Ed Wallace

Insurance and Safety Devices

Nils Bohlin had been an engineer working on ejector seats for Saab aviation before he left to take a position involving automobile safety for rival automaker Volvo in 1958. Understanding the physics of holding a pilot in place should he have to eject from a high-speed fighter aircraft, Bohlin worked on the three-point safety belt system for automobiles nearly a year before Volvo introduced it on the 1959 PV544.

This was made more interesting because, for the next six years, Volvo would send crash investigators to the scene of any accident involving a Volvo within an hour of its headquarters in Sweden. After investigating those and other wrecks, totaling 28,000 accidents, Volvo announced that, in collisions under 60 miles an hour in which the individuals were using their three-point seatbelts and the vehicle body remained intact, not one fatality had occurred. Keep in mind that this was before crumple zones, decent tires or anti-lock brakes in automobiles. And, as Mercedes would later do with its patents for forward crumple zones, in 1968 Volvo allowed any manufacturer to use its patent for three-point seatbelts without royalty payments.

Looking at the early Sixties data on seat belt use in formerly fatal automobile accidents, combined with energy-absorbing crumple zones on virtually all vehicles today, it’s hard to believe anyone can make the claim that airbags do much to reduce automotive fatalities.

Safety Devices May Not Save Money

So, if the seat belt era starting in the Sixties did the most to save lives, followed by crumple zones in the late Seventies and early Eighties, followed by anti-lock brakes in the next decade, it makes one wonder why the drop in automotive fatalities hasn’t done more to save consumers money on insurance premiums. Yet even here there is some logic.

When anti-lock brakes were new, a few insurance companies gave discounts for that safety feature, much in the same way discounts were given for anti-theft devices on cars. Then a study came out showing that anti-lock brakes did absolutely nothing to reduce the likelihood of an automobile accident, although it was truly a flawed study: Included in its stats was the scenario where someone was pulling out of a parking space at a shopping center and was hit by a non-attentive driver. But that’s an accident where anti-lock brakes would never come into play.

In reality the only thing they should have studied was whether anti-lock brakes made a difference at higher speeds in weather conditions like rain or snow. They do, because they keep drivers from losing control of the vehicle when they slam on their brakes under those conditions. Now, with the best ABS, one could stand on the brakes and keep control of the vehicle; consequently, the car’s speed would fall quickly, and the lower the speed the more likely one is to survive a collision. Yet due to that study, the majority of insurance carriers no longer saw the value of discounts for anti-lock brakes.

And it got worse once airbags came into play. First, airbags were and still are the most oversold safety device for automobiles in the history of the industry. Volvo proved that 60 years ago. However, today one can be in a easily survivable accident, doing only moderate damage to the vehicle, and it’s still going to be judged “totaled” because the accident set off the vehicle’s very costly airbags. That is because insurers only have to replace the value of the vehicle if that’s less than the total cost of repairs. So, if the cost of repairs and airbag replacements exceeds the used car price for your vehicle, it will be totaled because legally that’s a less expensive option.

Those accidents that once were easily fixable but are now a salvage claim show that the newest safety devices on your family’s transportation can often work against you on an insurance claim.

Not Sharing the Benefits

It’s about to get worse again. The industry has since added Electronic Stability systems to most vehicles now on the road, and coming quickly are other advanced driver assist systems, such as lane departure warnings, automatic or mitigated forward braking systems, and so on. In a world where the hype is cooling for fully self-driving long-distance automobiles, those same experiments will continue to deliver more features designed to make us safer as we go about our lives in our automotive economic society. It is estimated that the market for these safety devices sold to automakers will reach $67 billion annually within six years.

Here’s where the problem lies. According to a Reuters article last week, Swiss RE is the world’s largest reinsurer of automobiles and they believe that by next year all these current and planned safety devices will reduce the number of motoring accidents by 25 percent — or the equivalent of $20 billion in insurance premiums — just on vehicles that are fully equipped with the most recent and advanced safety devices. Now, does anyone in their right mind believe that soon we’ll see automobile insurance ads that offer 25 percent savings on premiums to those whose vehicles sport the most advanced safety devices the industry has to offer? Well, to be fair, those ads are likely coming; they just may not be truthful as to actual net financial savings, in the same way as furniture stores mark up their products before a sale to show a bigger discount.

Billions in Rock Chips

In reality, just as airbags have been responsible for many cars’ being totaled in the past decade after fairly minor accidents, already vehicles with safety features such as lane departure warnings or automatic braking are turning minor fender benders into a sizable repair in terms of cost. After all, one can’t just replace the bumper and paint it anymore; often one must also install new sensors or cameras and then make sure their alignment is up to factory specs,so those safety devices work correctly in the future. As some car owners have already found out, today something as simple as a rock chip can lead to a relatively expensive windshield repair if it involves replacing forward-looking camera systems or simply having to perfectly realign that system because you had to replace the windshield.

Because of this mix — high tech to save you, but high costs for repairs that used to be moderate — it’s doubtful that the insurance industry is going to roll back premiums because, as the rate of accidents goes down, the cost of repairing the remaining accidents goes up. Keep in mind, the auto insurance industry is not really a high gross margin business. One can see that in the way many nickel and dime policy holders and body shops when repairs have to happen.

Tough Questions

Between 1950 and 2015 the number of automotive fatalities for every one billion miles driven plummeted from 72 to barely over 11. That’s the result of several factors: the danger of much higher speeds nationwide, thanks to the construction of the Interstate Highway System, was offset by better tires, seatbelts, braking systems, forward crumple zones, and airbags. Now the question is, as we add more computerized safety features, the ones designed to control your vehicle and avoid any potential crash, will the number of highway fatalities per billion miles driven continue to fall as time goes by? Remember, without the most modern safety devices automotive fatalities have already dropped 84.7% in our lifetime. More important, will the number of accidents fall more than the cost of repairs rises for insurers?

As the Reuters story relates, Swiss RE is teaming up with automakers to study these exact questions. Fortunately, our national collective memory is so short that when the answer finally presents itself, we will have forgotten where we were when the question was even asked. Just as today we have long forgotten what it was like in the days of bias ply tires and drum brakes,when a full-sized automobile took the length of a football field to stop from 60 miles an hour. Or even how braking hard in rainstorms once sent our vehicles sliding out of control.

But one final bit of reality. About a month ago one of the techs at Fox Four was going home in his late-model sedan, 80 miles an hour, cruise control on, light rain. He’s a good guy and a geek, so he has a video camera on his dash. That camera recorded his going under a wide overpass, where the pavement was dry, and the very second his car hit the wet road on the other side it slid sideways and into the cement barrier. Viewing the video I asked him, how is it that your electronic stability system didn’t control that slide? He had no answer; neither do I. But you’ve been warned.

Ed Wallace is a recipient of the Gerald R. Loeb Award for business journalism, bestowed by the Anderson School of Business at UCLA, and hosts the top-rated talk show, Wheels, 8:00 to 1:00 Saturdays on 570 KLIF AM. Email: edwallace570@gmail.com