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
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USAGE-BASED INSURANCE ADOPTION What is driving this?
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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
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Technology costs have dropped
Pricing accuracy
Customers love it
Politically accepted
Accident reduction potential
Retention dramatically increased
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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)
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Appeals to participating consumers
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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.
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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
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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
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Various studies demonstrate predictive potential
Companies gain competitive advantage through better segmentation
Elimination of cross-subsidization is more “fair”
How does UBI work?
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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
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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!
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Challenges
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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
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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?
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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?
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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
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Data Transmission Costs and Alternatives
Data types
Record size
Frequency of transmission
Data Compression
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Data Uses
Data needed for loss cost models
Data consumer wants
Data for additional services
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VALUE Is it worth the investment?
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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?
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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
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Robin Harbage, FCAS MAAA
C-Counsel Consultant
EMB America LLC
622 Falls Rd
Chagrin Falls, OH 44022
(440) 725-6204