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Top 10 UBI Myths


    Insurance Telematics
       ExecuSummit
         May 2011
        Dave Huber
Top 10 UBI Myths

1. Just plug it into the       5. It takes lots of data
   OBD port                    6. You need GPS
2. You need to start with
                               7. Patents donʼt matter
   a pilot
                               8. You can wait
3. Itʼs all about the device
4. Itʼs all about reducing     9. Privacy is a roadblock
   crashes                     10. Itʼs too expensive
Myth #1
Just plug it into the OBD port
  UBI economics depend on self-installed telematics
  OBD data loggers arenʼt all the same
  Not all data loggers reliably collect data (typically speed) from
   all cars with OBD ports
  OBD protocols can vary even among year & trim for certain
   makes and models and CAN hasnʼt necessarily solved all the
   problems
  Diesels and hybrids can be problematic
  The location of the OBD port in some cars makes it impractical
   to plug in a data logger
  Expect 80% of new business vehicles to be eligible
  The best vendors have developed a list of ineligible YMMs
Myth #2
You need to start with a pilot
   Beware of pilots -- they slow you down
   So many of the insurers investigating UBI fall into the trap of “piloting”
    without clear objectives
   There are better ways to answer questions about device reliability,
    data capture & transmission and customer interest than through a pilot
   You also donʼt need pilots to do customer research and test marketing
    messages
   Pilots are good for simulating conditions for a rollout
   Theyʼre also helpful if funding is in question and you need to
    directionally prove the business case
   The insurers already in production love it when they hear competitors
    are piloting because it means their UBI advantage will last even longer
Myth #3
Itʼs all about the device
  Thereʼs a lot more to UBI programs than the hardware
  Self-installed OBD data loggers have become plentiful (see Myth #1
   as a reminder about data loggers)
  Vehicle eligibility and T&Cʼs need to be clear to potential customers
   and to agents and call center reps selling the product
  Donʼt overlook training especially if selling through the agent channel
  Fulfillment, support processes and systems arenʼt typically core
   competencies but are critical for successful UBI
  Integration with legacy systems can be an uphill battle
  Getting data for reporting can be like pulling teeth if not fully integrated
   into the policy system and backend systems
  UBI customers expect a well designed web UI
  If approached as an R&D effort, be prepared for push-back from the
   traditional product development area(s) who will feel threatened
Myth #4
Itʼs all about reducing crashes
  A lotʼs been written about the impact UBI will have on crash
   frequency
  Thereʼs evidence that UBI programs, through coaching, web &
   text alerts and even what-if tools that allow customers to model
   safe driving behaviors, can reduce frequency
  Itʼs not just fewer crashes that drive a lower loss ratio
  Self-selection exposes lower pure premium risks
  The uniqueness of UBI attracts more new business at lower
   acquisition costs
  UBI pricing ensures improved retention
  Mix improvements contribute to average written premium
   increases even after participation incentives and renewal
   discounts
Myth #5
It takes lots of driving data
  Granted more data is better than no data, but too much data can kill a UBI
   program
  Mileage (albeit self-reported mileage) filings are plentiful and can be used to
   get started
  DOIs are generally accommodating when you file discounts
  Your claims systems know when accidents happen; overlay VMT data to get
   time of day and day of week relativities and youʼll have the beginnings of a low
   risk - high risk miles matrix
  Several consortiums are attempting to short-cut the data gathering process; if
   successful, participation could turn your 5k ECYs into 50k ECYs
  Youʼll need to make a number of decisions about data: what data gets
   collected, sample rate, what gets stored onboard the device, what gets
   transmitted, how it gets transmitted, how often it gets transmitted, where it gets
   transmitted, what gets presented on the web, how often you get the data from
   the vendor (if you use a vendor) for policy setup, discount processing and
   actuarial analysis
  Donʼt be fooled by thinking a pilot is a data gathering exercise
Myth #6
You need GPS
 Well CA says you canʼt have it
 Plus you avoid the Big Brother discussion if you leave off GPS
 Data loggers without GPS are less expensive
 Time-stamped speed from the OBD port can produce plenty of
  actuarially rich data to keep the analysts and pricers busy
 From OBD, you can get speed, mileage, duration and trips all
  by date, time, ranges and changes
