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Insurance telematics is here to stay. See how you can claim your stake in this developing market. -Analyze insurers’ timescales and plans for the next 5 years to ensure your services and product offerings are in sync with their internal strategies. -Examine what lessons can be learnt from pilot schemes to determine how you can be one step ahead of the game -Hear how telematics can revolutionize insurance pricing options and business models to create a win-win scenario for both the customers and the insurers
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Usage-based Insurance: How soon? How fast?Insurance Telematics 2010
Robin Harbage
C-Counsel Consultant
Agenda
Who is EMB?
Insurer timescales and plans
Lessons from pilot products
UBI pricing options and business models
© 2009 EMB. All rights reserved. Slide 3
© 2010 EMB. All rights reserved. Slide 4
Introducing EMB
Leading independent consultancy for P&C insurersMore than 300 employees in 12 countries in 6 continents
6 US offices; over 35 employeesSoftware and consulting are an important part of our services
EMB Consulting facts
EMB consultants expertise gained over many years in the industry
Blend global best practices with local knowledge
Clients span the spectrum of companies
Personal and commercial
Small specialists to the very largest companies
© 2010 EMB. All rights reserved. Slide 5
EMB has consulted with 28 of the top 30 global P&C companies
EMB Software facts
EMB has sold over 3,000 licences worldwide to over 500 clients
Over 80% of the world’s top 50 P&C insurance companies
9 of top 10 US auto insurers
19 of top 20 UK auto insurers
Over 55 companies in US, including small specialist companies
Tremendous support/developmentUS consultants (who use the products) handle support
50 developers / consultants and millions of dollars dedicated to software development each year
© 2010 EMB. All rights reserved. Slide 6
EMB is the leading producer of actuarial software
UBI TIMELINE
© 2008 EMB. All rights reserved. Slide 7
Consumer reaction positive
© 2009 EMB. All rights reserved. Slide 8
UK survey found 63% of consumers declared strong interest in an
insurance program to encourage safe driving
Response is 90% positive for monitored safe driving discount
when including “possible interest”
Consumers overwhelmingly indicate an understanding and
acceptance of the link between driving behavior and premium
Regulators largely support UBI
© 2009 EMB. All rights reserved. Slide 9
Unlike many innovations, regulators view positively
“Fairly” discriminatory
Saves lives
Environmentally friendly
Addresses affordability issues
Easily understood
EMB has experienced very positive reactions when introducing usage-based programs to the US market.
© 2009 EMB. All rights reserved.
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
InsureTheBox – UK
Royal & Sun - UK
Coverbox – UK
AIOI – Japan
Real Insurance – Australia
Aryeh - Israel
Aviva – Canada & Europe
Progressive – US
GMAC - US
Liberty Mutual– US
American Family – US
Milemeter – US
Travelers – US
CSAA - US
Unigard – US (pending)
Slide 11
© 2008-2009 EMB. All rights reserved.
Slide 12
Telematics Timeline
High functionality
Medium functionality
Low functionality
Events Progressive patents Road charging for lorries in Europe 1 million fleet telematics installations in EUPerez patent
Telematics insured
1998 1999 2000
1,500 1,500 0
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
0 0 0 0 25,000 100,000 400,000 1,000,000 ? ? ? ?
Progressive Pilot (US)
Norwich Union Pilot
Progressive Tripsense
Progressive MyRate (US)
Coverbox (UK)
RSA Driveright (UK)
Aioi
Norwich Union Products (UK)
OctoTelematics - "750,000 telematics insurance customers" (Mapfre, Uniqa, etc) (Italy, France,
Aviva Autograph
Hollard PAYD (RSA)
Hollard next PAYD?
Real Insurance PAYD (Au)
GMAC OnStar
Aryeh (Is)
Axa (Italy)
Polisdirect (NL)
eBonus (France)
Important Questions
What are insurer needs to get started in UBI?
What are critical telematics functions for now, near term and long term?
What can insurers afford to pay for an economic telematics product?
What data is pertinent?
Is the data accurate?
How much data is required and when?
How to transfer, store, and analyze all this data?
What do consumers want?
© 2009 EMB. All rights reserved. Slide 13
LESSONS FROM UBI PROGRAMS
© 2008 EMB. All rights reserved. Slide 14
Then and Now
Early pilots used professionally installed OEM or after-market devices
Subsidized cost for learning
Inconvenient for consumers and low adoption rate
Multiple electronic makers offering devices
Device costs are declining
Reliable self-installed devices are available
© 2009 EMB. All rights reserved. Slide 15
Who is doing what in usage-based insurance (UBI)?
© 2009 EMB. All rights reserved. Slide 16
Verified Mileage
Safety Services
Behavior Rating
GMAC
MileMeter
American Family
Liberty Mutual
Progressive
Travelers
Several UBI business models exist
Many other companies, including small companies, are moving toward implementation
Notable Programs
Aviva
CSAA
Progressive’s SnapshotSM
Optional program with customer selecting which vehicles to enroll
Wireless device plugged into OBD II port records “how, how much, and when the car is being driven”
Device may be used for test period then discount applied until next endorsement
Significant discounts may apply for all major coverages
Approved in 23(+) states
© 2009 EMB. All rights reserved. Slide 17
Game-changing program maturing and growing.
