Crash Course Industry Update. Collision Industry Conference April 12, 2018 Denver, Co

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Crash Course 2018 - Industry Update Collision

1 Crash Course Industry Update Collision Industry Conference April 12, 2018 Denver, Co

2 Collision Repair Industry Today and Tomorrow Industry Opportunity Value f Capture Loss Costs f Frequency 2

3 Collision Repair Industry Today and Tomorrow Industry Opportunity Value f Capture Loss Costs f Frequency 3

4 Collision Repair Industry Today What s Driving Frequency Miles Driven Speed Limits / Road Congestion Distracted Driving Vehicle Technology Weather 2%+ increase in miles traveled in CY15 and CY16 has slowed to just 1.2% increase in 2017 Low unemployment and gas prices driving increase in miles U.S. EIA forecasts gas prices will average $2.57 per gallon in 2018 Higher speed limits lead to more and more severe - accidents 41 states now have speed limits of 70 mph or more on some portion of their roadways Urban miles share has grown from 64% in CY04 to 71% in CY17 U.S. population shifting to West and Southeast limited public transit 57% of drivers talk on hands-free cell phone while driving; 35% have read text or while driving Smartphone penetration and engagement continues to rise Significant, steady increases in vehicle technology / complexity New technology takes decades to filter through car parc, increases cost of repairs as it does Environmental changes leading to more severe, frequent weather 2016 third consecutive year of record temps in the U.S through Sept has tied CY11 for the most $1B disasters (15 total) 4

Vehicles per Person Collision Repair Industry Today Frequency Growth Slowing Vehicles per Household In the U.S. 85.6% still use a automobile as the primary means of transportation to work 0.80 U.S. Registered light-duty vehicles per person and per household, 1984-2016 Vehicles per Person Vehicles per Household 2.

5 Vehicles per Person Collision Repair Industry Today Frequency Growth Slowing Vehicles per Household In the U.S. 85.6% still use a automobile as the primary means of transportation to work 0.80 U.S. Registered light-duty vehicles per person and per household, Vehicles per Person Vehicles per Household 2.10 US DOT OHPI Percent Change in U.S. Total Miles Driven from Prior Year 3.5% % % 0.7% 0.3% 0.4% 1.8% 1.2% CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY Maximum value for both set in CY % -1.2% Pct Change Miles Driven from Prior Year 15 Yr Avg Annual Pct Chg CY93-CY07 Source: Sivak, Michael, UMTRI. HAS MOTORIZATION IN THE U.S. PEAKED? PART 10: VEHICLE OWNERSHIP AND DISTANCE DRIVEN, 1984 TO SWT Jan FRED Moving 12-Month Total Vehicle Miles Traveled, 5

6 Accident frequency strongly and positively related to congestion and risky behavior NHTSA Motor Vehicle Fatalities by Risky Behavior Change CY2016 versus CY2015 Variable Importance* Unbelted deaths 4.6% Speeding-related deaths 4.0% Drunk-driving deaths 1.7% Drowsy-driving deaths -3.5% Distraction-related deaths -2.2% + Ranked by IncNodePurity (change in predictions when a variable is randomly permuted through random decision forest) * Adjusted for miles driven Source: Auto Loss Cost Trend Report, January 2018 (Casualty Actuarial Society, Property Casualty Insurers Association of America, Society of Actuaries) Insurance Information Institute, Loss Cost Presentation given 3/21/2018 Casualty Actuarial Society s Ratemaking, Product and Modeling Seminar. 6

7 Drivers Distraction Levels Rise Cellphone Activities Drivers Participate in While Driving (State Farm Distracted Driving Survey) Update social media networks Read social media networks Respond to on cellphone Read on cellphone Access the internet on cellphone Text message 9% 9% 19% 22% 12% 21% 15% 13% 26% 29% 31% 35% 2009 Survey 2016 Survey AAA Foundation for Traffic Safety: Measuring Cognitive Distraction in the Automobile Workload Rating Driving and performing math and memorization tasks Driving and texting using speechto-text Driving and talking on hands-free cell phone Driving and talking on hand-held cell phone Driving and talking to passenger Driving and book on tape Talk on a hands-free cellphone 42% 57% Driving and radio 1.21 Talk on a hand-held cellphone 50% 65% Driving 1.00 Source: : State Farm Mutual Automobile Insurance Company, Distracted Driving Cooper, J.M., Ingebretsen, H., & Strayer, D. (2014). Measuring Cognitive Distraction in the Automobile II: Assessing In-Vehicle Voice-Based Interactive Technologies (October 2014) 7

across vehicles they all have different warning lights. These icons are from mycardoeswhat.

