Innovations in Retail Insurance

Transcription

1 Innovations in Retail Insurance SOAT Non-Life Insurance Forum 2011 Ron Kozlowski 23 September Towers Watson. All rights reserved.

2 CONTENTS Innovation in Retail Tariffs fact or fiction? Adding rating/underwriting variables External data sources Expanding coverage Emerging markets/customer segments/distribution channels Distribution/packaging Usage-based insurance 2

3 TARIFFS Tariffs Fact or Fiction? Tariff application Rates Coverage Rating flexibility Rates Commissions/expenses Underwriting Accept/reject Scoring Marketing Underwriting Pricing Marketing

4 RATING/UNDERWRITING VARIABLES Thai Motor Tariff Compulsory motor insurance is based on fixed rates while voluntary cover is subject to maximum and minimum rates Rating factors include Type of vehicle Engine capacity Value of the vehicle Make and model of vehicle Age of vehicle Vehicle use Commissions Named drivers Age of driver No claim bonus system increased TPPD / TPBI limits Voluntary deductibles Voluntary Motor = 18% Compulsory Motor = 12% These limits are not followed strictly, recently the commission paid can be as high as 30% due to intense competition

5 RATING/UNDERWRITING VARIABLES Increasingly sophisticated in rating/underwriting can help market leaders distinguish themselves from the pack Best Competitive Landscape Personal Auto ILLUSTRATIVE Performance Worst Low Rating/Underwriting Sophistication High

6 RATING/UNDERWRITING VARIABLES Territorial Ratemaking A wide variety of methods are being used Location is one of the main drivers of risk Treatment of area differs significantly between insurers Significant competitive advantage can be attained from a better assessment of risk by area Spacial smoothing is a technique that incorporates information from "nearby" areas Unsmoothed Smoothed

7 Vehicle Symbol Studies RATING/UNDERWRITING VARIABLES Symbol studies are challenging High number of dimensions (e.g., make/model) May be only a few observations for any one dimension These are the same issues solved for geographic analysis Apply smoothing techniques Instead of using latitude/ longitude to build adjacency relationships, use vehicle dimensions Once the neighbors are determined, the same techniques used for territorial analysis can be applied

8 RATING/UNDERWRITING VARIABLES Scoring models can be used when rating variables are restricted Example score structure Policyholder age Population density Vehicle group Policy duration (years) INTERCEPT 534 Factor level Estimate Factor level Estimate Factor level Estimate Factor level Estimate <= <= >= >= >=285 0

9 EXTERNAL DATA External Data Census data population density, medium income, median age, education level, unemployment rate Traffic safety/police analysis accidents, fatal accidents, hit and run, theft, drug and alcohol-related accident frequency, driver violations Vehicle history databases sales cost, mileage, accidents, ownership Fire station surveys building characteristics, population density, location to fire departments, type of fire station vehicles, distance to fire house, fires, injuries Natural peril databases weather, flooding, earthquake, soil conditions, distance to coast, elevation, slope Building database sales, year built, # of stories, roofing, housing units, construction type & materials, square feet Competitor rates/coverage websites, rate filings, underwriting rules Credit scores credit rating, bill paying ability, often used for mortgage applications

10 EXPANDING COVERAGE Expanding Coverage Simplicity in product/customer understanding Importance of price and distribution channels Examples (may not be applicable for Thailand) Coverage for additional persons Loss of use New parts/reusable parts Full replacement costs Inflation guard Multi-policy discounts

11 EMERGING MARKETS Et AL Emerging Markets/Customer Segments/ Distribution Channels Environmentalist Religious groups Generational millenniums, baby boomers, retirees Facebook users Bancassurance vs agency

12 EMERGING MARKETS Et AL Packaging A Thai example

13 UBI Usage-based Insurance (UBI) Customer Feedback Insurance Premium $1,200 $1,080 $ 1,000 $ 900 Company Feedback Vehicle Score VIN: Miles driven 6,234 Event 1 per mile.05 Event 2 per mile.01 13

