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Contents
An overview
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Usage based insurance. Core elements
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Traditional Vs Usage-based insurance
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Usage based insurance. It is the new insurance
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Usage based insurance. Customer experience is that what matters
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Privacy concerns
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Usage based insurance is growing. And fast!
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Usage based insurance. What’s next?
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Conclusion
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About Stemic Drive
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Usage-based insurance. Opportunities for auto insurers | 2020
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An overview This paper discusses the usage based insurance that disrupts the auto insurance industry. Auto insurance is undergoing a massive technological and business proposal change. The underwriting model that’s been used for decades—assessing risk, based on broad demographic characteristics like a driver’s age, gender, or credit score—is giving way to a new model assessing the risk based on data generated by individual driving behavior. For drivers, it means the insurance costs are no longer dictated by the behavior of people with whom you share broad demographic attributes but little else. Driver’s assessed risk (and insurance rates) are based entirely on how, where, and when the driver drives. The safer she drives, the less she pays. For insurers, UBI allows for much more accuracy (and potentially, profitability) in issuing policies and setting premiums and most of all better customer relationships and longer lifetime value. This paper describes the evolving UBI market, technology considerations for UBI solutions and the possibilities for insurers to participate in a new and lucrative value chain around connected-vehicle services.
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“ Consumer demand for usage-based insurance (UBI) has increased from 35 % in 2019 to 51 % in 2020 -Capgemini
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Usage based insurance. Core elements Usage-based insurance (UBI) works by tracking driving behavior through devices installed in a vehicle or through smart phones. Wireless devices transmit data in real time back to insurers. The devices can measure miles driven, time of day, where the vehicle is driven, rapid acceleration, hard braking, hard cornering and airbag deployment, among other things. The data collected is then used by the insurer to help determine premiums. When automotive telematics and usage based insurance emerged a few years ago, most insurance providers used wireless devices that plugged into a vehicle’s on-board diagnostics (or OBD-II) port to receive information about a driver’s on-road behaviour. Today, smartphone telematics — and specifically the sensors found inside most popular smartphones — can help insurance providers understand about their customers’ driving habits — like how often someone uses their phone behind the wheel and if this may be distracting them from safe driving. The insurance company then assesses the data and charges insurance premiums accordingly. For example, a driver who drives long distance at high speed will be charged a higher rate than a driver who drives short distances at slower speeds. The data captured allows insurers not just evaluate how many miles people drive, but how and when they drive too. The result of data analysis has grown into several UBI variations, like Pay-As-You-Drive (PAYD), Pay-How-You-Drive (PHYD), Pay-As-You-Go, and Distance-Based Insurance.
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Traditional Vs Usage-based insurance The pricing scheme for UBI deviates greatly from that of traditional auto insurance. Traditional auto insurance relies on actuarial studies of aggregated historical data to produce rating factors that include driving record, credit-based insurance score, personal characteristics (age, gender, and marital status), vehicle type, previous claims, liability limits, and deductibles. Premium discounts on traditional auto insurance is usually limited to the bundling of insurance on multiple vehicles or types of insurance, insurance with the same carrier, driving courses and home-to-work mileage. Policyholders tend to think of traditional auto insurance as a fixed cost, assessed annually and usually paid in lump sums on an annual, semi-annual, or quarterly basis. Many UBI programs seek to convert the fixed costs associated with mileage driven into variable costs that can be used in conjunction with other rating factors in the premium calculation. UBI has the advantage of utilizing individual and current driving behaviors, rather than relying on aggregated statistics and driving records that are based on past trends and events, making premium pricing more individualized and precise.
“ Usage-based insurance providers will become more popular, as customers will pay reduced premiums during periods when they use the insured asset less -Yasha Kuruvilla, GlobalData insurance analyst
” As UBI grows, insurers that don’t use it will be at a competitive disadvantage compared to those who can accurately measure, assess, and price their customers’ risk. This will have an enormous impact on the market. UBI policies attract the best drivers that are happy to share their driving data in exchange for lower premiums. Over time, insurers offering UBI will likely gain the largest market share of those safer drivers—leaving insurers that don’t support UBI to compete for a pool of customers who, are less safe and more expensive to insure.
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Usage based insurance. It is the new insurance UBI allows insurers to create risk profiles of customers based on real-world driving behavior. Speed, acceleration, night driving, average time and distance driven, and other parameters can all be collected. These metrics can then be used to price policies with a much higher degree of accuracy than demographic profiling, as well as to more effectively target marketing programs, gain more insight into customers, and support other business applications and services. By using cutting-edge technology to closely monitor the driving behaviour of automotive insurance customers, insurance providers are being given a more accurate picture of how their clients drive. The result: many drivers are being rewarded for their good on-road behaviour through declining premiums and more money in their wallets at the end of the month.
“ More transport companies are likely to adopt UBI technology in a bid to leverage the technology to facilitate real-time tracking, communication, and driving efficiency
” In most cases insurers plan for about two-thirds of the revenue generated from premiums to go towards covering the cost of claims. But with the total amount of claims costs going down, insurers are now seeing their profit margins widen. At the same time, drivers who fail to show that they can drive safely on a consistent basis see their premiums go up, further adding to the revenue generated through the implementation of usage based insurance programs. It also gives consumers the ability to control their premium costs by incenting them to reduce miles driven and adopt safer driving habits. Fewer miles and safer driving also aid in reducing accidents, congestion, and vehicle emissions, which benefits society.
