Last time we took a look at how the UK motor insurance sector is getting to grips with a rapidly evolving business model, where the people who though they called the shots suddenly find themselves by-passed. With any form of change, the winners are those who can sit back calmly and see the opportunities roll out whilst the innovators frequently become lost in the heat of the action, making huge mistakes.
Tesla investors for example. Once upon a time the dream was to have vehicles that could compete head to head with internal combustion powered vehicles but not put any toxic gases into the atmosphere. Add to that a series of very expensive conferences held on a rolling schedule around the world where delegates fly in and talk – and talk – and talk – about how burning fossil fuels is totally bad for the entire world.
A few very bright people started to play with the very best battery technology and invented a whole pile of new electronic systems/motors to get the very best of that technology – a battery technology that has made painfully modest progress in 100 years and is still moving at a snail’s pace. We shall return to energy storage later on.
Enter Mr Elon Musk, who took a product made by technocrats and gave it pizzazz. The result? Very expensive cars with very, very large batteries that can just about go head to head with a conventional internal combustion engine. The hype went on from Roadster to Model S and the Model X complete with Falcon doors, not to be confused with Musk’s Space-X Falcon rocket. Model X with a Falcon rocket….. now there’s a white-knuckle ride.
Others have come and gone, failing to replicate the ‘Tesla’ buzz, and none have carried it off as well as Musk. Tesla finances are shot, the state subsidies are going south and the charging/power storage business just isn’t getting off the ground any time soon. In spite of these formidable obstacles the road show continues. But wait….
Suck, squeeze, bang, blow
The infant Tesla is odds-on to be not much more than a fondly remembered badge in 20 years time – as will some of the much larger manufacturers that exist today. Just as the great global banking crisis sent the early push for ‘renewable’ energy backwards for a time, so we arrive in the present situation. Thanks to a combination of incredibly clever but dishonest actions, certain vehicle manufacturers sent what remained of the internal combustion engine emissions management over the cliff.
Suddenly, because the motor vehicle is everywhere and are so utterly hated by cyclists/pedestrians in the rather more agreeably wealthy capitals of the world… the mantra was formed. Electricity is good, internal combustion is bad. Forget that the majority of electricity generated around the world is made by burning fossil fuels, forget that the dominant source of air pollution is people warming homes or working offices/factories. Just forget.
The time for posturing is coming to an end, and soon, thanks to punitive taxation based on implied (but not entirely proven) ‘toxicity’ will remove most buses and delivery trucks. Just imagine the conversation with Eco-Jemima or Right-On-Tarquin when they realise Harrods want them to help out getting stuff to the city centre store. Oh, the cry will be heard right across FaceBook 24/7 for months.
Even if we could accept 20% of the storage capacity for energy (latest batteries vs petrol or diesel) – yes that’s not 20% ‘less’ but 20% ‘of’ – the thinking is off beam. Present battery technology relies on finite resources such as lithium and cobalt. The manufacturing process is not scaleble, since the costs are directly linked to output – a situation that has existed for at least two decades. Then there’s the final nail in the coffin. Why are we carrying power around in vehicles?
Never mind. The Eco-warriors have won the battle, but not the war. Governments around the world now see emissions as a vote winner, and will try and do something – rather ignore agreements whilst paying huge fines. When Great Britain stops ignoring pesky treaties, it gets a pretty big profile.
The turning point came when a research paper published in 2015 illustrated that as many as 40 000 people worldwide could die each year from health issues triggered by excessive NOx. It was interesting watching our previous prime minister David Cameron saying publicly that very number of British citizens were affected, and that Mayor Kahn dedicated a similar number to London, as did the Mayor of Paris. Facts? Not required.
Well, like all campaigns, the success is based on some sort of truth. Yes, NOx can form in pockets around exceptionally busy roads and affect the local population. Yes, some of those people – especially children and the infirm – could die. However, does it make sense to leap onto a technology that is not ready, nor able to serve a global demand? Perhaps not. Dedicated, possibly quite determined push – but not a wholesale switch.
What has this to do with South Africa?
The current automotive industry is not about to collapse, nor is the internal combustion engine set to disappear. It will fade from dominance over the next two decades, and other forms of power will come through. Given the huge progress made in electric motor efficiency and power control technology, and how far ahead that is of energy storage technology, there has to be another way.
For South Africa the opportunity is to take exactly the same global products as the rest of the world or to have, instead, a series of vehicles powered by internal combustion engines which will cost more as the scale of manufacturing falls – again, this will not be an overnight increase, but quite noticeable over two decades. Then there’s the ultimate goal. To be less dependent on imported oil.
The above scenario only makes sense if the alternative power solutions are similar to combustion engine costs, and the mass production of those vehicles due to global demand helps achieve this quite quickly. So far the US, Europe, China and many Middle East countries are pushing for a ‘non-oil’ transport system at almost any cost.
