Insurance Telematics by Robin Harbage of EMB

© 2008 EMB. All rights reserved. Slide 1

http://paydpilot.ca/

http://paydpilot.ca/

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



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


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


EMB is the leading producer of actuarial software

UBI TIMELINE


Consumer reaction positive


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


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?


LESSONS FROM UBI PROGRAMS


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


Who is doing what in usage-based insurance (UBI)?


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


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


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


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


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


Consumers appreciate the control.

UBI PRICING REVOLUTION


How does UBI work?


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


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


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


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


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%


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



Business Application

EmergencyAssistance

RiskAnalytics

ImpactSensor

ImpactEvent

CrashData

RefuteClaims

AccidentResearch

ClaimsHandling


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?


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!


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?


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


Robin Harbage, FCAS MAAA

C-Counsel Consultant

EMB America LLC

622 Falls Rd

Chagrin Falls, OH 44022

[email protected]

(440) 725-6204

Insurance Telematics by Robin Harbage of EMB

Automotive

Transcript of Insurance Telematics by Robin Harbage of EMB