running the gamut from disruptive patients to grieving, overwrought family members to mentally unstable active shooters.

Valley Health employs a proactive and comprehensive plan to respond to violent scenarios, involving its Code Atlas Team — 50 members of the clinical staff and security departments who undergo specialized training. Valley Health drills regularly, including intense annual active shooter drills that involve participation from local law enforcement.

The drills are unnerving for many, but the program is making a difference — the health system cut its workplace violence injuries in half in the course of just one year.

“We’re looking at patient safety and employee safety like never before,” said Barbara Schultz, director of employee health and wellness.

At Rochester Regional Health’s five hospitals and six long-term care facilities, a key loss driver was slips and falls. The system’s mandatory safety shoe program saw only moderate take-up, but the reason wasn’t clear.

Rather than force managers to write up non-compliant employees, senior manager of workers’ compensation and employee safety Monica Manske got proactive, using a survey as well as one-on-one communication to suss out the obstacles. After making changes based on the feedback, shoe compliance shot up from 35 percent to 85 percent, contributing to a 42 percent reduction in lost-time claims and a 46 percent reduction in injuries.

For the shoe program, as well as every RRH safety initiative, Manske’s team takes the same approach: engaging employees to teach and encourage safe behaviors rather than punishing them for lapses.

For some of this year’s Teddy winners, success was born of the company’s willingness to make dramatic program changes.

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Delta Air Lines made two ambitious program changes since 2013. First it adopted an employee advocacy model for its disability and leave of absence programs. After tasting success, the company transitioned all lines including workers’ compensation to an integrated absence management program bundled under a single TPA.

While skeptics assume “employee advocacy” means more claims and higher costs, Delta answers with a reality that’s quite the opposite. A year after the transition, Delta reduced open claims from 3,479 to 1,367, with its total incurred amount decreased by $50.1 million — head and shoulders above its projected goals.

For the Massachusetts Port Authority, change meant ending the era of having a self-administered program and partnering with a TPA. It also meant switching from a guaranteed cost program to a self-insured program for a significant segment of its workforce.

Massport’s results make a great argument for embracing change: The organization saved $21 million over the past six years. Freeing up resources allowed Massport to increase focus on safety as well as medical management and chopped its medical costs per claim in half — even while allowing employees to choose their own health care providers.

Risk & Insurance® congratulates the 2017 Teddy Award winners and holds them in high esteem for their tireless commitment to a safe workforce that’s fully engaged in its own care. &

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More coverage of the 2017 Teddy Award Winners and Honorable Mentions:

Advocacy Takes Off: At Delta Air Lines, putting employees first is the right thing to do, for employees and employer alike.

 

Proactive Approach to Employee SafetyThe Valley Health System shifted its philosophy on workers’ compensation, putting employee and patient safety at the forefront.

 

Getting It Right: Better coordination of workers’ compensation risk management spelled success for the Massachusetts Port Authority.

 

Carrots: Not SticksAt Rochester Regional Health, the workers’ comp and safety team champion employee engagement and positive reinforcement.

 

Fit for Duty: Recognizing parallels between athletes and public safety officials, the city of Denver made tailored fitness training part of its safety plan.

 

Triage, Transparency and TeamworkWhen the City of Surprise, Ariz. got proactive about reining in its claims, it also took steps to get employees engaged in making things better for everyone.

A Lesson in Leadership: Shared responsibility, data analysis and a commitment to employees are the hallmarks of Benco Dental’s workers’ comp program.

 

Michelle Kerr is associate editor of Risk & Insurance. She can be reached at [email protected]