Usage-based Insurance Robin Harbage C-Counsel Consultant
Agenda Introduction Current UBI Programs Telematics Technology Data Value Implementation 2009 EMB. All rights reserved. Slide 2
INTRODUCTION What is UBI? 2008 EMB. All rights reserved. Slide 3
What is usage-based insurance (UBI)? UBI programs collect data on driving behavior from telematic devices and use that information to modify insurance premiums or to provide useful feedback to policyholders, or both. Companies have UBI programs around the globe Many other companies, including small companies, are moving toward implementation 2009 EMB. All rights reserved. Slide 4 MileMeter Notable Programs GMAC SafeCo Verified CSAA Safety Mileage Travelers Services Behavior Rating Progressive Aviva American Family
How does UBI work? Market Im mprove Rating Quote Impro ove Drivin ng Driver Customer Feedback Loop Policy Period Collect & Analyze Company Feedback Loop Underwriting Fee dback Driving Score 2008 EMB. All rights reserved. Slide 5
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 s want? How to begin without loss cost models? 2009 EMB. All rights reserved. Slide 6
CURRENT UBI PROGRAMS Significant learnings? 2008 EMB. All rights reserved. Slide 7
GMAC Mileage Discount Only available to OnStar subscribers in 34 states Odometer readings sent from OnStar to GMAC with subscriber ss permission Average initial discount of 26% Maximum discount of 54% High mileage receive 5% discount for subscribing Self selection is real. Source: The Plain Dealer - July 17, 2008; WSJ - June 26, 2008 2009 EMB. All rights reserved. Slide 8
Progressive s MyRateSM Optional program Game-changing program maturing and growing. Wireless device plugged into OBD II port Records how, how much, and when the car is being driven Insureds can select which vehicles to enroll Up to a 61% discount on BI, PD, PIP and Coll at renewal Surcharge of 9% can apply 2009 EMB. All rights reserved. Slide 9
Travelers IntelliDrive TM Discount for participation Mileage used for rating Data used for research Additional services Teen monitoring Vehicle locator Driving info at secure website Requires professional installation Minimum 12 month, with $100 fee for early termination Difficult to get traction with professional installation. 2009 EMB. All rights reserved. Slide 10
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 Vehicles made in 1996 or newer are eligible The number getting into the game is growing. 2009 EMB. All rights reserved. Slide 11
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, agps 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. Consumers appreciate the control. Source: www.payasyoudrive.co.za/articles/cheap-car-insurance.html 2009 EMB. All rights reserved. Slide 12
TELEMATICS TECHNOLOGY Has it arrived? 2008 EMB. All rights reserved. Slide 13
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 14
Devices Providers Are Plentiful Danlaw IMS GreenRoad Hughes CalAmp Xirgo Trimble TrafficMaster Qualifications, experience, and availability vary significantly 2009 EMB. All rights reserved. Slide 15
Device Components What data is collected? How does the device receive power? How much memory is required? How is data transmitted? How often is data collected? Is data calibrated for accuracy? Is raw data collected or condensed d on device? Can device be remotely upgraded? 2009 EMB. All rights reserved. Slide 16
Telematic Devices GPS Chip SIM Card OBD Port Device Accelerometer Vehicle ARM Chip RAM Chip Device Components 2009 EMB. All rights reserved. Slide 17
Installation GPS Chip SIM Card OBD Port Device Accelerometer Vehicle ARM Chip RAM Chip OBD: Vehicle Event messages, VIN Number, Odometer reading, Speed 2009 EMB. All rights reserved. Slide 18
Vehicle Location GPS Chip SIM Card OBD Port Device Accelerometer Vehicle ARM Chip RAM Chip GPS: Location, Speed, Heading, Time, Quality 2009 EMB. All rights reserved. Slide 19
Data Refinement GPS Chip SIM Card OBD Port Device Accelerometer Vehicle ARM Chip RAM Chip 3D Accelerometer: G-Forces 2009 EMB. All rights reserved. Slide 20
Data Storage and Manipulation GPS Chip SIM Card OBD Port Device Accelerometer Vehicle ARM Chip RAM Chip ARM: Processor Chip and Flash Memory 2009 EMB. All rights reserved. Slide 21
Data Retrieval GPS Chip SIM Card OBD Port Device Accelerometer Vehicle ARM Chip RAM Chip GPRS: Data Transfer 2009 EMB. All rights reserved. Slide 22
