Telematics, Here and Now
By Dawn Mortimer
In the fast-paced world of connected autos, the future has arrived: eight of the top ten personal auto insurance carriers have implemented their own usage-based insurance (UBI) programs. In the current market, insurers that haven’t piloted or implemented a UBI program may be falling behind, a delay that could negatively affect profitability.
For the outliers, the question then becomes, Where to start? Insurers typically begin with a pilot to answer three basic questions about whether UBI will work for them: Will the loss ratio improve? How will a UBI discount program affect an insurer’s book of business? And what insights can be gleaned from the data?
Even so, the cost, effort, and time to implement a UBI pilot and answer those questions can be prohibitive, given that an average UBI pilot involves:
- 1,000 to 5,000 vehicles, with app or device costs ranging from $30 (app) to $70 (OBDII device) per vehicle
- 3 to 6 months for implementation and 3 to 6 months for the duration of the pilot
- up-front development costs of $20,000 to $60,000 for integration, web, or app user interface and fulfillment and customer support infrastructure
- ongoing customer support to answer setup questions and follow up on downloads or installation of devices
- development of a preliminary discount scoring model
- a process for providing a discount to customers with good driving behaviors and informing those customers with poor driving behaviors that they won’t receive a discount
With up to $410,000 invested for just 5,000 vehicles’ worth of devices and data, insurers may have a tough time justifying the costs. Mobile is offering a less costly way but may give up some data points that could provide further insight into how a customer drives and deliver key data when an accident happens. A great option on our road to automakers’ enablement of the connected car is onboard, embedded telematics.
The global connected car market was valued at $72.9 billion (£52.3 billion) last year and is projected to reach $219.2 billion (£169.0 billion) by 2025, according to research company Technavio’s Global Connected Car Market 2018–2022 report. A connected car from an automaker has the technology embedded in the vehicle and integrated into the diagnostics, which offers more value to the vehicle owner, including insurance benefits for good drivers and for when incidents happen.
So, how can an insurer get started leveraging data from the telematics within the vehicle? With the support of exchange models like the Verisk Data Exchange, insurers can easily answer their telematics questions in a fraction of the time and cost. With little effort on their part, insurers can understand how their customers with connected cars are driving. The process goes something like this:
- Match the insurer’s book of business to the exchange to determine the total number of eligible vehicles in the database with driving behavior data.
- Attach driving behavior data to the claims, premium, and policy detail data of these vehicles.
- Each vehicle is scored leveraging a ubiquitous score.
- Analyze the data set for improvement in loss cost, distribution of scores, lift charts, total, average discount, and industry benchmarks. Note: This data is anonymous; otherwise, the customer would need to give permission for individual driving data.
With this information, an insurer can make offers to connected car drivers to share their individual data and potentially receive certain benefits, including premium discounts. Some automakers are assisting insurers with the opportunity to market to these customers via their mobile, web, or e-mail channels. By granting permission to share data or a score with the insurance company, the customer exhibiting good driving behavior can get lower premiums.
These same automakers are also providing new marketplaces for customers to receive offers from new insurers that are willing to give them better pricing for their good driving behavior. Customers are able to click on various offers to see how they can save more on their car insurance.
The data from these connected cars can provide not only driving behavior but also insights of how the car itself is behaving. Was the vehicle having mechanical issues? Was the collision avoidance system or the blind spot monitoring disabled? Equipping vehicles with these advanced driver assistance systems (ADAS) can justify the discounts the customer is receiving.
Additionally, vehicles with embedded connectivity provide detailed trip information, even during and after an accident. So, imagine John Smith is involved in a car crash. With data from the vehicle’s electronic data recorder (EDR), or “black box,” the insurance company will know how fast Mr. Smith was going and what the vehicle was doing up to five seconds before the crash, during the crash, and post-crash through diagnostics. Understanding the structural and mechanical issues assists the insurer with early assessment of damages, potential injuries, and liability.
With so many ways to use telematics to assist customers, it’s going to become even more important for insurers to engage with telematics as part of their 2019 strategic initiatives. Because one size does not fit all, there are a number of choices open to insurers. Learn what type of vehicle the customer has and offer the appropriate telematics solution. For those with connected cars from their automaker, leverage that; for customers that don’t have a direct connection, then mobile is one way to go. No matter what, get moving. Telematics—it’s both here and now.
Dawn Mortimer is assistant vice president of IoT/Telematics Personal Lines Auto Product Development at Verisk (Nasdaq:VRSK).