Usage based insurance: steering the auto insurance sector
After investigating, exploring, discussing and getting estimations from auto-insurance industry experts, Simmi Sinha, Editorial Team Member, Telematics Wire is finally influenced about the use of technology and changing environment along with Big Data in auto-insurance industry.
Many insurers have taken steps to improve the speed and convenience of their Usage Based Insurance (UBI) programs. Some carriers make provisional discount available during a policyholder’s telematics observation period. In future, others may use UBI to provide accident and breakdown coverage, which is perhaps the most immediately actionable use of telematics data, potentially benefiting both insurers and policyholders through loss minimization and speedier claims processing – Jim Weiss, FCAS, MAAA, CPCU, Manager, Personal Automobile Actuarial, ISO Insurance Programs and Analytic Services, at Verisk Analytics
Traditionally, automobile insurance companies calculate their premiums on variables like driver’s gender, age, the number of miles driven each year, a driver’s accident history and credit scores. All these variables were a strong correlation to risks and accidents. Drivers’ risky belief and actions typically have incurred higher auto insurance premiums.
Today, insurance companies are beginning to leverage technologies that make it possible to monitor and capture causal data on actual driving patterns and behaviors of individual customers. Telematics, use advanced sensors on cars or on smartphone to collect data about when and where the car user drives on the kind of roads, and on actual driving behavior (acceleration, braking force, cornering, and speed), among other variables. The telematics devices transmit big data to the insurer via a satellite or via the smartphone network where they are analyzed to create a statistically accurate risk profile.
According to Linden Holliday, CEO of MyDrive –Big data is a key to success. Data can never be reconstituted where it does not exist. The market will evolve hugely and in future it will be possible to undertake data analysis which we cannot describe today. As these abilities improve the most successful insurers will have a rich data stream to mine to increase insight improve profitability and even identify cross sell opportunities.
Early adopters of Big Data and UBI are gaining a wealth of first-hand experience and insights that stand to provide a long-lasting competitive edge against insurers, as well as those either unwilling or unable to do so. These innovators are rapidly collecting a critical group of data that can be analyzed to reveal drivers behavior that provides a basis for greater accuracy in countersign and pricing.
Jeff Stempora, CEO, Advanced Insurance Products & Services, recounts UBI and Telematics to build the best possible predictive model for Usage Based Insurance. As per the understanding “most insurance carriers don’t know exactly what data builds the best UBI predictive models and focusing on the wrong data can create misrepresentations of driving behavior and lead to false positives. Unfortunately, you won’t know that you have the wrong data until some years later when you find out that the predictive model you built for your UBI product is not providing the lift that you expected it to provide.
Therefore the time is not far when Policyholders may soon have the choice to opt in to an industry wide behavior-based scoring programme to attain a predictive model for UBI. Such a program will use telematics / vehicle-generated data to produce a count that represents how safely drivers operate their vehicles, how safe their routes are and how well they maintain their vehicles. Those scores would allow policyholders to distribute its classic observation period when they shop for insurance, tapering the expediency gap between UBI and a motor vehicle report.
Jonathan Hewett, Global Chief Marketing Officer of Octo Telematics thinks that globally the market is starting to grow as International players are in the process of testing and learning across the broad insurance telematics enterprise. There is a general acceptance that insurance telematics can improve pricing decisions and reduce claims costs but insurers are starting to be more demanding of the data, as their curiosity increases. Therefore, Insurers are notoriously slow to change and the right TSP can be the innovation partner for their insurance client. Technology is not the constraint but we need to find better ways to integrate telematics services into legacy systems and the players with the most experience are best placed to do this.
So, Telematics acts as a powerful catalyst in Usage Based Insurance and make insurance sense and overcome the challenges by leveraging technology in all aspects of its business. As insurers respond to the pressures to evolve, technology must be considered as one of the top factors in determining success or failure. In fact, it is sarcasm to say that effective implementation and utilization of technology can have a major impact on the business of insurance. Every aspect of the insurance business is dramatically changing, including the who, what, when and where for the customer, the products, the experience, the data and the competition.