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Usage based insurance. Customer experience is that what matters In May 2020, J.D. Power released a consumer sentiment survey on the impact of auto insurance
premium refunds/credits issued to insureds and the impact of telematics on future driving. The findings indicate that consumers were expecting to drive less in the foreseeable future and 40% were contemplating telematics programs due the cost savings they provide. Premiums declining.
With premiums declining, it’s obvious why many drivers would opt for a usage based insurance program over the traditional automotive insurance policy. The recent studies have proven customer satisfaction increases for good drivers who participate in UBI programs and in the end, UBI programs reward the best drivers and help insurance companies build better, more intimate relationships with them. At the same time, those drivers who fail to see their insurance premiums go down are presented with legitimate reasons for their situation. And unlike the current automotive insurance model — which tends to punish drivers for years after they receive speeding tickets or get in an accident that’s their fault — the UBI system allows for riskier drivers to turn things around. All they have to do is drive in a less aggressive way and avoid getting speeding tickets or into accidents. In other words, they have a real opportunity to redeem themselves and see their insurance premiums go down sooner. Data feedback loop. Also with the data feedback loop the modern consumer enjoys learning more about themselves. The learning empowers drivers to perform self corrective actions, which again leads to safer roads and better premium pricing. Accident investigation becomes easier. The installed telematics device registers each event that happens, including what takes place just before an accident. For instance, it can tell the direction the vehicle was traveling towards
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and whether there was any hard braking. This helps investigators find out who was at fault,
thus hastening the accident claim process. This is also beneficial as it also helps to cut down on fraudulent claims.
Privacy concerns The practice of tracking mileage and behavior information in UBI programs has raised privacy concerns. As a result, some US states have enacted legislation requiring disclosure of tracking practices and devices. Many states require insurers to obtain approval for the use of new rating plans. Rate filings usually must include statistical data that supports the proposed new rating structure. Although there are general studies demonstrating the link between mileage and risk, individual driving data and UBI plan specifics are considered proprietary information of the insurer. Other requirements that could prevent certain UBI programs include the need for continuous insurance coverage, upfront statement of premium charge, set expiration date, and guaranteed renewability.
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Usage based insurance is growing. And fast! The global UBI automotive market was estimated at around US$24 billion in 2019 and is projected to reach $125.7 billion by 2027. The improving governmental regulations and technology market penetration is expected to grow at a CAGR of 23.0% over the next few years. IHS Automotive says that there will be 142 million global consumers using UBI coverage by 2023, in a study called Auto Tech Report – Usage Based Insurance (UBI). The technology will be more popular in commercial vehicles which are estimated to have a growth rate of more than 18% from 2018-2024.
“ UBI is expected to grow at a CAGR of 23.0% over the next few years -Reportlinker
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In Europe the automotive UBI market is expected to grow from US$ 6.01 Bn in 2018 to US$ 43.30 Bn by the year 2027 with a CAGR of 24.6% from the year 2019 to 2027. Capgemini reported that with technological advances being fast-tracked due to the pandemic, it’s likely that interest in UBI will continue to grow. The major UBI market participants: Allianz SE, AXA Group, The Progressive Corp., Verizon Communications Inc., Watchstone Group Plc, AllState Insurance Company, Uniqa, Generalli, MAIF, Groupama, Aviva, Unipolsai, Insure the Box, State Farm and Liberty Mutual.
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Usage based insurance. What’s next?
By integrating telematics data into core systems like policy administration, actuarial and underwriting, billing and claims, as well as new action-oriented policyholder portals, more predictive and faster decisions can be made, even in real-time.
Manual and time-intensive human work can be streamlined or eliminated as processes are automated with accurate geo-spatial and vehicle data. This will have a noticeable impact on loss ratios. As more data is collected and analyzed over time, more quantifiable savings will be determined and verified will lead to benefits that will accelerate with greater UBI program adoption rates.
“ With UBI, insurance premiums might fall by 75% or even more
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Moreover, the significant partnerships among the insurance companies and telematics companies are anticipated to propel automotive UBI market growth in the forecast period. The
UBI market is maturing substantially over the years in the countries, namely the US, Italy, and the UK. The insurance companies offering telematics insurance is constantly leveraging on various factors to enhance the solutions and deliver their customers with better schemes.
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Conclusion With the strong market drive toward UBI, insurers can play a central role in this industry transformation. And in doing so, they can capture a larger share of the market for the best drivers, increase profitability and create long-term customer loyalty. The journey is not easy as it requires strong will to take a move to the unknown as the UBI brings new technologies different data sets, but also it brings new customer loyalty, more fair pricing for premiums and advancement compared to the laggarding competitors.
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About Stemic Drive Stemic Drive is a next-generation usage-based insurance (UBI) technology platform. We manage the full life cycle of data. In addition to providing telematics through smartphone telematics, our platform features tech components such as advanced data processing and analysis, real-time pricing engine, and mobile accident claim management (FNOL) applications for drivers. We are targeting insurance companies that want to leap in UBI for their clients. We provide all the toolset and platform to run UBI business smoothly.
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Want to collaborate with us on this journey? Let’s get in touch info@stemicdrive.com http://www.stemicdrive.com
Usage-based insurance. Opportunities for auto insurers Stemic Drive | 2020
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