 Clustering and profiling can give you patterns, profiles and
  even scores
 What you miss without GPS are things like road type, territory,
  relative speed, geofencing and breadcrumbing
Myth #7
Patents donʼt matter
  Despite all thatʼs been written, U.S. insurers havenʼt paid
   attention nor do they have a strategy to combat
   competitive IP
  Thereʼs more to know than just the Progressive patents
  Mr. Perez and Mr. Nowotarski continue to comment on IP
   affecting UBI
  Avoid retrospective pricing
  And hope the OBD scan tool manufacturers dust off their
   technical documentation from the early ʻ90s
Myth #8
You can wait
 Like credit, the early adopters are enjoying the advantages of
  self-selection and eventually the benefits of adverse selection
 The sooner you start, the faster youʼll learn and the more
  driving data youʼll collect
 Sophisticated UBI pricing will come incrementally
 If you arenʼt offering mileage discounts today it will be a long
  time before you can price based on braking, commuting and/or
  the number of trips taken after midnight
 If the marketʼs hardening, drivers looking to prove they deserve
  a lower rate are going to be shopping for UBI
 And remember, donʼt fall in love with pilots -- they slow you
  down
Myth #9
Privacy is a roadblock
  Privacy is the primary concern of privacy advocates
  Big Brother is not spending all his time worried about UBI
  Privacy concerns can be minimized by:
      Keeping UBI programs voluntary
      Making the data transparent - customers need to know whatʼs being
       collected and exactly how it will affect their rates
      Using the web to show customers their data and discounts
      Not using the data to settle claims unless specified by the customer
      Allowing customers to own the data
  Insurers offering UBI products today have not suffered because
   of privacy issues
  In fact UBI demand typically out paces the availability of
   telematics devices (especially supply-constrained OBD data
   loggers)
Myth #10
Itʼs too expensive
  How is it that UBI can be profitable by giving away a telematics
   device, incurring fulfillment & data costs and giving discounts
   on top?
  The early adopters hope the rest of the industry keeps asking
   that question over and over again
  UBI is a strategic investment
  Costs are coming down because of technology advancements
   and improvements in the business model
  Todayʼs costs are more than offset by expected increases in
   quotes, conversion, awp, mix and retention as well as
   decreases in frequency
  The cost of NOT doing UBI will be very expensive

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Top 10 Ubi Myths

  • 1. Top 10 UBI Myths Insurance Telematics ExecuSummit May 2011 Dave Huber
  • 2. Top 10 UBI Myths 1. Just plug it into the 5. It takes lots of data OBD port 6. You need GPS 2. You need to start with 7. Patents donʼt matter a pilot 8. You can wait 3. Itʼs all about the device 4. Itʼs all about reducing 9. Privacy is a roadblock crashes 10. Itʼs too expensive
  • 3. Myth #1 Just plug it into the OBD port  UBI economics depend on self-installed telematics  OBD data loggers arenʼt all the same  Not all data loggers reliably collect data (typically speed) from all cars with OBD ports  OBD protocols can vary even among year & trim for certain makes and models and CAN hasnʼt necessarily solved all the problems  Diesels and hybrids can be problematic  The location of the OBD port in some cars makes it impractical to plug in a data logger  Expect 80% of new business vehicles to be eligible  The best vendors have developed a list of ineligible YMMs
  • 4. Myth #2 You need to start with a pilot  Beware of pilots -- they slow you down  So many of the insurers investigating UBI fall into the trap of “piloting” without clear objectives  There are better ways to answer questions about device reliability, data capture & transmission and customer interest than through a pilot  You also donʼt need pilots to do customer research and test marketing messages  Pilots are good for simulating conditions for a rollout  Theyʼre also helpful if funding is in question and you need to directionally prove the business case  The insurers already in production love it when they hear competitors are piloting because it means their UBI advantage will last even longer
  • 5. Myth #3 Itʼs all about the device  Thereʼs a lot more to UBI programs than the hardware  Self-installed OBD data loggers have become plentiful (see Myth #1 as a reminder about data loggers)  Vehicle eligibility and T&Cʼs need to be clear to potential customers and to agents and call center reps selling the product  Donʼt overlook training especially if selling through the agent channel  Fulfillment, support processes and systems arenʼt typically core competencies but are critical for successful UBI  Integration with legacy systems can be an uphill battle  Getting data for reporting can be like pulling teeth if not fully integrated into the policy system and backend systems  UBI customers expect a well designed web UI  If approached as an R&D effort, be prepared for push-back from the traditional product development area(s) who will feel threatened