8 Even safety features can be distracting Electronic content of vehicles has soared More vehicles with safety features all work differently; consumers often unaware of how they work These icons have been not standardized across vehicles they all have different warning lights. These icons are from mycardoeswhat.org, a website created by National Safety Council to help educate consumers about these features not all work the same. Source: 8

Weather Continues to Drive Volatility in Claim Counts Share of Overall Appraisal Volume with Hail or Water Primary Impact 2017 YTD Share of Losses with Hail/Water Primary Loss Category Vehicle Owner

9 Weather Continues to Drive Volatility in Claim Counts Share of Overall Appraisal Volume with Hail or Water Primary Impact 2017 YTD Share of Losses with Hail/Water Primary Loss Category Vehicle Owner State CY 2012 CY 2013 CY 2014 CY 2015 CY 2016 CY 2017 South Dakota 9.4% 24.7% 33.6% 7.8% 6.2% 17.4% Nebraska 9.4% 16.5% 17.6% 3.4% 10.9% 16.7% Colorado 6.6% 3.9% 12.3% 5.2% 11.4% 15.0% Iowa 4.2% 8.1% 10.0% 2.8% 1.8% 10.5% Wyoming 3.9% 11.2% 9.4% 2.7% 16.5% 10.3% New Mexico 6.0% 3.5% 5.4% 2.2% 5.2% 8.8% Kansas 13.3% 15.0% 9.7% 8.3% 10.5% 8.5% Texas 5.6% 2.9% 3.3% 4.6% 8.6% 8.2% Missouri 15.3% 2.4% 7.1% 10.0% 6.9% 6.9% Minnesota 3.8% 7.0% 1.7% 1.9% 1.9% 5.3% Oklahoma 12.6% 16.9% 3.8% 12.6% 4.5% 4.2% Wisconsin 2.5% 2.9% 2.4% 0.6% 2.5% 3.1% South Carolina 2.9% 0.6% 4.6% 0.8% 2.0% 3.1% Tennessee 7.1% 0.8% 1.7% 0.5% 0.9% 2.9% Indiana 6.2% 4.4% 2.5% 2.1% 1.9% 2.8% TOTAL 3.1% 1.8% 2.1% 1.6% 2.5% 2.6% Source: CCC Information Services Inc. 9

10 Accident Counts Grow with Fleet but Frequency Stabilizing CY80 CY81 CY82 CY83 CY84 CY85 CY86 CY87 CY88 CY89 CY90 CY91 CY92 CY93 CY94 CY95 CY96 CY97 CY98 CY99 CY00 CY01 CY02 CY03 CY04 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17 10% 9% 8% 7% 6% 5% 4% 3% Fast Track Paid Claim Frequency by Calendar Year Rolling 4 Quarters ending Q4 Each Year (CY16 rolling 4 ending Q3 17) 2% 1% PD Liability Collision PD Liability 2007 Collision % Source: ISS Fast Track Plus Personal Auto, As of September 30,

11 What about frequency and accident counts in the future? Autonomous Vehicles Dominate the Headlines First generation driver-assistance features embedded in many new vehicles today OE s and tech companies in race to market Leading players forming consortiums to speed up development & collaboration Government updating safety guidelines to clear barriers for automakers and tech companies wanting to get test vehicles on the road Numerous forecasts on the end of the personally owned vehicle replaced by TAAS Source: Lawrence Karp and Richard Kim. Accenture and Stevens Institute of Technology. Insuring Autonomous Vehicles: An $81 Billion Opportunity Between Now and Figure 4, page

