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 service’s 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. Companies must also embrace the new disruptive paradigm where competition will emerge from outside their historic range of competitors. Take for example, Amazon’s emergence as one of the largest providers of cloud computing, and the disruption Apple’s 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.
Significant shifts in the demographic makeup of today’s consumer are also a factor driving the disruptive shift in consumer demands. The U.S., like most industrialized countries, has seen its population grow older. The oldest Baby Boomers turned 65 on January 1, 2011. An estimated ten thousand more per day will turn 65 over the next 19 years, taking the share of 65-year-old-plus individuals to 18% of the U.S. population, versus just 13% today. An aging population has historically led to lower accident frequency as people have historically retired and reduced driving during peak traffic times. The recession however has led many to postpone retirement, so we may see the traditional reduction in frequency push out several years.
Generation Y or “Millennials,” individuals born between 1997 and 1990, accounted for 77.4 million individuals in the U.S. according to the U.S. Census, just slightly above the 76.2 million Baby Boomers. This generation is more ethnically diverse than older adults, and a greater share of them had at least one immigrant parent—11%, versus 7% for Gen X and 5% for Baby Boomers. A 2010 Pew Research Center study looked at the values, attitudes and behaviors of Millennials versus older generations. Among the findings of this study was the Millennials’ greater use of technology. Millennials feel that this is a defining feature of their generation. Millenials were also the first generation to fully embrace the use of technology in their role of a consumer as well.
Owning an automobile has historically represented a rite of passage into adulthood and freedom for Baby Boomers (born between 1946 and 1964), a category still accounting for approximately 45 percent of new-car purchases. 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.
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. 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 nation’s 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. Personal 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.
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.
Because each generation’s outlook is shaped by different cultural expectations and experiences, companies must understand these, and incorporate them into the way that they interact with potential and existing customers. The ability to customize communication and marketing into generational and demographic categories will help companies portray the appropriate image and message and better grow their business. Insurers and repairers that will be successful in this disruptive demographic environment are those that have plans in place to market and serve the 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 people are commuting to work), 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.
The Accident is The Ultimate Disruptor
The 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.
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.
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 today’s 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.
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 catastrophe-driven 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.
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.
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 today’s environment, companies must tap into the notion of disruption – where companies develop innovative technologies that improve business processes, and fine-tune 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 today’s consumer in a way that delivers value.
Susanna E. Gotsch is Director, Industry Analyst, at CCC Information Services Inc. She has been with CCC since July of 1992. Susanna brings twenty-plus years of experience within the automotive claims industry as Director, Industry Analyst. She has authored The Crash Course, CCC’s annual publication on trends impacting collision repair and total loss costs since 1995. This publication has become a key resource for the industry in understanding how broader trends within the economy, new and used vehicle market places, and collision industry are impacting auto claim frequency and costs. She is also responsible for the generation of all trend analyses of the insurance and automotive industries published by CCC since 1995.
In 2011, Ms. Gotsch was selected as one of five Most Influential Women in the Collision Repair Industry through the annual industry honorarium established by AkzoNobel Automotive & Aerospace Coatings America (A&AC).
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