Black Boxes Could Yield Gold in Connected Insurance – Bain & Co
Article Synopsis :
From live concierge service to claims certification and stolen vehicle recovery, a broad array of connected car services using telematics and smartphone apps is emerging.
In “Black Boxes Could Yield Gold in Connected Insurance”, Matteo Carbone, Principal at Bain & Company, shares learnings from telematics adoption trends in the Italian auto insurance market.
The proliferation of sensor data is fueling a multitude of new connected insurance offerings based on pay-as-you-drive and pay-how-you-drive pricing. These products exploit fundamental advantages presented by new digital technologies:
- Risk selection. Telematics can help insurers acquire lower-risk customers. ANIA actuaries with Bain’s Observatory ﬁnd that telematics-related policies in Italy have a risk-adjusted claims frequency 20% lower than traditional policies.
- Risk-based pricing. Carriers have introduced scoring calculated with behavioral variables such as acceleration, braking, cornering and speed. Behavior-based premium adjustments ranging from +10% to -40% are common, nudging customers to engage in less risky behavior through a mechanism that’s easily communicated and understood.
- Loss control. UnipolSai, for example, redesigned its claims-management process to exploit telematics data, providing additional, objective information about crashes helping the company reduce the loss ratio of its auto telematics portfolio.
- Loyalty systems and partnerships. Vitalitydrive by Discovery, for example, compiles data on driver behavior, driving course attendance and the length of time without a claim, enabling drivers to ‘recover’ up to 50% of their monthly fuel purchases (at BP stations).
Essential questions for devising strategies and investment plans in connected insurance include:
- What strategic goals do we want to achieve by introducing connected insurance?
- How should we position the product within our current offerings?
- Which target customers do we want to reach?
- What proposition should we offer customers–including the user experience, pricing at underwriting and renewal, related services and possible loyalty systems?
- What devices do we need to install, and what data do we need to gather and analyze? With whom should we partner?
- Organizationally, how should we change our processes to strengthen the effectiveness of our claims, actuarial and underwriting functions?
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Digital Insurer's CommentsItaly’s experience with connected insurance holds lessons for carriers across Europe, North America, and Asia. About 16% of auto insurance contracts sold and renewed in Italy last year featured in-vehicle telematics, with growth outpacing even online insurance sales.
Data privacy issues top the list of just about every telematics doomsday scenario. But customers are increasingly willing to trade privacy in return for products that are convenient, personalised, and ultimately less expensive. Penetration is highest in markets with high premiums, mainly urban areas (e.g. Naples) where customers are especially motivated to contain costs.
Helping policy holders find ways to save premium is the key to earning premium in the digital age.
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