Automated Agreements: CarWolf
Opportunity
Numerous parties could benefit from a system whereby complete car operating and service history for the entire auto market is maintained in a secure, verifiable, permission-ledger system. Insurance providers would be able to characterize risk more accurately for an individual driver by not only collecting data on how the driver uses the car (e.g. Progressive Snapshot), but also by having a complete picture on the “health” of the car, regardless of whether the car was new or used. While CarFax attempts to compile some of this information, it is extremely limited in scope. In addition to insurance providers, car manufacturers, with an accurate picture of a car’s usage, would be able to schedule tailored service, as opposed to following a set maintenance interval, regardless of whether the car was new, used, or “certified-new.” Over time, the manufacturers would be able to develop warranties that are more in line with actual needs.
While the above discussion highlights the direct benefits of such a system, there is another obvious indirect benefit from such a system: the complete historical record of all car operating and service information would solve the problem associated with asymmetric information in the “market for lemons.” Neither buyer nor seller would have a one-sided information advantage, leading to the creation of value by more closely matching demand with supply, and price with value.
Solution
Our solution is to employ blockchain technology in a permissioned-ledger system to create an immutable record of every car’s history by attaching operating and service data to the vehicle identification number (VIN), thereby providing car manufacturers with actionable car operating data and solving asymmetric information problems on behalf of both insurance companies and consumers. The CarWolf system consists of two key components: the actual distributed-ledger system and a “black box” collecting car operating information.
While the CarWolf distributed-ledger system would compile all car information via blockchain technology and be permissioned to protect all parties involved, the “black box” would plug into the service port in a car and access car operating information, similar to Progressive’s Snapshot. However, unlike Snapshot, Wolfshot ™ would collect the information and periodically upload it to the blockchain via a mobile app, providing an immutable record of the car operating data. Unlike Progressive Snapshot, the CarWolf system would also require maintenance providers to upload service performed, whether routine or unscheduled, to the blockchain in order to attach a more complete picture of the car’s health. Maintenance providers would be incentivized to upload information either based on being the service department in a dealership (therefore doing so on behalf of the car manufacturer) or by being in the “provider network” for a particular insurance company. The insurance company would benefit from having a more complete picture of a car’s history from which to assign risk and value the car, and the maintenance provider would benefit from being the recipient of more business. Finally, title information would get uploaded to give a complete picture of car ownership.
Design of demonstration
To demonstrate the value of the business, we would want to highlight three key points: first, that system can collect complete car operating data; second, that the available information would vastly exceed currently available sources to solve information challenges for manufacturers, insurance providers, and car buyers; lastly, that the system would be able to handle the quantity of information provided in an immutable ledger. Therefore, the demonstration would use a car with Wolfshot installed and compile information over a 6-month period. Concurrently, the car owner would provide service records over the same period of time to provide a point of comparison of information available under current mechanisms in the most optimal use case. The car and current documentation would then be made available to a set of manufacturers, insurance providers, used car dealers, and prospective buyers, whereby all parties would be asked to estimate the particular metric for their given interests (e.g. the insurance provider estimates monthly premiums while the used car dealer estimates the resale price). Finally, the complete CarWolf data would be made available to another set of the above parties performing the same tasks. The difference between the estimates would quantify the benefit of CarWolf for the various applications.
Pilot Program
Given that the success of this program is dependant on having a large amount of cars in the network and participation from both insurance companies and auto shops, the pilot program would likely begin by partnering with an insurance provider to kick start the program. The insurance companies would offer customers a discount on their policy for using Wolfshot in their car. Wolfshot would not only capture information about how the car was driven, but also record information reflective of the overall health of the car, such as how frequently the oil is changed, wear on the brakes, accident history and all work done on the car. This information would then be stored on the CarWolf blockchain. The program would then track how much the car was resold for over time and the adjustments in users insurance policies based off of the information from Wolfshot. By the end of the pilot we would ideally have collected enough data to show that there were significant savings from the more accurate resale values and adjusted insurance rates to expand to other insurance companies.
Commercial Viability
Given the size of the used car market (~40 million cars sold annually) and the extent to which comparable businesses presently thrive, it is clear that there is a demand for vehicle information to inform better buying and insuring decisions. Since several businesses have demonstrated success by attempting to address this concern, it appears likely that an incorruptible, immutable, and more complete vehicle history has value in the market. The biggest barrier to commercial viability is driving adoption of the Wolfshot device. Without new data, such as that automatically generated by the Wolfshot device, the business is little more than Carfax made faster, more secure, and more efficient through the use of blockchain. Vehicle manufacturers who fare well in reliability rankings would stand to enhance their favorable positions via the longevity, value-retention, and reliability data CarWolf would provide, while vehicle manufacturers who tend to fare poorly in reliability rankings would be incentivized to increase their performance in these metrics as they face higher degrees of transparency and accountability in the market. Privacy-conscious car owners may hesitate to feed car and driving information to a third party without a proper incentive and measures to mitigate their privacy concerns. Therefore, the success of the venture depends, at least in part, on broad adoption of the Wolfshot device. The design of the Wolfshot device, and that design’s ability to mitigate privacy and trust concerns from the consumer, are critical to this broad adoption. One component of the value proposition to the car-owner is the prospect of selling their vehicle for a higher price in the used car market. Further incentives would involve reduced rates with insurance providers and at local partner garages in the CarWolf network.
Sources:
Blackbox https://www.moneysupermarket.com/car-insurance/how-does-black-box-insurance-work/
Used Vehicle Sales Look Set to Hit All-time High in 2016
https://www.cnbc.com/2016/12/05/used-vehicle-sales-look-set-to-hit-all-time-high.html
Progressive Snapshot
https://www.progressive.com/auto/discounts/snapshot/snapshot-common-questions/
CARFAX
Edmunds 2017 Used Car Report
Automotive OEM Warranty Report
http://www.warrantyweek.com/archive/ww20180405.html
Team Members:
Thomas DeSouza, Matthew Nadherny, Patrick Rice, Samuel Spletzer