  • 6. Myth #4 Itʼs all about reducing crashes  A lotʼs been written about the impact UBI will have on crash frequency  Thereʼs evidence that UBI programs, through coaching, web & text alerts and even what-if tools that allow customers to model safe driving behaviors, can reduce frequency  Itʼs not just fewer crashes that drive a lower loss ratio  Self-selection exposes lower pure premium risks  The uniqueness of UBI attracts more new business at lower acquisition costs  UBI pricing ensures improved retention  Mix improvements contribute to average written premium increases even after participation incentives and renewal discounts
  • 7. Myth #5 It takes lots of driving data  Granted more data is better than no data, but too much data can kill a UBI program  Mileage (albeit self-reported mileage) filings are plentiful and can be used to get started  DOIs are generally accommodating when you file discounts  Your claims systems know when accidents happen; overlay VMT data to get time of day and day of week relativities and youʼll have the beginnings of a low risk - high risk miles matrix  Several consortiums are attempting to short-cut the data gathering process; if successful, participation could turn your 5k ECYs into 50k ECYs  Youʼll need to make a number of decisions about data: what data gets collected, sample rate, what gets stored onboard the device, what gets transmitted, how it gets transmitted, how often it gets transmitted, where it gets transmitted, what gets presented on the web, how often you get the data from the vendor (if you use a vendor) for policy setup, discount processing and actuarial analysis  Donʼt be fooled by thinking a pilot is a data gathering exercise
  • 8. Myth #6 You need GPS  Well CA says you canʼt have it  Plus you avoid the Big Brother discussion if you leave off GPS  Data loggers without GPS are less expensive  Time-stamped speed from the OBD port can produce plenty of actuarially rich data to keep the analysts and pricers busy  From OBD, you can get speed, mileage, duration and trips all by date, time, ranges and changes  Clustering and profiling can give you patterns, profiles and even scores  What you miss without GPS are things like road type, territory, relative speed, geofencing and breadcrumbing
  • 9. Myth #7 Patents donʼt matter  Despite all thatʼs been written, U.S. insurers havenʼt paid attention nor do they have a strategy to combat competitive IP  Thereʼs more to know than just the Progressive patents  Mr. Perez and Mr. Nowotarski continue to comment on IP affecting UBI  Avoid retrospective pricing  And hope the OBD scan tool manufacturers dust off their technical documentation from the early ʻ90s
  • 10. Myth #8 You can wait  Like credit, the early adopters are enjoying the advantages of self-selection and eventually the benefits of adverse selection  The sooner you start, the faster youʼll learn and the more driving data youʼll collect  Sophisticated UBI pricing will come incrementally  If you arenʼt offering mileage discounts today it will be a long time before you can price based on braking, commuting and/or the number of trips taken after midnight  If the marketʼs hardening, drivers looking to prove they deserve a lower rate are going to be shopping for UBI  And remember, donʼt fall in love with pilots -- they slow you down
  • 11. Myth #9 Privacy is a roadblock  Privacy is the primary concern of privacy advocates  Big Brother is not spending all his time worried about UBI  Privacy concerns can be minimized by:  Keeping UBI programs voluntary  Making the data transparent - customers need to know whatʼs being collected and exactly how it will affect their rates  Using the web to show customers their data and discounts  Not using the data to settle claims unless specified by the customer  Allowing customers to own the data  Insurers offering UBI products today have not suffered because of privacy issues  In fact UBI demand typically out paces the availability of telematics devices (especially supply-constrained OBD data loggers)
  • 12. Myth #10 Itʼs too expensive  How is it that UBI can be profitable by giving away a telematics device, incurring fulfillment & data costs and giving discounts on top?  The early adopters hope the rest of the industry keeps asking that question over and over again  UBI is a strategic investment  Costs are coming down because of technology advancements and improvements in the business model  Todayʼs costs are more than offset by expected increases in quotes, conversion, awp, mix and retention as well as decreases in frequency  The cost of NOT doing UBI will be very expensive