12 U.S. Vehicle Fleet Continues to Grow Vehicle sales and retirement rates have remained relatively constant over a period of 30+ years With U.S. sales at roughly 8% of the overall light vehicle fleet annually, and retirements at about 6%, the overall fleet has grown at a rate of 2% a year. Dynamics of the U.S. Light Vehicle Fleet: Sales and Retirement Rates, Source: Center for Automotive Research. The Great Divide. February

13 IIHS/HLDI Predicted Percent of Vehicles Equipped (standard or optionally equipped) with ADAS Technologies CY1995 CY1996 CY1997 CY1998 CY1999 CY2000 CY2001 CY2002 CY2003 CY2004 CY2005 CY2006 CY2007 CY2008 CY2009 CY2010 CY2011 CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 CY2018 CY2019 CY2020 CY2021 CY2022 CY2023 CY2024 CY2025 CY2026 CY2027 CY2028 CY2029 CY2030 CY2031 CY2032 CY2033 CY2034 CY2035 CY2036 CY2037 CY2038 CY2039 CY2040 CY2041 CY2042 CY2043 CY2044 CY2045 CY2046 CY2047 CY2048 CY2049 CY % 90.0% 80.0% 70.0% 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% Rear Parking Sensors Front Crash Avoidance Automatic Emergency Braking Rear Camera Adaptive Headlights Lane Departure Warning Blind Spot Monitoring Source: "Predicted availability and fitment of safety features on registered vehicles." HLDI Bulletin Vol. 34, No. 28, September

14 IIHS/HLDI Analysis of ADAS Technologies Shows Some Reduction in Claim Frequency insurance claims reductions in percent pooled across automakers Collision PDL BIL Front crash warning without autobrake 2% 9% 15% Front crash warning with autobrake 2% 14% 19% Adaptive headlights 1% 5% 8% Based on IIHS/HLDI Studies completed by April 3, 2016, IIHS presentation at Lifesavers Conference 2017 Effects on police-reported crashes relevant to lane-departure and on police-reported lane-change crashes All Crashes Injury Crashes Lane-departure warning (controlled for demographic factors) 11% 21% Blind-spot detection 14% 23% IIHS/HLDI Research released August 2017, Status Report Vol. 52, No.6 Stay Between the Lines 14

15 What does frequency look like in the future? CY1995 CY1996 CY1997 CY1998 CY1999 CY2000 CY2001 CY2002 CY2003 CY2004 CY2005 CY2006 CY2007 CY2008 CY2009 CY2010 CY2011 CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 CY2018 CY2019 CY2020 CY2021 CY2022 CY2023 CY2024 CY2025 CY2026 CY2027 CY2028 CY2029 CY2030 CY2031 CY2032 CY2033 CY2034 CY2035 CY2036 CY2037 CY2038 CY2039 CY2040 CY2041 CY2042 CY2043 CY2044 CY2045 CY2046 CY2047 CY2048 CY2049 CY2050 Other Potential factors helping to reduce frequency: Technology will develop to reduce distracted driving Slowing new vehicle sales Tech to promote more gig employees and workfrom-home capabilities Aging population; fewer driving during peak times 35.00% 30.00% 25.00% 20.00% 15.00% 10.00% 5.00% CCC Estimated Percent Reduction in Claim/Vehicle Counts as ADAS Feature Market Penetration Grows Estimate based on IIHS fitment projections; IIHS studies on effectiveness of each technology; CCC estimates of percent vehicles/accidents impacted and estimated change in U.S. VIO. Does not account for potential quality improvements in ADAS or other factors that might cause frequency to fall. 0.00% Source IIHS/ HLDI. CCC Information Services Inc. 15

What the recent Uber and Tesla crashes tell us Challenge to develop ADAS systems that counter humans natural inclination to take on more risk behind the wheel as they feel safer from ADAS.