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 23
DATA The most critical issue! 2008 EMB. All rights reserved. Slide 24
Integration with existing systems The data is not standard insurance data High data volume Numerous IT challenges Cost/benefit trade-offs between research and production 2009 EMB. All rights reserved. Slide 25
Analytics Data Flow Device Journey Data Impact Data Policy / Vehicle / Device Matching Data Scoring Admin Systems Claims Data Analytics Device Exception Report MI Reporting Crash Data Driver Profile Data EMB Infrastructure
Data Transmission Costs and Alternatives Data types Record size Frequency of transmission Data Compression 2009 EMB. All rights reserved. Slide 27
Data Uses Data needed for loss cost models Data consumer wants Data for additional services 2009 EMB. All rights reserved. Slide 28
Customer Feedback
Levels of Monitoring How far? Simple mileage rating How? Driving behavior Where? Location data with GPS Who? Driver specific 2009 EMB. All rights reserved. Slide 30
How? Speed Braking Thresholds Ranges Variance Acceleration Cornering Time of day Day of week 2009 EMB. All rights reserved. Slide 31
Where? Location and heading with GPS Mapping latitude/longitude Speed relative to speed limits Traffic congestion Road type Population density Weather 2009 EMB. All rights reserved. Slide 32
Data Sources Internally recorded by device Clock, Accelerometer Obtained from vehicle diagnostics VIN, Odometer, Speedometer, Engine operation Obtained from external sources GPS, Maps, Weather, e Traffic Developed from raw data 2009 EMB. All rights reserved. Slide 33
Levels of Aggregation Customer Policy Driver Day Journey Road Segment Manuver Second For a given Factor Understand where the factor operates in the hierarchy of aggregation More granular provides better discriminators and less proxies Factors can exist at any level 2009 EMB. All rights reserved. Slide 34
Data integrity Both customers and insurer need to trust Protect against fraud Provide accurate pricing Scrub data for errors Build in validation 2009 EMB. All rights reserved. Slide 35
VALUE Is it worth the investment? 2008 EMB. All rights reserved. Slide 36
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 2009 EMB. All rights reserved. Slide 37
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 38
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 39
Even the regulators can support this Unlike many innovations, regulators should love this too Fairly discriminatory Saves lives Environmentally friendly Addresses affordability issues EMB has experience introducing usage-based programs 2009 EMB. All rights reserved. Slide 40
Reducing Risk Cost with Telematics 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 Non-fraud Self-selection Safer drivers Risk Influence HOW? WHERE? WHEN? HOW MUCH? Self Selection Reducing underwriting and claims fraud 2009 EMB. All rights reserved. Slide 41
Improves driving and reduces accidents UBI experience significantly better 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% Early adopters will have increased profits and a competitive advantage 2009 EMB. All rights reserved. Slide 42
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 43
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 44
UBI is a significant advantage for early adopters! If provide feedback to drivers, can drive the costs down even lower to increase advantage UBI at Renewal (w/ Feedback) $1,200 $1,100 $1,000 $900 Ind All Ind UBI w/ Feedback 2nd UBI Offer Ind UBI @ Onset General Offer 2nd UBI Offer w/ Feedback Prem mium $800 $700 $600 $500 $400 $300 1 2 3 4 5 6 7 8 9 10 2008 EMB. All rights reserved. Slide 45
IMPLEMENTATION How to start? 2008 EMB. All rights reserved. Slide 46
Build an appealing proposition Reduced price Break commodity status Customer in control Ease of use ( Plug & Play ) Understandable model Lower losses Cost to consumer Overcome privacy objection Two way price changes What does customer want? 2009 EMB. All rights reserved. Slide 47
Significant Investment Requires management commitment Long lead time to implement Large dataset needed for accurate UBI score Danger of collecting worthless data Telematics costs are dropping Best technology is morphing Data transmission costs drive investment 2009 EMB. All rights reserved. Slide 48
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 49