High Costs of High Tech Christine OBrien President

“High Costs of High Tech” Christine O’Brien, President Insurance Council of New Jersey Susanna Gotsch, Director/Industry Analyst CCC Information Services Tim Adelmann, Executive Vice President ABRA Auto Body & Glass Jenny Anderson, Collision Director Enterprise Holdings Scot Zajic, Vice President Legislative Affairs Safelite

Accident Counts Grow with Fleet by Frequency Stabilizes 2 ® 2017 CCC Information Services Inc. Confidential and Proprietary. All rights reserved. Source: National Safety Council, Injury Facts. ISS Fast Track Plus™ Personal Auto, As of March 31, 2017

What’s Driving Frequency Miles Driven Speed Limits / Road Congestion §Distracted Driving Vehicle Technology §Weather • 3%+ increase in miles traveled in CY 15 and CY 16 – has slowed to just 1% increase rolling 12 mos. thru Jun ‘ 17 • Low unemployment and gas prices driving increase in miles • U. S. EIA forecasts gas prices to remain below $3 per gallon thru 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 CY 04 to 71% in CY 17 • 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 email 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. 3 ® 2017 CCC Information Services Inc. All rights reserved. ® 2017 CCC Information Services Inc. Confidential and Proprietary. All rights reserved. Source CCC Information Services Inc.

Vehicle Complexity Rises 11. 4 average Honda Accord LX example Audi A 8 example parts replaced per collision claim across all CCC vehicles 1996 Right adaptive cruise control camera 2015 Left adaptive cruise control camera Mercedes-Benz E-Class example 213 ECUs Complexity increases cost and value of repairs 4 ® 2017 CCC Information Services Inc. Confidential and Proprietary. All rights reserved. Source CCC Information Services Inc.

What’s Driving Up Costs Strong New Vehicle Sales • 17. 539 M sales – new record in CY 2016 • More new vehicles appear in claim mix • Average new MSRP exceeds $35 K while median income only $55 K Consumer Preference for Light Trucks • 60% vehicles sold in CY 16; 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 5 ® 2017 CCC Information Services Inc. All rights reserved. ® 2017 CCC Information Services Inc. Confidential and Proprietary. All rights reserved. Source CCC Information Services Inc.

Vehicle Fleet at “Bookends” 7 years of new vehicle sales growth All Claims Repairable Claims Total Loss Claims Average of U. S. vehicle fleet 11. 6 years as vehicle reliability has improved Low scrappage rates 6 ® 2017 CCC Information Services Inc. Confidential and Proprietary. All rights reserved. Source CCC Information Services Inc.

Claim Costs Have Risen Coming Out of Recession The difference in average TCOR for the newest versus oldest vehicles grew from 47% to 67% in the last five years Assuming similar shift in volume by age and similar repair cost and total loss cost increases projected 2017 increase = 4. 1% 7 ® 2017 CCC Information Services Inc. Confidential and Proprietary. All rights reserved. Source CCC Information Services Inc.

Method of Inspection Continues to Change 8 ® 2017 CCC Information Services Inc. All rights reserved. ® 2017 CCC Information Services Inc. Confidential and Proprietary. All rights reserved. Source CCC Information Services Inc.

A Look Into The Future Market Forces Gas prices expected to stay below $3 per gallon through 2018 U. S. VIU will continue to grow – growing exposure New vehicle sales driving more costly complex vehicles into the VIO Technology in vehicles points to longer term fewer but more expensive repairs Vehicle repair costs will increase 3 -4% annually Growth in volume share of newer MY vehicles 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 More volume passing through regional and national MSO’s 9 ® 2017 CCC Information Services Inc. All rights reserved. ® 2017 CCC Information Services Inc. Confidential and Proprietary. All rights reserved.

State Insurance Trade Association Tim Adelmann ABRA Auto Body & Glass 1 This information is confidential and proprietary and may not be used, copied or disseminated in any form without the express written consent of ABRA Auto Body & Glass.