16 What the recent Uber and Tesla crashes tell us Challenge to develop ADAS systems that counter humans natural inclination to take on more risk behind the wheel as they feel safer from ADAS. Behavioral adaptation or risk homeostasis the theory that any measure to improve driver safety is offset by a behavioral change, leading to no net improvement in safety Research by University of Southampton shows that it takes between two and 25 seconds for disengaged drivers to retake control of the vehicle when required to do so Source: Els, Peter. 5 Setbacks to the future of mobility following the fatal Uber accident. 04/03/

17 Collision Repair Industry Today and Tomorrow Industry Opportunity Value f Capture Loss Costs f Frequency 17

18 What s Driving Up Costs Strong New Vehicle Sales CY2017 = 17.25M sales down 1.8% but closes out record 3 years in a row More new vehicles appear in claim mix Average new MSRP exceeds $35K while median income only $55K Consumer Preference for Light Trucks 65% vehicles sold in CY17; many new models, small CUVs More lightweight material construction to meet corporate average fuel economy standards Ride height, weight disparity among fleet Higher repair and total loss costs Vehicle Complexity Significant, steady increases in vehicle technology / complexity More part replacements Additional labor time for scan and calibration Longer Cycle Times Repair start to complete days up nearly 1 full day over last 2 years Drives higher rental costs 18

19 Strong New Vehicle Sales U.S. VIU Growing Again In Millions M CY17 sales down 1.8% from CY M Analysts project CY18 sales 86% New vehicle sales with financing CY U.S. Light New Vehicle Sales CY 1996 to CY 2018E $35K Average MSRP new vehicles sold in CY Source: Automotive News 19

20 Average MSRP New Vehicles Continues To Grow Average MSRP New Vehicles Sold Percent change in Average MSRP from Prior Year $36,000 NADA "Average selling price of new vehicles sold" 4.0% $34,000 $32,000 $30, % 2.0% $28, % $26,000 $24,000 $22, % -1.0% $20,000 CY05 CY06 CY07 CY08 CY09 CY10 CY11 CY12 CY13 CY14 CY15 CY16 CY17E -2.0% Avg MSRP % Chg from Prior Yr 20

21 Vehicle Fleet at Bookends 7 years of new vehicle sales growth Average age of U.S. vehicle fleet 11.7 years as vehicle reliability has improved Low scrappage rates 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 8.3% 9.5% Share of Claim Count by Vehicle Age Total Loss and Repairable Claims Collision & Liability Only Current -3 Yrs 4-6 Yrs 7-10 Yrs Yrs 16 Yrs Plus 12.5% 14.1% 15.4% 1.8% 2.0% 2.9% 3.7% 4.4% 0% CY2005 CY2008 CY2011 CY2014 CY2017 CY2005 CY2008 CY2011 CY2014 CY2017 TOTAL LOSS CLAIMS REPAIRABLE CLAIMS Source CCC Information Services Inc. 21

22 Total Loss Frequency Rises CY13 CY14 CY15 CY16 CY17 CY18E Non-Comprehensive Losses Total Loss Share of Claim Count CY 2013-CY % 17.3% 18.2% 18.8% 14.8% 14.7% Source: CCC Information Services Inc. 22

23 Repair Costs Accelerate Fastest for New Vehicles $4,000 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 Repairable Vehicles Collision & Liability Losses Average Total Cost of Repairs by Vehicle Age Group +3.7% +3.0% The difference +1.4% in average +2.3% TCOR for the newest versus +0.1% oldest vehicles grew from 47% to 69% in the last five years $500 $0 Current Yr 1-3 Yrs 4-6 Yrs 7 Yrs Plus Total CY2012 CY2013 CY2014 CY2015 CY2016 CY2017 Source CCC Information Services Inc. 23

Parts and Labor Cost Increases Drive Repair Costs Higher Share of Total Repair Cost CY2017 Replacement Parts Share of Total Repair Costs CURRENT MODEL YEAR VEHICLES Collision/Liability Repairable