14 UBI Telematics and usage-based insurance Why now? Technology costs (devices, telecommunications, data storage) are plummeting Consumer advocates are pushing for equitable premiums actual usage is causal and controllable perceived to be fairer than proxies like credit score and gender Gender now banned in Europe Age may soon be banned Credit scores banned in some jurisdictions Social benefits are receiving greater prominence Monitoring and feedback to drivers improves their driving behavior If actual usage affects costs directly, it will create incentives to drive less Actions by leading insurers are creating competitive threats for others 14

15 UBI Monitoring/Feedback Improves Driving Norwich Union: 30% frequency reduction Iceland postal service reduced crash rate by 56% Pepsi (Iceland) reduced fleet crash rates by over 80% GreenRoad: 54% improvement in fleet crash rate Safer drivers decrease fuel consumption roughly 10% 15

16 UBI UBI in personal auto around the globe Canada AVIVA Allstate American Family AAA for NoCal Esurance GMAC Liberty Mutual MileMeter U.S. Plymouth Rock Progressive The Hartford Travelers State Farm SoCal AAA Unigard Europe Royal & Sun WGV Coverbox Uniqua Insure the Box Allianz AXA Lloyd Adriatic Polis Direct Reale Mutua MAPFRE Sara AVIVA South Africa Hollard Miway Santam Japan AIOI Australia Real Insurance 16

17 UBI UBI Products Progressive s Snapshot SM Optional program with customer selecting which vehicles to enroll Wireless device plugged into OBD II port records time, speed and harsh braking Discount calculated based on first 60 days, then applied for remainder of term Device removed after five months and discount is fixed until significant endorsement Maximum discount of 30% and no surcharge in most states 17

18 UBI UBI Products Allstate Drive Wise SM 10% initial discount Up to 30% at renewal No surcharges $10 technology fee semi-annually Driver score based on driving behaviors Mileage Hard brakes Speeding (80+ mph) 18

19 UBI UBI Products State Farm In-Drive Existing Drive Safe & Save Program with OnStar Discount up to 50% based on mileage, turns, acceleration, braking, speed and time of day $10 initial fee and upgrade from $5 to $14.99/month with features including Emergency response Stolen vehicle location assistance Vehicle diagnostic alerts and maintenance reminders Speed alerts Website and smartphone app for remote and mobile access 19

20 UBI Benefits of telematics and UBI insurer perspective Ability to more accurately price for risk, giving a significant step increase in underwriting predictability Self-selection of better drivers evidence shows that those policyholders that choose to join an insurer s UBI program are better than average risks Reduction in premium leakage, as UBI customers are no longer able to lie about how they use the car and where it is garaged to get a lower rate Improved driving from the mere fact of being monitored, and ongoing feedback on driving behaviors Good PR value, as UBI is considered fairer than age, gender, credit score Improved claims process from first notification of loss, improved services to detecting & mitigating claim fraud Opportunity to engage with customer to improve loyalty through enhanced products: providing driving guidance and value add telematics services Harder for competitors to replicate, as individual driver data is not available to competitors Enhanced customer satisfaction and retention 20

21 UBI Telematics opportunity goes beyond usage-based insurance Consumers will want to receive telematics information Parental oversight of youthful operators Feedback on driving behavior how to lower insurance costs, reduce gas consumption, your score versus the average Immediate notification of accidents to other family members Businesses will want to monitor the usage of their commercial vehicles, and the quality of the vehicle operators Government will want analysis of aggregated data for road design, traffic management, pollution reduction; may want to monitor vehicle usage of drivers convicted of DUI Car manufacturers will want telematics data to manage warranty and repair costs Roadside assistance firms (including AAA) will want automated distress reporting, including information on the vehicle 21

22 UBI Why is UBI game-changing? Differentiates product offering by offering additional services Significantly increases pricing accuracy Appeals to consumers as it makes sense, is controllable and minimizes reliance on controversial proxies Attracts lower-risk insureds via self-selection Allows customers to understand and eliminate risky behaviors, actually reducing accident frequency Improves claims handling Self Selection Better Pricing Risk Reduction Increased Profits and Retention Claims Handling Customer Satisfaction All this means increased retention and profits! 22

23 Contact Details Ronald T. Kozlowski, FCAS /