Telematics - Movements in Behavioural Underwriting & Pricing Jon Tindall
Behavioral Underwriting & Pricing Evolution in the application of behavioral information in the pricing and underwriting of risks Traditional class variables are only a proxy for driving behavior capturing driving statistics provides a more direct link to risk Early attempts at capturing driver behavior No-Claims bonus Prior Claims history Distance driven (Pay-as-You-Drive) Moving towards Pay-How-You-Drive policies (PHYD)
Behavioral Underwriting & Pricing Some usage / behavioral questions are currently asked in Australia others act as proxies for driving behaviour: Distance driven [Real, YOUI, Allianz, Suncorp, RAA, CGU] Days-per week driven [YOUI, Allianz] Other transport modes used to work (Ferry, bicycle, Bus etc) [YOUI] Colour of Vehicle [YOUI, Allianz] Usage for work (incl. parking) [YOUI] Other Vehicles driven [YOUI, Allianz]
Behavioral Underwriting & Pricing Where could driving behaviour information be useful? How could it be used? - Risk differentiation (Pricing / UW) - Marketing - Claims Other Financial Products - Loans - Investment products Other Insurance Products - Home & Contents - Travel - Life Comprehensive Motor Commercial / Fleet Insurance CTP?
What is Telematics?
A (very) Short History 1 st Generation UBI products, patented by Progressive Real PAYD No. products growing : AA, Co- Op, State Farm, Insurethebox First Australian comp motor telematics product? 1998 2000 2002 2004 2006 2008 2010 2012 2013 Pay-per-km style products grow in popularity US / Europe / South Africa 2 nd Generation UBI products. Progressive launches Snapshot (now ~1m policies)
What s in the box? GPS Accelerometer Gyroscope Modem Sim Card Depends on the technology solution doesn t all have to be in the box can utilise mobile phone, on-board computer
Key Rating Factors / Enabler Accelerometer Gyroscope Acceleration / Braking Cornering Speed Distance Driven GPS Speed (by road type) Time of Day
Benefits of Telematics Lower Claims Cost Base - Selection - Driver behaviour Retention & Cross-Selling - Price positioning - Customer engagement Claims Handling & Fraud - Location, time of day - Fault determination Ancillary - Roadside assistance - Petrol prices, parking - Targeted marketing
Australia is Different US and UK comprehensive policies cover both bodily injury and property damage Market issues especially in UK Aggregators Prohibitively high premiums for young drivers 21 year old driver in London: Ford Focus 2006 from 2,650 ( 2,200 with a box) Holden Commodore GTX from 6,500 Gender Directive in EU
Car Running Costs* 100% 90% 80% 10% 19% 17% 100% 90% 80% 17% 25% 25% 35% 70% 60% 50% 40% 30% 20% 10% 31% 41% 31% 52% Depreciation Running Costs Standing Costs Comprehensive Motor 70% 60% 50% 40% 30% 20% 10% 31% 52% 46% 29% 28% 47% 40% 25% 0% All Drivers (incl. dep.) All Drivers (excl. dep.) 0% All ages - 13,500km All ages - 5,000km <25-13,500km <25-5,000km * RACQ Vehicle Ownership Costs 2012
Segmentation Benefit Source: Market Finesse Source: Progressive
Pricing Dynamics
Pricing Dynamics
Some Key Drivers Lift from additional factors Decrease in cost from improvement in driver behaviour Portfolio mix selection Quantum of discounts / loadings Premium size Cost of device and infrastructure Potential market size Required Discount Discount Required to Install Telematics Device Over 20% 16% - 20% 11% - 15% 6% - 10% 1% - 5% 0% 10% 20% 30% 40% 50% Source: Progressive
Challenges Product Design Privacy and Data Ownership Pricing Technology and Infrastructure Analytical Capabilities
The trailblazers of insurance telematics in the early 2000 s - available in 42 states across the US 6-week monitoring period no ongoing monitoring Utilises OBDII port - Device installed by the user, delivered in post No GPS. Not based on location or speed - Rating on acceleration / braking, distance, time of day Premiums only adjusted downward, maximum 30% discount.
Smartbox Collaborative product with a panel of underwriters CoverBox provides the technology Assessed every 90 days, initial discount of 25% Device installed by technician Online dashboard to view behaviour updated daily 60% policyholders log on 3 or more time a week
Insure-the-box The UK s Leading Telematics Insurer Insurethebox website Device installed by a technician behind the dashboard No installation cost they will come to you Gives away free miles rather than $ discounts Claims 95% receive a discount on renewal average discount 601 Online portal to view driving statistics
Potential Early Adopters Coles Market Share - Australia The South Africans Motor clubs Allianz Sun, 34.6% QBE, 3.3% Allianz, 6.4% A&G, 2.7% Clubs, 13.5% Other, 7.2% Comminsure, 1.8% Youi, 1.7% Wesfarmers, 1.6% IAG, 32.3% Hollard, 0.8% Progressive, 0.1% Other, 1.3% Source: Roy Morgan
Price Positioning in NSW Coles is significantly more expensive for younger drivers and parts of western Sydney
The South Africans Hollard Pay-as-you-Drive ~R60 (A$6) per month for device provides distance and behaviour summary statistics for the user Real Insurance in Oz Woolworths Insurance Outsurance Safe_Driver@Out Behaviour monitored through out the year and considered at next renewal Maximum of 20% discount based on the experience YOUI in Oz
Motor Clubs Different financial imperatives to big listed Seeking to maximise reach Need to remain relevant to young driver segment Good alignment with road safety advocacy position Offer range of aligned services eg roadside assistance, petrol pricing
Allianz Telematics technology in over 80,000 vehicles across 9 countries primarily Europe A global telematics strategy personal and commercial lines Allianz has a dedicated Telematics division explore global opportunities Italy (2012) Self-installed, OBDII technology Roadside assistance ~7% market share in the Australian market
Conclusions Big changes afoot Coming quicker than you might think? Australian insurers slow to move Pricing new technologies Telematics Some challenges involved Clearly surmountable Game changers? Potentially large impact on product design and pricing Bigger incumbents will be slow to move
Thank-you Questions? jon.tindall@finity.com.au