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

Telematics Timeline

© 2008-2009 EMB. All rights Slide 6
reserved.

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

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.


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

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

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?

Driver

Improve Driving

Feedback
Customer
Feedback Loop

Policy Period
Market Quote
Collect & Analyze

Driving Score
Improve Rating

Company
Feedback Loop

Underwriting


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


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


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
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


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

Robin.harbage@emb.com
(440) 725-6204


Learn How to Prepare for Usage Based Insurance Roll-Out

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