Airplanes are not the only form of transportation to be equipped with black boxes. If auto insurance producers get their way, they’ll soon be harnessing this tool to improve risk management.
Motorists may not know it, but their brand-new vehicle may be equipped with a black box just like those traditionally installed on aircraft. Car manufacturers now equip most new vehicles with one of these devices.
Why? To gather information about seat belts, air bags and the force of impacts resulting from collisions, in a quest to build safer vehicles. These small devices may also be a boon for insurers.
Black boxes contain a gold mine of information about the driving habits of motorists. In the five seconds leading up to an accident, they capture varied data such as vehicle speed, the position of the accelerator and the use of brakes; information that is worth big bucks to insurers.
The technology behind these instruments is still fairly primitive, report various sources.
A few property and casualty (P&C) insurers interviewed by The Insurance Journal, like Co-operators and ING Canada, are already interested in getting their hands on the data the boxes contain. Even Standard Life Canada, a life insurer, has not ruled out the possibility of one day considering this data prior to issuing policies.
Some insurers believe that once this technology reaches maturity, it will let them better manage auto insurance risks. They also hope to fine-tune pricing, trim compensation for false declarations and identify drivers who are responsible for accidents.
Used for trucking
Kingsway General Insurance will use the information recorded on black boxes to help set insurance rates for transport trucks, revealed John McGlynn, president and CEO of the company. The program will be in place next month, but Mr. McGlynn would not unveil further details.
Most trucks already carry a black box device. “We think the boxes will help us increase security, lower premiums, and establish fault in cases of collision,” said Mr. McGlynn.
In this view, the current accident reconstruction techniques used leave too much room for uncertainties. “As it stands, the experts are working from suppositions. They then need to rely on testimony from the traumatized drivers whose memory of the event is often inaccurate.”
According to Bernard Tremblay, actuarial vice-president at ING Canada, insurers want to home-in on the driving habits of their insured. The areas where they drive, the times they travel and their annual mileage are among the criteria evaluated when insurance contracts are issued, he explained.
“Precise information on mileage travelled by drivers would be very useful to us,” said Mr. Tremblay. “But right now this is not the main function of the boxes used by manufacturers.”
Apparently, motorists that cover on average 40,000 km per year have a much higher potential for accidents than those that drive 15,000 km or less. This means that women and seniors pay lower premiums than men, who take the wheel more often. If black boxes could determine precise mileage, the sophistication of pricing could be ratcheted up, noted Mr. Tremblay. “We would no longer need to judge by sex and age alone. Elderly people that drive more would pay more, and so would women,” he continued. Of course, this works both ways.
For now, insurers must rely on the good faith of the insured or at best on the vehicle’s odometer, to determine distance traveled. The results, however, are not very reliable because of the many false declarations and occasional tampering with odometers, said Mr. Tremblay.
“Insurers are very interested in black boxes, largely because they shed a lot of light on the circumstances surrounding certain accidents,” said Shawn Murray, a spokesperson at Co-operators. They can then better single out the drivers that cause collisions.
This type of information would undoubtedly enhance control over claim-related costs. This data would be especially prized in provinces where drivers responsible for accidents are not necessarily compensated. In Ontario and Atlantic Canada, it is well known that lawsuits related to drivers’ liability have had particularly detrimental effects on insurers’ financial health.
The proof is in the box
In Canada, the data contained in the boxes are admissible as evidence in court in case of death or material damage. Mr. Murray of Cooperators explained that insurers sometimes turn to local police forces to access information contained in black boxes. For now, though, police officers use this data much more than insurers do.
“This data is used like any other evidence when charges are brought against a driver,” said Devin Kealey, sergeant in the Toronto Police Service department. “If an individual refuses to cooperate, we ask the judge to issue an order to force the individual to hand over the black box.”