Abstract: Usage Based Insurance (UBI) is fast becoming a mainstream game-changing offering for Motor Insurers in the US, Europe and elsewhere. In this article, Andrew Dart from CSC illustrates some of the key business benefits through a fantastic story about a magical wish granting Genie.
Once upon a time, an Insurance COO was walking along a beach, deep in thought. His CEO had just asked him to increase their motor business. He was in a sweat, knowing that he could quickly increase sales by dropping premium rates and excesses, but that claims would also follow. Their combined ratio was already 103% – a marketing push like that would certainly throw them further over the edge! On he walked.
As he strolled across the fine white sand, he came upon a strange glowing bottle, rolling back and forth in the surf as waves gently lapped on the beach. He picked up the bottle and marveled at its exquisite beauty, yet simple design. Wondering what on earth could be inside such a work of art, he pulled off the cap. Suddenly, purple smoke erupted from the opening, which gradually took the form of a smiling Genie.
“Who the heck are you?” asked the stunned COO.
“I am the Career Genie. I grant 3 wishes that help people along with their jobs.” The Genie replied.
“OK” the COO thought, “Let’s test this guy out.” He said, “Genie, for my first wish, I would like safe drivers to buy my Motor insurance product.”
The Genie crossed his arms and blinked. “It’s done,” he smiled, “Safe drivers will actively choose your insurance product over those of your competitors.”
“Amazing!” thought the COO. “OK Genie, for my next wish, I want to find a way charge more premium for dangerous drivers before they have an accident.”
Again the Genie crossed his arms and blinked. “Your wish is my command. Poor drivers will automatically get smaller discounts (or loadings). You will know how well your policy holders drive as they drive. In fact, you will be able to coach them to be better drivers as they go. Bad drivers won’t like the premium you charge, and will move to your competitors.”
“Awesome!!” thought the COO. “OK Genie, for my last wish, I want you to reduce claims and fraud – make my motor line of business really profitable.” Once again, the Genie crossed his arms and blinked. “Your wish is granted. Claims will drop by at least 20% and fraudsters will find my magic accident reconstruction technology difficult to overcome and will move to easier pickings with your competitors.” intoned the Genie.
The Insurance COO was dumbfounded. He stammered, “Oh great Career Genie, what is your name?” The Genie replied, “Some know me as UBI the amazing, others know me as Telematics the fantastic. I am a magical creature who simply likes to help mortals such as you to find better ways to do business. I hope your wishes work out for you.”
In a flash, the Genie disappeared and the COO was left alone, with his Combined Ratio sitting at 90, his customer renewal rate at 96% and his customer satisfaction going through the roof. Happily he headed back to the office, ready to recommend a brisk beach walk to all the other senior executives.
UBI is not a fairy tale
Yes, this story is fiction, but the results are very real. Usage Based Insurance (UBI) is steadily becoming a mainstream game-changing offering for General Insurers in the US, Europe and across the globe due to the outstanding results it delivers for Insurers and customers.
The first truly successful UBI program was Progressive in the US with their patented Snapshot technology that was first introduced in 2010. As of early 2015, the program had accumulated over 12 billion miles of driving behavior 1, achieved over $2.6 billion premiums annually 2 with nearly 35% of their direct motor customers having signed up. Customers are given discounts of up to 30% by opting into the program. The Snapshot device plugs into the vehicle’s On Board Diagnostic Interface (OBDI) and captures the distance driven, braking force, and the time of journey and transmits summary data back to Progressive to analyze and calculate the discount.
US P&C insurers representing over 75% of the market now offer customers the option of buying telematics based UBI policies.
Drive like a Girl
In Europe, legislation stepped in to help drive UBI adoption. In the past, some premium rating factors discriminated based on gender with young males paying more premium than young females. This practice was banned in December 2012 3 under EU regulations and spurred a number of companies to introduce UBI policies. One of these programs was called “Drive like a girl” making a pun on the legislation. It combined a clever social media pitch to promote safe driving habits in young drivers while premium discounts were calculated in a gender-neutral fashion, purely on the driving style of the insured.
A recent study 4 shows over 200 UBI programs active globally, with an in force policy count of close to 9 million as of mid-2015. In Asia there are established UBI programs in Thailand, Malaysia, Singapore, Indonesia, Philippines, China, and Japan.
So what’s the buzz?
The UBI Genie is out of the bottle and more and more markets are catching on. The value proposition is really game-changing:
- Safe drivers will tend to opt-in to UBI programs as they believe they will get a better deal and be rewarded for their superior driving skills
- Poor drivers will migrate away simply based on price, if they can get a cheaper deal elsewhere
- Overall the UBI approach appeals to people’s common sense fairness – you drive less, you pay less, you drive more, you pay more – you pay for what you use
- Driver behavior/style is monitored and where UBI provides feed-back, drivers tend to drive more safely
- UBI programs are statistically proven to reduce claims, and in some instances have achieved up to 30% reductions – this provides the biggest impact on insurer’s bottom lines
- Accident events are immediately relayed to the insurer, enabling proactive claims handling and faster response for serious accidents potentially saving lives
- Claims are much more difficult to stage, since the UBI device records many of the vehicle’s performance data, geolocation data and coupled with Dashcams, accidents are easy to reconstruct, thereby chasing away fraudsters to competitors
- Since UBI provides rich data and customer engagement, claims can be settled faster, thereby improving customer satisfaction
- Because the pricing is dynamic based on how you drive, it becomes more difficult for customers to do an apples to apples comparison between different insurance provider’s policies when shopping around.
Becoming data-driven: Digital
The graph 5 shows how the driving score becomes a great predictor for claims and enables the insurer to become proactive in managing the portfolio. What it doesn’t show you, is how some insurers are using the insights from their UBI book 6, to make adjustments to their traditional motor insurance book of business.
As recently as August 2015, many US carriers saw a “surprise” uptick in the frequency and severity of motor claims 7. For example GEICO (which doesn’t have a telematics program) saw its combined ratio deteriorate to 99 while Allstate experienced an even greater deterioration of 6 points going to 101.4. Progressive bucked the trend by improving its combined ratio from 92.8 to 92.1 year on year. Its CEO attributed the favorable result from the insights gained from Snapshot, giving it an early indication of adverse auto trends and enabling them to make adjustments across the portfolio in advance.
The bottom line
It is clear that insurers in Asia are starting to look at UBI. The rewards are immense for those that adopt this game-changing approach. Don’t wait to stumble over your own Genie on the beach. Do your career and your customers a big favor by checking out this new approach to motor insurance. After all, if you don’t your competitors certainly will.
An earlier version of this article originally appeared in the Asia Insurance Review, September 2014 edition.
- Using Telematics in Claims – Claimsjournal
- Progressive’s answer to questionable drivers
- EU rules on gender-neutral pricing in insurance industry
- Telematics insurance infographic
- Paul Stacy and David Neave look at the evolving impact of telematics on driving better management of loss ratios
- Chris Carver – we could have seen better underwriting results
- Allstate and Geico push rate as auto loss ratios climb