Average Auto Repair Costs Rise Steadily, Increasing 19. 3% from 2009 -2016 Source: CCC Information Services Inc. This information is confidential and proprietary and may not be used, copied or disseminated in any form without the express written consent of ABRA Auto Body & Glass.

Supplements as Percentage of Total Repair Cost Rising as More Complex Vehicles Make Initial Claims Estimates a Challenge This information is confidential and proprietary and may not be used, copied or disseminated in any form without the express written consent of ABRA Auto Body & Glass. Source: CCC Information Services Inc.

Labor Costs for Auto Repair Body Work on the Rise This information is confidential and proprietary and may not be used, copied or disseminated in any form without the express written consent of ABRA Auto Body & Glass. Source: CCC Information Services Inc.

T 1 h 4 i s i n f o r m a t i o n Parts Accounting for Greater Share of Overall Repair Costs i s c o n f i This information is confidential and proprietary and may not be used, copied or disseminated in any form without the express written consent of ABRA Auto Body & Glass.

T 1 h 5 i s Part Complexity Grows i n f o r m a t i o n i s c o n f i This information is confidential and proprietary and may not be used, copied or disseminated in any form without the express written consent of ABRA Auto Body & Glass.

T 1 h 6 i s i n f o r m a t i o n Replacement Parts Grow with Newer Vehicles Collision and Liability Repairable Appraisals by Vehicle Age Group Calendar Years 2001 / 2009 / 2016 i s c o n f i This information is confidential and proprietary and may not be used, copied or disseminated in any form without the express written consent of ABRA Auto Body & Glass.

T 1 h 7 i s Cost of Replacement Parts Accelerates i n f o r m a t i o n i s c o n f i This information is confidential and proprietary and may not be used, copied or disseminated in any form without the express written consent of ABRA Auto Body & Glass.

Materials Proliferate – Extreme Example Redesigned Audi A 8’s ‘Aluminum Space Frame’ contains 29 different materials put together with 14 joining processes Carbon fiber rear panel won't go into car until final assembly, pre-fitted with speakers, louvre, seatbelts and rear armrest. It accounts for 33% of torsional stiffness This information is confidential and proprietary and may not be used, copied or disseminated in any form without the express written consent of ABRA Auto Body & Glass. Source: https: //www. just-auto. com/pap. aspx? ID=175810

More Sensors and Cameras Advanced safety systems requiring more cameras and sensors - many located high impact areas Examples: camera mounted in the grille Examples sensors mounted in side view and rear view mirrors and tailgate latch Source: http: //www. searchautoparts. com This information is confidential and proprietary and may not be used, copied or disseminated in any form without the express written consent of ABRA Auto Body & Glass.

Crash Avoidance Requires More Sensors As more sensors are added to facilitate crash avoidance => more to potentially be damaged This information is confidential and proprietary and may not be used, copied or disseminated in any form without the express written consent of ABRA Auto Body & Glass.

Collision Industry LOR – U. S. *Excludes Total Loss This information is confidential and proprietary and may not be used, copied or disseminated in any form without the express written consent of ABRA Auto Body & Glass.

Overall Industry LOR – U. S. This information is confidential and proprietary and may not be used, copied or disseminated in any form without the express written consent of ABRA Auto Body & Glass.

LOR August 2017 11. 0 11. 6 9. 4 9. 0 10. 1 12. 5 11. 0 12. 5 14. 4 9. 5 10. 1 11. 3 11. 1 10. 7 11. 2 12. 0 11. 2 11. 3 12. 2 12. 5 11. 0 11. 4 12. 2 10. 3 10. 7 11. 9 11. 0 12. 1 12. 2 12. 0 13. 0 11. 8 11. 6 11. 7 11. 1 11. 4 13. 3 11. 8 9. 4 11. 4 14. 9 10. 6 13. 6 12. 6

LOR 12 Month By State 11. 0 12. 1 9. 8 9. 4 10. 2 9. 4 12. 8 10. 8 12. 4 12. 5 9. 6 11. 9 9. 4 11. 3 10. 5 11. 4 12. 6 11. 1 12. 2 12. 3 13. 6 11. 1 11. 3 12. 3 11. 3 12. 7 11. 4 10. 5 12. 1 12. 3 11. 9 11. 7 11. 2 12. 3 12. 2 12. 6 13. 6 11. 6 13. 6 14. 0 11. 4 9. 7 13. 9 11. 0 12. 6

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2017 SITA Conference Presentation Title Vail, CO High Costs of High Tech VGRR Services goes here Scot Zajic Vice President – Legislative Affairs Safelite Group, Inc.

