Learn How to Prepare for Usage Based Insurance Roll-Out


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  • A very interesting and useful presentation and surely the way in which insurance ultimately must go
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Learn How to Prepare for Usage Based Insurance Roll-Out

  1. 1. Usage-based Insurance Telematics Detroit 2010 Robin Harbage C-Counsel Consultant
  2. 2. 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
  3. 3. USAGE-BASED INSURANCE ADOPTION What is driving this? © 2008 EMB. All rights reserved. Slide 3
  4. 4. 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 © 2009 EMB. All rights reserved. Slide 4
  5. 5. Technology costs have dropped Pricing accuracy Customers love it Politically accepted Accident reduction potential Retention dramatically increased
  6. 6. Telematics Timeline © 2008-2009 EMB. All rights Slide 6 reserved.
  7. 7. Monitored Driving Programs Hollard – SA AIOI – Japan Uniqua – Austria Real Insurance – Australia WGV - Germany Aryeh - Israel AXA – France, Ireland, Italy Aviva – Canada & Europe Allianz – Italy Progressive – US Lloyd Adriatic – Italy GMAC - US Reale Mutua – Italy Safeco – US Sara – Italy American Family – US Polis Direct - Netherlands Milemeter – US MAPFRE - Spain Travelers – US Norwich Union – UK (discontinued) CSAA - US Royal & Sun - UK Unigard – US (pending) Coverbox – UK © 2009 EMB. All rights reserved. Slide 7
  8. 8. 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 © 2009 EMB. All rights reserved. Slide 8
  9. 9. UBI COMPETITIVE EDGE The smart will prosper. © 2008 EMB. All rights reserved. Slide 9
  10. 10. Key Benefits of Telematics Customer Insurer Significant reduction in premium Improved ability to assess risk for good risks Improvement in profitability: Less cross-subsidy for poorer Improved Loss Ratio drivers Increased persistency Feedback and recommendations Better Customer segmentation for improving driving and targeting Empowerment – more control Self-selection by customers over premium further compounds risk benefits Social benefits Avoid adverse selection Opportunity for ancillary benefits You have to get the customer proposition right – sharing the benefits Slide 10
  11. 11. Historical Perspective Motor insurers have historically used risk proxy factors for assessing and pricing risk Risk Proxy Factors Genuine, Fundamental Risk Drivers  Age At what time of the day is the vehicle  Gender When? used?  Marital status  Garaging address Where? What type of road is the car driven on?  Use (personal, business, etc) ?  Convictions  Credit How is the vehicle driven – how fast How?  Vehicle type and how safely? How How many miles does the vehicle Much? travel? To date, these approximations have been good enough but technological advancements mean access to fundamental risk data is now achievable Slide 11
  12. 12. Tremendous predictive power Various studies demonstrate predictive potential Companies gain competitive advantage through better segmentation Elimination of cross-subsidization is more “fair” © 2009 EMB. All rights reserved. Slide 12
  13. 13. How does UBI work? Driver Improve Driving Feedback Customer Feedback Loop Policy Period Market Quote Collect & Analyze Driving Score Improve Rating Company Feedback Loop Underwriting © 2008 EMB. All rights reserved. Slide 13
  14. 14. Improves driving and reduces accidents UBI experience significantly better 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% Early adopters will have increased profits and a competitive advantage © 2009 EMB. All rights reserved. Slide 14
  15. 15. 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
  16. 16. KEY STEPS Do it right and make money! © 2008 EMB. All rights reserved. Slide 17
  17. 17. 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 © 2009 EMB. All rights reserved. Slide 18
  18. 18. 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 © 2009 EMB. All rights reserved. Slide 19
  19. 19. 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? © 2009 EMB. All rights reserved. Slide 20
  20. 20. 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? © 2009 EMB. All rights reserved. Slide 21
  21. 21. Installation OBD: Vehicle Event messages, VIN Number, Odometer reading, Speed © 2009 EMB. All rights reserved. Slide 22
  22. 22. 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 © 2009 EMB. All rights reserved. Slide 23
  23. 23. Data Transmission Costs and Alternatives Data types Record size Frequency of transmission Data Compression © 2009 EMB. All rights reserved. Slide 25
  24. 24. Data Uses Data needed for loss cost models Data consumer wants Data for additional services © 2009 EMB. All rights reserved. Slide 26
  25. 25. VALUE Is it worth the investment? © 2008 EMB. All rights reserved. Slide 27
  26. 26. Added Value Services 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 Subscription services could help subsidize the costs © 2009 EMB. All rights reserved. Slide 28
  27. 27. Customer Feedback
  28. 28. 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! © 2008 EMB. All rights reserved. Slide 30
  29. 29. Contact Info Robin Harbage, FCAS MAAA C-Counsel Consultant EMB America LLC 622 Falls Rd Chagrin Falls, OH 44022 Robin.harbage@emb.com (440) 725-6204 © 2008 EMB. All rights reserved. Slide 31