Paul Rosenstein, director of corporate development, noted that in the past five years loss costs on a per-claim basis continue to go up, growing 78 percent faster than the Consumer Price Index.

Has this trend been driven by newer and more expensive technology?

“The mandated use of airbags and the increasing popularity of features such as anti-lock braking systems are definitely contributing to the trend,” according to Mr. Rosenstein. “In addition, aggressive marketing tactics from the auto manufacturers, such as rebates and promotional financing, are also increasing the average value of cars in service.”

According to Mitchell International, within the next 10 years electronic stability control (ESC) measures will probably be required on U.S. autos. These devices compare a driver's actual course with the intended course and compensate for any difference by relying on a variety of sensors measuring wheel speed, steering wheel angle and lateral accelerations. It also applies brakes to individual wheels and controls engine power to correct over-steering and under-steering.

A study by Daimler Chrysler said technology could account for a 15 percent drop in total accidents involving Mercedes Benz since 1999, when ESC became standard on Mercedes vehicles. The National Highway Transportation Safety Administration estimates that U.S. adoption will save between 5,000 and 8,500 lives, along with $35 billion in economic loss.

“While you will most likely see reduced claims frequency and liability costs, there could be a slight increase in claims cost,” Mr. Rosenstein said. “Expensive wheel-speed sensors located in damage-prone areas of the auto will be responsible for that.”

In 2003, 57 vehicle models were standard-equipped with ESC measures, while in another 43 models they were an option, he asserted. “It was standard on mostly higher-end makes and models, but some mid-tier models such as a Toyota Camry and VW Golf had them as options,” Mr. Rosenstein noted. “General Motors recently announced that their ESC system will become standard equipment on all utilities and vans by 2007.”

While many automobiles today can communicate with emergency services, the widespread use of such technology in the future is bound to affect insurance underwriting and pricing, according to Mr. Rosenstein.

In the vehicle systems themselves, items such as global positioning system navigation, event data recorders and on-board diagnostics will all give motorists–and ultimately insurance carriers–more data with which to operate a car more efficiently and safely, Mr. Rosenstein explained.

Sensors on the car can notify a driver of potential problems. For example, Volvo's Safety Concept Car, first demonstrated in 2000, includes a blind-spot sensor that flashes warning lights and audible warnings if there is a car in the driver's blind spot, Mr. Rosenstein said.

In addition, with OnStar-like systems, cars now have the ability to convey information to the outside world, he added.

In a pilot program last year in Minnesota, detailed crash information was sent electronically to OnStar, which in turn was sent to 911 operators, state police and hospitals as appropriate. Fourteen other states are considering similar systems, Mr. Rosenstein said.

Insurance companies also want their data as soon as possible, as evidenced by a recent account on the Progressive Insurance Web site. Last summer, Progressive initiated a program called TripSense, offered to 5,000 drivers in Minnesota, who were offered discounts of up to 25 percent on their auto policies–depending on how much, how fast and when they drive.

Driver participants plug a data-logging device into a port in their car, noted Jim Haas, Progressive's auto insurance product manager for Minnesota. The so-called “TripSensor” collects information about the vehicle's use–including how much, how fast and when they drive.

“This discount program can help drivers save money and help them better understand how car insurance works,” Mr. Haas said. “Drivers who reduce their risk of being involved in an accident by driving less, driving during lower-risk hours or driving slower will be rewarded in this discount program.”

Progressive conducted a similar program in Texas from 1998 to 2001 that retrofitted GPS and cellular technology into policyholder vehicles to calculate premium based in part on how much, when and where the vehicle was driven, he noted.

“While the Texas test proved customers liked usage-based insurance because it saved them money and gave them more control over the cost of their auto insurance, it was discontinued due to high costs and complex installation logistics,” Mr. Haas said.

Mr. Rosenstein noted that telematics–a broad range of automotive technology that includes systems or devices that store or transmit data on a car's systems–will continue to be integrated into a greater variety of car models in the next five years.

Once again, a reduced number of claims will likely result as new technologies do their jobs. However, increased total losses could come from potential damage to expensive electronic components on the exterior of the cars. “There is also the potential for more accurate subrogation with the use of event data recorders and on-board cameras,” Mr. Rosenstein said.

From 2000 to 2004, both the number of vehicle manufacturers offering telematics and the number of models with such devices have doubled, but the average price for the equipment has decreased from $2,218 to $922, according to Mitchell Inc. data published by the Telematics Research Group, based in Minnetonka, Minn.

“Mechatronics” is the integration of mechanical systems with electronic components and software controls, with the most common current examples being anti-lock braking and cruise control systems.

“With improved braking and steering performance, you are going to see [fewer] accidents due to mechanical failure,” Mr. Rosenstein said. Drivers will also get more complete information on the condition of their vehicles from these devices, he added.

What of the new materials that will take over auto production?

Steel is still the most commonly used material in high-volume production, but that may not last forever. While plastics reduce vehicle weight and are dent- and corrosion-resistant, its advantages are offset by the need for thicker panels to achieve equivalent stiffness of steel, according to Mr. Rosenstein.

Aluminum offers reduced weight and also what is termed “crashworthiness,” in that it is engineered to collapse in a predictable manner. “You could potentially have fewer medical injuries due to improved absorption of energy,” he added.

However, loss costs could rise from the difficulty in locating repair facilities that have the new shop tools and repair methods required, along with the challenge of locating alternate parts, he noted. “Space-frame requests are complex, leading to automatic replacement of damaged parts and large panels,” Mr. Rosenstein explained.

While it seems fairly certain loss costs will rise with more expensive materials and components, Mr. Rosenstein nonetheless sees new opportunity for what will be the more complex task of assessing and underwriting risk.

“For example, how do you price liability to acknowledge potential for reduced frequency and better protection of passengers and pedestrians?” he asked. “And should insurers price punitively against car manufactures who ignore reparability issues in their design?”

Caption for art:

New high-tech systems and devices will help auto insurers better price coverage and cut down on claims, but loss costs could rise thanks to pricier parts and difficulty in finding qualified mechanics.