Risk Insider: Tony Boobier

Texas Flooding Highlights Auto’s New Complexity

By: | June 4, 2015

Tony Boobier is an experienced independent consultant focusing on insurance analytics. An international speaker, commentator and published author, he lies awake at night thinking about the convergence of insurance and technology. He can be reached at [email protected]

It will take some time to arrive at a hard number, but indications are that the automobile claims from the Texas flooding in May will exceed $250 million, with overall losses at close to $1 billion.

This is a serious issue for automobile insurers. Reports indicate that some auto insurers may have to rely on reinsurance to pay off their Texas claims before all is said and done.

But a substantial problem will remain long after the flood water has gone and the Texas claims and those in neighboring Oklahoma are paid.

The average new vehicle contains more than 100 million lines of code. Compare that to the early space shuttles, which possessed a mere 400,000 lines of code.

That problem is the dilemma of increased automobile claims complexity due to the technology that is now embedded in cars.

While collision accident frequency numbers may fall — due to such things as sensors that can tell you if you’re about to ram into the car behind you as you back up — this new complexity foretells a real risk of an increase in average repair costs.

That’s because cars have essentially become computers on wheels.

The average new vehicle contains more than 100 million lines of code. Compare that to the early space shuttles, which possessed a mere 400,000 lines of code.

With more than 2,000 functional parts, some of them comprising multiple hybrid alloys, even the average car of today is much more complicated than the most expensive cars of previous generations.

The implications for the motor repair process are not insignificant.

At the very least, this complexity creates issues around who does the repair, especially if the vehicle is to continue to remain under warranty.

New questions start to emerge: Who is competent to do the work, where can it be done, and is there adequate capacity in the supply chain to meet claims volumes, especially in a period of surge?

Will the consumer be faced with possible delays due to supply/demand imbalances caused by this added complexity, and if they do face substantial delays, how will that impact their purchasing decisions?

We may already have reached the point where new vehicles with the latest technologies aren’t available for sale in places where the ability to repair them doesn’t exist.

If these are issues for manufacturers and customers, aren’t they also matters of concern for repair centers, which will increasingly need to invest in new technologies and train their staff to use them?

Won’t higher investment by suppliers need to be complemented by longer term commitment from insurers? Beyond this, the need for more advanced capabilities may mean that the selection of competent car repair services will become limited, and insurers will have fewer choices in repair service providers.

Auto assessors will also need additional training. Damage to circuitry is much more problematic to find and resolve than a good old-fashioned dent, especially where the problem is one of water damage and corrosion.

With the Texas flooding giving auto insurers a major pain point, they would be well advised to use this opportunity to gain as much insight into this new car repair/ technology dynamic as possible.

More from Risk & Insurance

More from Risk & Insurance

Risk Matrix: Presented by Liberty Mutual Insurance

9 Trends that Are Driving Rate Increases

The market was optimistically cautious entering 2020, but thanks to COVID-19, growing liability challenges and other risk factors, we’re seeing more hardening.
By: | September 1, 2020

The R&I Editorial Team can be reached at [email protected]