GMAC Mileage Discount
Only available to OnStar subscribers in 35 states
Odometer readings sent from OnStar to GMAC with subscriber’s permission
Average initial discount of 26%
High mileage receive 5% discount for subscribing
Source: The Plain Dealer - July 17, 2008; WSJ - June 26, 2008
© 2009 EMB. All rights reserved. Slide 18
Self selection is real.
Travelers IntelliDriveTM
Discount for participation
Mileage used for rating
Data used for research
Additional services
Teen monitoring
Vehicle locator
Driving info at secure website
Initially required professional installation
Minimum 12 month, with $100 fee for early termination
© 2009 EMB. All rights reserved. Slide 19
Difficult to get traction with professional installation.
CSAA uDrive™
Available in Nevada
Discount up to 10% per vehicle for participation
Up to 5% additional savings at renewal under 10k miles
Information on driving habits via personalized website
© 2009 EMB. All rights reserved. Slide 20
The number getting into the game is growing.
Hollard in South Africa
Includes a minimum fixed premium and a variable premium based on the mileage of the vehicle for the specific month
Fixed premium includes coverage for at least 417 kilometers, a GPS tracking device, and non-collision losses.
Extra mileage is subject to a ‘small tariff’ per kilometer
“You can thus control how much you spend on vehicle cover premiums.”
Source: www.payasyoudrive.co.za/articles/cheap-car-insurance.html
© 2009 EMB. All rights reserved. Slide 21
Consumers appreciate the control.
UBI PRICING REVOLUTION
© 2008 EMB. All rights reserved. Slide 22
How does UBI work?
© 2008 EMB. All rights reserved. Slide 23
Customer Feedback Loop
Company Feedback Loop
Collect & AnalyzeMarket Quote
Fee
dbac
k
Underwriting
Imp
rove
Dri
vin
g Driver
Driv
ing
Sco
re
Policy Period
Imp
rove
Ra
ting
Appeals to participating consumers
© 2009 EMB. All rights reserved. Slide 24
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
Tremendous predictive power
© 2009 EMB. All rights reserved. Slide 25
Various studies demonstrate predictive potential
Companies gain competitive advantage through better segmentation
Elimination of cross-subsidization is more “fair”
0.60.5
0.9
4.7
1.3
3.4
1.4
3.2
1.2
3.2
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
4.5
5.0
Rural Urban
Rel
ativ
e C
rash
Rat
es
2003-07 Vermont Crash Rates
Highway
Major Arterial
Minor Arterial
Collector
Local
© 2009 EMB. All rights reserved. Slide 26
Reducing Risk Cost with Telematics
Non-fraud
Self-selection
Safer drivers
Risk Segmentation
HOW? W
HERE? WHEN? HOW
MUCH?
Claim
s Effe
ctiv
enes
s
HOW?
WHERE?
WHEN?
Risk InfluenceHOW? WHERE? WHEN? HOW MUCH?
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
Improves driving and reduces accidents
© 2009 EMB. All rights reserved. Slide 27
UBI experience significantly better
Early adopters will have increased profits and a competitive advantage
Norwich Union: 30% frequency reduction
GreenRoads: 54% improvement in fleet crash rate
Iceland postal service reduced crash rate by 56%
Pepsi (Iceland) reduced fleet crash rates by over 80%
Several UBI discounts > 50%
© 2009 EMB. All rights reserved. Slide 28
Added Value Services
Subscription services could help subsidize the costsSubscription services could help subsidize the costs
Safe Driver CoachingIn vehicle feedbackWeb site reports
Emergency CallDetect significant impactsSend text alerts (“Where am I” message)Real-time service to dispatch help
Theft ServiceDetect motion without ignitionTracking and call for help
Geo-fence ServiceDetect location outside boundary zoneTrigger notification
Data Uses
Data needed for loss cost models
Data consumer wants
Data for additional services
© 2009 EMB. All rights reserved. Slide 29
© 2009 EMB. All rights reserved. Slide 30
Business Application
EmergencyAssistance
RiskAnalytics
ImpactSensor
ImpactEvent
CrashData
RefuteClaims
AccidentResearch
ClaimsHandling
© 2009 EMB. All rights reserved. Slide 31
Alternative Models
Dedicated Device
Insurance pays 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.
OEM or hard install may be required for these
Technology will change, but data is critical now to get a foothold.
What does this mean?
© 2008 EMB. All rights reserved. Slide 32
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!
UBI is a significant advantage for early adopters!
© 2008 EMB. All rights reserved. Slide 33
If provide feedback to drivers, can drive the costs down even lower to increase advantage
$300
$400
$500
$600
$700
$800
$900
$1,000
$1,100
$1,200
1 2 3 4 5 6 7 8 9 10
Prem
ium
UBI at Renewal (w/ Feedback)
Ind All Ind UBI @ Onset
Ind UBI w/ Feedback General Offer
2nd UBI Offer 2nd UBI Offer w/ Feedback
Why now?
© 2009 EMB. All rights reserved. Slide 34
There a numerous reasons why UBI is gaining momentum
Technology costs have dropped
Predictive power significantly enhances accuracy of prices
Participating consumers love it
Accident reduction potential
Politically accepted
Retention dramatically increased
Contact Info
© 2008 EMB. All rights reserved. Slide 35
Robin Harbage, FCAS MAAA
C-Counsel Consultant
EMB America LLC
622 Falls Rd
Chagrin Falls, OH 44022
Robin.harbage@emb.com
(440) 725-6204
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