HIGH COSTS OF HIGH TECH DISCUSSION TOPICS: VGRR SERVICES 1. SAFETY – ADAS 2. COMPLEXITY – INCREASED COSTS 3. OTHER RISKS – CURRENT AND FUTURE

Glass has long been a key safety component of vehicles. A properly installed windshield helps in four ways: 1 Keeping the occupants from being ejected in the event of a collision 2 Keeping objects from entering the vehicle 3 Aiding in airbag deployment by acting as a “backboard” for the airbag 4 Preventing the roof from caving in during a rollover

What causes glass damage?

ADAS: The New Frontier

What is ADAS? Advanced Driver Assistance Systems (commonly referred to as ADAS) are designed to assist the driver and make the vehicle safer with the end goal of reducing collisions and injuries.

Accelerated growth is projected The ADAS market is expected to be worth ~$15 billion by 2020. Source: Specialty Analytics; based on a compound annual growth rate (CAGR) of 23% This information is confidential and proprietary and may not be used, copied or disseminated in any form without the express written consent of ABRA Auto Body & Glass.

ADAS camera recalibration 101: two processes STATIC: Requires a specific target Image mounted on a fixture DYNAMIC: Requires driving vehicle at set speed on well marked roads to calibrate system This information is confidential and proprietary and may not be used, copied or disseminated in any form without the express written consent of ABRA Auto Body & Glass.

ADAS will increase your costs • The windshields are more expensive • The cameras need to be recalibrated after replacement • Some dealer recalibration invoices over $2000 • Average should settle around $300 This information is confidential and proprietary and may not be used, copied or disseminated in any form without the express written consent of ABRA Auto Body & Glass.

By end of 2017, we will have 97% of brands covered March May August September October Please note: The coverage within each brand varies based on model and year.

Complexity: Increased Costs

It’s not your father’s windshield anymore

Design attributes are also impacting glass complexity and cost Due to fuel reduction initiatives and overall vehicle design changes, glass is becoming: 1 Larger & more prevalent 2 Thinner 3 More curved

One example of the shift in windshield complexity 2010 Chevrolet Cruze • One windshield option when model first introduced in 2010 • Sold 1. 24 M units Source: Good Car Bad Car Cruze Sales from 2010 -2015 2016 Chevrolet Cruze • Five windshield options ranging from plain solar glass to the most complex having acoustic, condensation sensor, forward collision alert & lane departure features • On track to sell similar # as 2010 • More options means lower batch runs, change over time & more value add required

Five ways these complexities are impacting price 1 Manufacturing 2 Packaging 3 Supply chain 4 Installation 5 Recalibration

Shift in vehicle demographics means newer, more expensive to repair vehicles [CATEGOR Y NAME] [VALUE] 2012 Current Yr or Newer Group, 6. 9% [CATEGOR Y NAME] [VALUE] 2016 1 -3 Years Old 33. 1% 7 years and older 38. 1% [CATEGOR Y NAME] [VALUE] § 1 -3 year old vehicles increased 37. 3% § 4 -6 year old vehicles decreased 23. 6% § 7 years old + decreased 5. 9% 4 - 6 Years Old, 21. 7% Record new car sales in 2016 … 17. 5 Million

National Auto Glass Specifications (NAGS) List Price

Other Risks: Current and Future

Additional Risk Factors to Consider ADAS to Autonomous: OEM Self Funding Liability • • • Bypass State Laws: Anti-steering/Unfair Claims Own all vehicle data Control and direct all claims services John Deere Legislation • • • IL, MO, & NE (IL & MO include auto) Access to mechanical repair codes Could include all repair devices Insurance Fraud • • Use of technology (AOB) Robo-dialing