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Slide 1: Usage-based Insurance Telematics Detroit 2010 Robin Harbage C-Counsel Consultant
Slide 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
Slide 3: USAGE-BASED INSURANCE ADOPTION What is driving this? © 2008 EMB. All rights reserved. Slide 3
Slide 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
Slide 5: Technology costs have dropped Pricing accuracy Customers love it Politically accepted Accident reduction potential Retention dramatically increased
Slide 6: Telematics Timeline © 2008-2009 EMB. All rights reserved. Slide 6
Slide 7: 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 Norwich Union – UK (discontinued) Royal & Sun - UK Coverbox – UK © 2009 EMB. All rights reserved. Slide 7 AIOI – Japan Real Insurance – Australia Aryeh - Israel Aviva – Canada & Europe Progressive – US GMAC - US Safeco – US American Family – US Milemeter – US Travelers – US CSAA - US Unigard – US (pending)
Slide 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
Slide 9: UBI COMPETITIVE EDGE The smart will prosper. © 2008 EMB. All rights reserved. Slide 9
Slide 10: Key Benefits of Telematics Customer Significant reduction in premium for good risks Less cross-subsidy for poorer drivers Feedback and recommendations for improving driving Empowerment – more control over premium Social benefits Opportunity for ancillary benefits Insurer Improved ability to assess risk Improvement in profitability: Improved Loss Ratio Increased persistency Better Customer segmentation and targeting Self-selection by customers further compounds risk benefits Avoid adverse selection You have to get the customer proposition right – sharing the benefits Slide 10
Slide 11: Historical Perspective Motor insurers have historically used risk proxy factors for assessing and pricing risk Risk Proxy Factors         Age Gender Marital status Garaging address Use (personal, business, etc) Convictions Credit Vehicle type Genuine, Fundamental Risk Drivers When? Where? At what time of the day is the vehicle used? ? What type of road is the car driven on? How is the vehicle driven – how fast and how safely? How many miles does the vehicle travel? How? How Much? To date, these approximations have been good enough but technological advancements mean access to fundamental risk data is now achievable Slide 11
Slide 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
Slide 13: How does UBI work? Improve Driving Driver Customer Feedback Loop Policy Period Feedback Driving Score Market Improve Rating Quote Collect & Analyze Company Feedback Loop Underwriting © 2008 EMB. All rights reserved. Slide 13
Slide 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
Slide 16: 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
Slide 17: KEY STEPS Do it right and make money! © 2008 EMB. All rights reserved. Slide 17
Slide 18: Challenges 1. 2. 3. 4. 5. 6. 7. Building customer proposition Technology Collecting and storing data Translating data into risk exposure Integration with existing systems Customer interactions Business risks © 2009 EMB. All rights reserved. Slide 18
Slide 19: 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
Slide 20: 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
Slide 21: 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
Slide 22: Installation OBD: Vehicle Event messages, VIN Number, Odometer reading, Speed © 2009 EMB. All rights reserved. Slide 22
Slide 23: 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
Slide 25: Data Transmission Costs and Alternatives Data types Record size Frequency of transmission Data Compression © 2009 EMB. All rights reserved. Slide 25
Slide 26: Data Uses Data needed for loss cost models Data consumer wants Data for additional services © 2009 EMB. All rights reserved. Slide 26
Slide 27: VALUE Is it worth the investment? © 2008 EMB. All rights reserved. Slide 27
Slide 28: 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
Slide 29: Customer Feedback
Slide 30: 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
Slide 31: 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