24 Parts and Labor Cost Increases Drive Repair Costs Higher Share of Total Repair Cost CY2017 Replacement Parts Share of Total Repair Costs CURRENT MODEL YEAR VEHICLES Collision/Liability Repairable Appraisals by Month Jan 03 Jun 17 Other Materials Labor Parts 11% 8% 41% 40% Vehicle Repair Cost Labor hours increase Labor rates increase Calibration costs New lightweight materials add complexity to repair Part cost inflation Part counts increase More captive OE parts as vehicle age declines, more sensors, cameras, etc. Jan-17 Jul-16 Jan-16 Jul-15 Jan-15 Jul-14 Jan-14 Jul-13 Jan-13 Jul-12 Jan-12 Jul-11 Jan-11 Jul-10 Jan-10 Jul-09 Jan-09 Jul-08 Jan-08 Jul-07 Jan-07 Jul-06 Jan-06 Jul-05 Jan-05 Jul-04 Jan-04 Jul-03 Jan % 46.8% Source CCC Information Services Inc. 24

Vehicle Complexity Rises 1996 Honda Accord LX example

all CCC vehicles Audi A8 example Right adaptive cruise

Mercedes-Benz E-Class example Complexity increases cost

25 Vehicle Complexity Rises 1996 Honda Accord LX example 11.4 average parts replaced per collision claim across all CCC vehicles Audi A8 example Right adaptive cruise control camera Left adaptive cruise control camera 2015 Mercedes-Benz E-Class example Complexity increases cost and value of repairs Source CCC Information Services Inc. 25

26 Average Replaced Part Price Continues to Rise $160 Average Price per Replaced Part for Collision/Liability Claims by Vehicle Age Group +2.7% $ % $ % -0.3% +1.0% $100 $80 $60 $40 $20 $- Current Model Yr 1-3 Yrs 4-6 Yrs 7 Yrs Plus Total CY2013 CY2014 CY2015 CY2016 CY2017 Source CCC Information Services Inc. 26

27 Crash Type Frequency Changes with ADAS Vehicle #1 19.8% 14.6% 18.8% 16.4% Vehicle ADAS Equipped Collision Front Primary Impact share of volume Collision Rear Primary Impact share of volume 20.0% 19.9% 20.5% 30.9% Vehicle #2 MY16-MY17 No ADAS 21.1% 24.7% ADAS 17.0% 26.9% NO ADAS MY15- MY16 ADAS MY15-MY16 NO ADAS MY17- MY18 ADAS MY17-MY18 Right Front Right Front Pillar Right T-bone Right Qtr Post Right Rear Rear Left Rear Left Qtr Post Left T-bone Left Front Pillar Left Front Front Rollover Left & Right Side Front & Rear All Over Undercarriage Vehicle #3 MY17 No ADAS 20.3% 22.5% ADAS 15.0% 29.4% Source CCC Information Services Inc. 27

a front impact collision loss occurs but higher for rear

28 Repair Costs Lower for ADAS-Equipped Collision Front Impacts Repair costs lower for ADASequipped vehicles when a front impact collision loss occurs but higher for rear impact collision losses Source CCC Information Services Inc. 28

Vehicle Technology Requires New Technology, Training and Access to Vehicle Information Position statements from these OE s suggest that 70% of all repairable appraisals from CY2017 should include

29 Vehicle Technology Requires New Technology, Training and Access to Vehicle Information Position statements from these OE s suggest that 70% of all repairable appraisals from CY2017 should include pre-repair and/or postrepair scan(s) Yet only 9% of all CY 2017 appraisals included an entry with average fee of $90 (including flat fee and/or labor time). Suggests that scan may be completed, just not always recorded in appraisal. 20.0% 18.0% 16.0% 14.0% 12.0% 10.0% Percent of Repairable Appraisals by Vehicle Age Group with Manual Appraisal Line for "Scan/Health/asTech/Diagnose" 8.0% 6.0% 4.0% 2.0% 0.0% Current Yr or Newer Group 1-3 Years Old 4-6 Years Old 7 Years and Older Total 2016-Q Q Q Q Q Q Q Q4 Source CCC Information Services Inc. 29

memory DTC sets when a new IPMA has been installed without performing

30 Recalibration of Systems Adds Labor and Complexity to Repair C1001:78 Vision System Camera: Alignment or Adjustment Incorrect This continuous memory DTC sets when a new IPMA has been installed without performing camera alignment. PERFORM the camera alignment using a diagnostic scan tool. 30