In the immediate future every single vehicle manufacturer around the world will offer more vehicles running with high voltage systems either as hybrid drive, plug-in hybrid drive or pure electric vehicles. Further, the scope extends from bicycles through to buses. South Africa can sit back, observe and wait to exploit the folly of others. But please – not for too long.
This is the key to everything. Consider a power station is built to generate power in line with the peak demand for the area – and yet the biggest users of this energy are human, which famously tend to sleep for around seven hours out of each day. Further, those peaks are way, way bigger than the minimum demand. We could make citizens ‘do the right thing’ to even out demand. That rarely works, however.
Another aspect is a power station is designed to be most efficient at a certain level of demand, which is not the minimum. To get the best electricity from the energy consumed we need to run the plant for as long as possible on a steady output – and if we could store the excess then that would be used to cover the peak demand periods.
Except…. large scale industrial power storage does not really exist yet. If it did it would transform solar power, wind turbine power and more.
If we thought the pressure to develop better battery technology was intense, it’s nothing compared to large scale energy storage solutions.
Let’s have an Eco moment. Industrial power storage exists. What should we do? Well, now we can make a network of powerlines (much as exist today) from which the electric motor powered vehicle draws energy. No NOx pockets. No particulates. No limit to range. Better, this can be done whilst we await that amazing breakthrough (like fusion power).
This is not fantasy. Already electric buses use ‘opportunist’ charging, where they top up the battery system at each bus stop via a roof mounted charging arm. This system is in service, and is rapidly expanding across many cities around the world.
Perhaps young Elon Musk is not just a marketing opportunist. Perhaps there is a way to become independent of oil, just as many countries the Middle East desire.
Let’s talk about insurance….
A slight change of course. In the past few weeks the Auto Body Professionals Club (‘ABP Club’) put together three stories published by three sources over the past year. Take a look at the stats:
- Association of British Insurers, 31 July 2017
An ABI spokesperson said: “It is common for a motor insurer to agree what are effectively bulk discounts with car repair companies. This practice is not new, is in line with other sectors who use economies of scale and helps control claims costs, which benefits customers.
“When an accident occurs and the non-fault insurer initially pays for repairs, they are under no obligation to pass on these discounts to their competitors when they seek reimbursement from the at-fault insurer. The system could work better and the industry welcomed the investigation by the Competition and markets authority in this area in 2014, but the CMA chose not to take action.
“Repair costs still contribute less than a fifth towards the cost of a motor premium compared to more than a third for personal injury pay outs. “Costs involving discounted repairs are a drop in the ocean compared to the impact on motor premiums arising from the increasing complexity of repairs, the rise in insurance premium tax, changes to the discount rate and whiplash-related claims.”
- Association of British Insurers produces a booklet. October 2016 “Lifting the Bonnet on Car Insurance; what your premium pays for – the cost of motor insurance explained” which details the money paid out on UK motor insurance claims:
- 37% bodily injury
- 19% overheads
- 17% property damage
- 17% accidental damage
- 4% replacement vehicles
- 2% theft
- 2% uninsured drivers
- 1% windscreen only
- 1% other claims
- Aviva published a booklet. ‘Aviva driving a better deal March 2016’ which stated that for their UK average £376 car insurance premium:
- 9% tax, 13% marketing / operational costs, 2% pre-tax profit.
- 76% is claims costs – the same as the ABI number… the claims costs can be further divided into:
- 38% on third party personal injury claims, such as whiplash
- 18% on third party car damage
- 17% on own car damage
- 2% on theft claims
- Less than 1% on windscreen damage
- Less than 1% on fire damage
There’s the punch line. The collision repair represents around one fifth of the total motor insurance company revenue, and is the most likely element to be controlled. The upshot is that the collision repair business sees itself as a key partner to insurers, but finance would suggest that insurers have bigger spend items to worry about.
However. Given the first part of this article and the relentless change going on right across vehicle technology, the situation of today is set to change quickly. Unchecked, vehicle damage costs could climb past 20% due to the following matters:
l Routing collision repair work through partners already on the telematics based system. Currently there is very little law in place anywhere to prevent this, which means a vehicle with ‘live maps’ which can also send data to the vehicle manufacturer retail outlet, can ensure all – and I mean all – work stays inside their network.
l Driver assistance systems for example may need to be rebuilt/reset/calibrated during the course of repair, a cost that does not appear in any insurer’s claims department. Whilst many of the systems may reduce the chance of impact, the initial technology wave is not without fault – and where there’s fault, an accident is waiting to happen.
There is no doubt this era is one of the most amazing, captivating and genuinely thrilling times for the growth of technology. Just remember to be the second or even the third person to jump in – only the trailblazers get the glory, but rarely the profits.
Auto Industry Consulting is an independent provider of technical information to the global collision repair industry. Products include EziMethods, our online collision repair methods system and Auto Industry Insider, our collision repair industry technical information website. For more information please visit the websites: www.ezimethods.com and www.autoindustryinsider.com or contact email@example.com