The advances made in the fields of artificial intelligence, big data, and sensor technology have, in just a few years, transformed the concept of driverless vehicles into a hot topic.
The arrival of the autonomous era will disrupt the entire auto insurance industry and the traditional insurance industry, so the traditional value chain will be need to be re-configured and optimised.
Swiss Re is deeply involved in the development of autonomous driving, with its global talent and technology capabilities in the Chinese market.
- In December 2016, Huahai Insurance signed an agreement with Swiss Re and conducted a telematics pilot in Shangdong province.
- In July 2017, Dingran Technologies signed a strategic co-operation with Swiss Re, in which both will co-operate on driving solutions and driving behaviour assessment.
According to Swiss Re Institute 2016 statistics, the world has more than 16m cars with telematics based insurance policies. Italy has the highest penetration of telematics with 16%. The US market has issued about 3.3m usage based insurance policies (UBI), and the UK has sold about 600,000 UBI policies. And according to global forecasts, by 2020 the number of telematics enabled UBI policies will increase to in the range of 40m to 120m.
For consumers, the use of telematics enabled insurance products essentially means sharing their driving data. Given the privacy implications of this, drivers will naturally consider the trade off, and whether to share their information in order to get affordable car insurance.
Although the price of auto insurance is a factor, not all consumers are price sensitive. Specifically, if the convergence of auto insurance with digital technology can generate enough creative ideas and can find customers’ pain spots and solve them, customers will likely transition to actively accepting telematics as a value add product.
Swiss Re’s market research shows that Italian car owners are more interested in road side assistance, claims services and anti-theft provisions, while the US market values info about vehicle status and maintenance tips. The results of the research also show that new car owners with higher than average insurance premiums have a higher level of acceptance for telematics.
China’s mobile, internet-savvy consumers are also more accepting than western consumers, and any improvement in car insurance product has a multiplier effect on its acceptance.
In countries with a high degree of marketisation, insurers can also use telematics programs as a screening tool to help identify less risky drivers from typically high risk pools such as younger drivers and new drivers.
How to price telematics insurance policies?
The difference between traditional auto insurance pricing and telematics based pricing is that the former relies heavily on historical data, while the latter relies on real-time data.
Traditional actuarial pricing is based on a several rules, combined with vehicle data, geographic data, human data and other traditional pricing factors.
Using telematics programs provides real-time access to a single customer, resulting in:
Behavioral risk profiles based on drivers’ driving:
Through several sensors (including GPS location data and accelerometers) analysis of driving performance can be conducted in real time. Additionally, according to Swiss Re research, simple data relating to rapid acceleration, rapid deceleration, harsh turning and so on cannot fully categorize a driver’s risk profile. For example, about one third of traffic accidents are caused by a basic lack of attention on the driver’s part.
Contextual risk factors based on external data:
In addition to the driving behavior of drivers, the level of risk depends largely on external factors, road conditions, whether it is morning traffic or rush hour peak, and whether there is sunshine or heavy rain.
Having said this, telematics enabled car insurance policies provide a more accurate, real-time method to improve the traditional actuarial pricing models. Such UBI products based on telematics will prove to be a breakthrough in product design, by considering the mileage, location and driving behavior of consumers. More importantly, telematics can help owners to improve their driving, thereby also improving road safety levels.
The road ahead, Swiss Re is with you
In 2015, Swiss Re set up an independent auto research centre at the Swiss Re headquarters in Zurich, bringing together insurers, actuarial models, data analysis and car manufacturers, all focused on fostering R&D relating to smartphone telematics programs and driving behavior algorithms based on machine learning.
Swiss Re’s telematics research team has also conducted several on site visits with insurers, to understand consumer needs first hand, in addition to working with telematics companies and IT companies.
Swiss Re also provides telematics solutions for the following three use cases:
Together with Swiss Re’s OEM partners, be it OEM manufacturers or smartphone telematics players, Swiss Re will provide data analysis, and operation support of the telematics.
Big Data analytics
Swiss Re is able to provide dynamic, real time driver scoring analytics based on machine learning, this can be used to bolster actuarial analysis and risk modeling for auto insurance.
Reinsurance risk sharing program
Through redesigning the approach to reinsurance, Swiss Re will help insurers to diversify their exposure to risk, reduce the uncertainty of insurance policies, and alter the traditional operating model.
Ultimately, the question for auto insurance is not whether such innovation will happen or not, it is when will it happen? Bearing this in mind the insurance industry needs to be at the forefront of change by putting more effort on implementing this technology.