We recently attended the Insurance Telematics conference in Chicago on Sept 3-4, 2014, where we shared a booth with Advanced Insurance Products and Solutions (AIPS), one of our Usage Based Insurance (UBI) strategic partners.
Insurance Telematics is one of the top conferences focused on UBI. Roughly 800 Insurance professionals from across the spectrum attended the conference to learn more about UBI within the telematics ecosystem and its implications within P&C.
Why UBI is Important
UBI is a hot topic right now because it’s changing the way P&C carriers have typically priced for risks, moving away from traditional proxy rating variables like credit scoring (based on how risks have behaved in the past) to “actual” driving patterns. Insurers have developed scoring models for risks based on driving behavior, like braking, acceleration, etc.
Key conference sessions covered the entire life cycle of UBI, from customer adoption to data collection to using UBI data to analyze risk behavior. The sessions not only talked about how UBI will change the P&C space from pricing to claims handling, but also how the value added services will enhance the customer experience.
Key UBI Takeaways
- UBI is here to stay. Even smaller insurers are rolling out pilot projects, as nobody wants to be left behind.
- The predictive power of the data collected leads to increased customer segmentation.
- There are contextual factors behind using variables such as braking and acceleration. For example, driving at 70mph on a highway vs. driving on urban, inner-city roads.
- Don’t focus on the device, because technology will change.
- At least 4-5GB of data is collected per UBI customer per year.
- Regulators are looking at contractual and policy language changes within the auto policy for UBI programs. At a minimum, they are evaluating privacy notices and whether the data collected is used for other purposes and the customer should be notified.
- Since UBI offers a much more intuitive approach to premium pricing vs. credit scoring, it’s easier to market to customers, as they understand how driving behavior can impact premiums vs. a credit score.
- Early adopters of UBI programs have a distinct advantage, as they can possibly cherry pick their risks or good drivers. Late adopters will also have problems acquiring customers, as UBI enables increased “touch points“ with the customers compared to traditional marketing channels, leading to more “stickiness”.
- Non-UBI risks may see rates increase.
- Advances in telematics device technologies are shifting from “pay as you drive” (PAYD) to “Manage how you drive” (MHYD).
- Trend is shifting from discount policies using pricing as a differentiator to using value added services to attract customers.
- Questions regarding how the Department of Insurance conducts market conduct exams for UBI policy holders remain unresolved.
- There seems to be a convergence of industries as data storage companies, wireless service providers, insurance carriers, big data analytics, and OEMs, collaborate.
- Carriers are also trying to understand how consumers will interact with them within this program, as it’s changing the industry from a low touch to a high touch industry between carrier and customer.
- A roadmap to UBI adoption involves clear communication, addressing constraints, early involvement of stakeholders.
- It’s very important to constantly assess data quality by validating and monitoring.