City Safety is designed to stop rear-end crashes in commuter traffic, below 30km/h. It automatically brakes the car if the driver fails to react in time when the vehicle in front slows down or stops - or if the car is approaching a stationary object too fast.
If the relative speed difference between the two vehicles is below 15km/h, the collision can be avoided altogether.
If the speed difference is between 15 and 30km/h, the speed of impact is reduced to minimise the effects of the accident.
In New Zealand, City Safety is standard on all XC60 models as well as the S60 sedan and V60 wagon.
"This is our first real-world look at an advanced crash avoidance technology, and the findings are encouraging," said Adrian Lund, president of the institute.
"The pattern of results strongly indicates that City Safety is preventing low-speed crashes and reducing insurance costs.
"That's great news for consumers. As people grow more aware of the risks of distracted driving, crash avoidance systems like this one can help ensure that a momentary lapse of attention during a congested commute doesn't result in a crash.
"Crash avoidance technology has a lot of promise," Lund said. "We're doing more research to see if other systems live up to their billing."