Learn How to Prepare for Usage Based Insurance Roll-Out

Usage-based Insurance Telematics Detroit 2010 Robin Harbage C-Counsel Consultant

Agenda

Adoption patterns of telematics insurance

• Usage-based insurance will enable a competitive edge

Key steps in implementation of an economically viable usage-based insurance product with mass consumer appeal

© 2009 EMB. All rights reserved. Slide 2

USAGE-BASED INSURANCE ADOPTION What is driving this?


Personal Auto

Early pilots used professionally installed OEM or after-market devices

Subsidized cost for learning

Inconvenient for consumers and low adoption rate

Opportunities as device costs decline

Multiple electronic makers offering devices

Reliable self-installed devices becoming available


Technology costs have dropped

Pricing accuracy

Customers love it

Politically accepted

Accident reduction potential

Retention dramatically increased

© 2008-2009 EMB. All rights reserved.

Slide 6

Telematics Timeline

Monitored Driving Programs

Hollard – SA

Uniqua – Austria

WGV - Germany

AXA – France, Ireland, Italy

Allianz – Italy

Lloyd Adriatic – Italy

Reale Mutua – Italy

Sara – Italy

Polis Direct - Netherlands

MAPFRE - Spain

Norwich Union – UK (discontinued)

Royal & Sun - UK

Coverbox – UK

AIOI – Japan

Real Insurance – Australia

Aryeh - Israel

Aviva – Canada & Europe

Progressive – US

GMAC - US

Safeco – US

American Family – US

Milemeter – US

Travelers – US

CSAA - US

Unigard – US (pending)


Appeals to participating consumers


Once educated, UBI appeals to consumers

Makes sense

Controllable

Side benefits

As it is causal, reduces reliance on risk proxies

Insurance credit scores

Driver assignment

Charges for relatively rare accidents, convictions

UBI COMPETITIVE EDGE The smart will prosper.


Slide 10

Key Benefits of Telematics

Customer

Significant reduction in premium for good risks Less cross-subsidy for poorer drivers Feedback and recommendations for improving driving Empowerment – more control over premium Social benefits Opportunity for ancillary benefits

Insurer

Improved ability to assess risk Improvement in profitability:

Improved Loss Ratio Increased persistency

Better Customer segmentation and targeting Self-selection by customers further compounds risk benefits Avoid adverse selection

You have to get the customer proposition right – sharing the benefits You have to get the customer proposition right – sharing the benefits

Slide 11

Historical Perspective

Motor insurers have historically used risk proxy factors for assessing and pricing risk

Age Gender Marital status Garaging address Use (personal, business, etc) Convictions Credit Vehicle type

Age Gender Marital status Garaging address Use (personal, business, etc) Convictions Credit Vehicle type

Risk Proxy Factors Genuine, Fundamental Risk Drivers

When?

Where?

How?

How Much?

At what time of the day is the vehicle used?

What type of road is the car driven on?

How is the vehicle driven – how fast and how safely?

How many miles does the vehicle travel?

To date, these approximations have been good enough but technological advancements mean access to fundamental risk data is now achievable

To date, these approximations have been good enough but technological advancements mean access to fundamental risk data is now achievable

?

Tremendous predictive power


Various studies demonstrate predictive potential

Companies gain competitive advantage through better segmentation

Elimination of cross-subsidization is more “fair”

How does UBI work?


Customer Feedback Loop

Company Feedback Loop

Collect & Analyze Market Quote

Feed

back

Underwriting

Impr

ove

Driv

ing Driver

Driv

ing

Sco

re

Policy Period

Impr

ove

Rat

ing

Improves driving and reduces accidents


UBI experience significantly better

Early adopters will have increased profits and a competitive advantage

Norwich Union: 30% frequency reduction

GreenRoads: >50% improvement in fleet crash rate

Iceland postal service reduced crash rate by 56% Pepsi (Iceland) reduced fleet crash rates by over 80%

Risk Segmentation Deriving risk factors from the data, and applying loadings / discounts to customers to enhance selection

Risk Influence Customer feedback on behaviours to avoid Reducing Vehicle usage overall, and especially higher risk miles

Claims Effectiveness Informing the claims process Use of telematic data as evidence

Self Selection Reducing underwriting and claims fraud

KEY STEPS Do it right and make money!


Challenges


1. Building customer proposition

2. Technology

3. Collecting and storing data

4. Translating data into risk exposure

5. Integration with existing systems

6. Customer interactions

7. Business risks


Alternative Models

Dedicated Device Insurance must pay for device and install

Need self install to appeal to mass market – Reasonable cost

– Ease of use

Shared Services Device Device is able to support added value services outside insurance for example – Satellite Navigation

– Rerouting to avoid Traffic Congestion

– Theft Tracking

– Speed camera warnings

– Emergency Call etc.

Hard install may be required for these

Important Questions

What should device specifications include?

What devices include critical functionality?

What investment is the required and how to optimize the return?

What data is pertinent?

Is the data accurate?

How much data is required?

How to transfer, store, and analyze all this data?

What do consumers want?

How to begin without loss cost models?


Device Installation

Are vehicles compatible with the device?

Self-installable:

Simple and convenient?

Documentation and customer support?

Verify installation?

Professionally installed:

Arrangements with installers?

Cost and time required?



Installation

OBD: Vehicle Event messages, VIN Number, Odometer reading, Speed OBD: Vehicle Event messages, VIN Number, Odometer reading, Speed

Data Sources

Internally recorded by device

Clock, Accelerometer

Obtained from vehicle diagnostics

VIN, Odometer, Speedometer, Engine operation

Obtained from external sources

GPS, Maps, Weather, Traffic

Developed from raw data


Data Transmission Costs and Alternatives

Data types

Record size

Frequency of transmission

Data Compression


Data Uses

Data needed for loss cost models

Data consumer wants

Data for additional services


VALUE Is it worth the investment?



Added Value Services

Subscription services could help subsidize the costs Subscription services could help subsidize the costs

Safe Driver Coaching In vehicle feedback Web site reports

Emergency Call

Detect significant impacts Send text alerts (“Where am I” message) Real-time service to dispatch help

Theft Service Detect motion without ignition Tracking and call for help

Geo-fence Service

Detect location outside boundary zone Trigger notification

Customer Feedback

What does this mean?


Devices can track simple or very detailed driving behavior

Significantly increase pricing accuracy

Minimize reliance on detailed questions and controversial proxy variables

Help customers understand and eliminate risky behaviors

Differentiate product offering via additional services

All this means increased profits and retention!

Contact Info


Robin Harbage, FCAS MAAA

C-Counsel Consultant

EMB America LLC

622 Falls Rd

Chagrin Falls, OH 44022

[email protected]

(440) 725-6204

Learn How to Prepare for Usage Based Insurance Roll-Out

Education

rights slide

device insurance

fundamental risk data

risk exposure

usagebased insurance

fundamental risk drivers

shared services device

device specifications