31 Repair Cycle Times Increase Keys to keys has increased 1 full day industry-wide; over 2 full days for nondriveable vehicles The increase is driven by longer vehicle repair times, since pre-repair and postrepair days have remained stable Driveable Flag Driveable Non- Driveable TOTAL CY Vehicle In to Repairs Started Days Avg Repair Cycle Time Repairs Started to Repairs Completed Days Avg Repairs Completed to Vehicle Out Days Avg Vehicle In to Vehicle Out Days Avg Shop Productivity Labor Labor Hrs Hrs per per Repair Shop Day Day CY CY CY CY CY CY CY CY CY CY CY CY CY CY CY Source CCC Information Services Inc. 31

32 Higher Repair Costs Lead to Longer Repair Times TOTAL >$20K >$15K to $20K >$10K to $15K >$6K to $10K >$5K to $6K >$4K to $5K >$3K to $4K >$2K to $3K >$1K to $2K >$500 to $1K $0.01 to $500 DRP Repair Cycle Time (Vehicle In to Vehicle Out Days Average) by Repair Cost Ranges CY Vehicle In to Repairs Started Days Avg Repairs Started to Repairs Completed Days Avg Repairs Completed to Vehicle Out Days Avg Source CCC Information Services Inc. 32

33 Customer Satisfaction Also Falls As Repair Costs Rise 9.8 DRP Repair Customer Satisfaction by Repair Cost Ranges CY2017 Avg Recommend Shop Score Avg Recommend Insurer Score Avg Insurer Handle Claim Score $0.01 to $500 >$500 to $1K >$1K to $2K >$2K to $3K >$3K to $4K >$4K to $5K >$5K to $6K >$6K to $10K >$10K to $15K >$15K to $20K >$20K TOTAL Source CCC Information Services Inc. 33

34 Higher Dollar Repairs Need More Updates 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% DRP Repair Customer Satisfaction by Repair Cost Ranges CY2017 $0.01 to $500 >$500 to $1K >$1K to $2K >$2K to $3K >$3K to $4K >$4K to $5K >$5K to $6K >$6K to $10K >$10K to $15K >$15K to $20K >$20K TOTAL 0% Repair Satisfaction % Survey % of On Time Delivery Kept Informed % Source CCC Information Services Inc. 34

35 Collision Repair Industry Today and Tomorrow Industry Opportunity Value f Capture Loss Costs f Frequency - DRP - OE Certifications - Mechanical - Marketing 35

36 Shop Sales Remain Strong 70.0% CollisionWeek's "Collision Repair Industry Business Conditions Percent of Shops Overall Reporting Higher Sales in Quarter versus Same Quarter Prior Year 60.0% 50.0% 40.0% 30.0% 20.0% 10.0% 0.0% All Shop Sizes % Higher Avg Since 2002 Source: CollisionWeek, quarterly study "Collision Repair Industry Business Conditions" 36

37 Industry Method of Inspection Shifting 55% Share of Appraisal Count Written By or With Shop (DRP/Open Shop/Service Center) 50% 45% 40% 35% 30% 25% 20% Source: CCC Information Services Inc. 37

38 The Road Ahead Strong new vehicle sales drive more costly complex vehicles into the VIO Technology in vehicles points to longer term fewer but more expensive repairs Fuel economy standards continue to drive light-weighting of vehicles and proliferation of materials Vehicle repair costs will increase 2-3% annually Growth in volume share of newer MY vehicles where repair costs are accelerating fastest Inflation in part costs and labor Total Loss frequency to remain elevated Low scrappage rates and hangover of older vehicle fleet Prices of older units remain strong, while newer unit prices have started to decline PPA Insurance and Collision Repair Industries Consolidation within auto insurance driving innovation in claims handling Repairers will need new skill sets and access to proper repair procedures Training will be paramount 38

39 For more industry updates Crash Course 2018 available for free download Monthly video and article available 39

2017 Mid-Year Update A View through One Vehicle

2017 Mid-Year Update A View through One Vehicle Auto sales in the U.S. for the first four months of 2017 have fallen by 2.4 percent, as pent-up demand coming out of the recession appears to have finally been met. Many consumers had held off from buying