In the early 1990’s, credit-based insurance scoring caused a revolution in the insurance industry, as insurance companies used certain elements of a person’s credit history along with many other factors, to predict how likely that consumer was to have an insurance loss. Research showed that there was a high correlation. Companies that adopted this capability in their rating plans were able to gain competitive advantage, while those that did not, suffered through adverse selection and either went through consolidation or went out of business. Today, 95% of auto insurers use in it in states where it is a legally allowed underwriting or risk classification factor.1
Telematics is similarly causing a new revolution in the industry, with actual driving data strongly influencing the predictability of whether a consumer will have an insurance loss or not, and thereby is an important factor in the determination of insurance premium pricing. If an accident occurs while telematics data is being gathered, it can be leveraged to initiate emergency response to aid the consumer and facilitate the quick and appropriate resolution of the claim. In addition, telematics connectivity allows for the engagement of insurance consumers with value propositions beyond the insurance paradigm (e.g. loyalty programs, vehicle diagnostics, location based services), strengthening customer satisfaction and retention. In the US, most of the top ten auto insurance carriers have successfully implemented telematics-driven usage-based insurance (UBI) programs, there are 45 states which have approved 10 or more such UBI programs and millions of consumers have participated in these programs. Companies that do not adopt this capability soon will be at a disadvantage and could have a hard time being competitive in the future.
However, telematics is not a simple proposition to adopt. Here are some tips for insurance companies considering the establishment of a UBI program.
- Note that it will affect the entire organization across marketing, sales, underwriting, pricing, servicing and claims – get buy-in.
- You will need resolute support from the top levels of the company leadership.
- Expectations should be tempered around test and learns, with the ability to make on-the-fly adjustments, rather than trying to deploy the perfect launch program.
- Begin with researching and learning about telematics capabilities via a pilot:
- Who are the telematics service providers and what do they bring to the table
- Select a service provider after undertaking quick evaluations
- Set up the contract that will govern the telematics services
- Identify the process for fulfilling devices and exchanging & protecting customer data, and acquiring telematics data, using minimal automation
- Experiment with volunteer employees or customers and small support staff
- Research the telematics data that is acquired and identify what and how it will be used in the program
- Protect any intellectual property associated with the technological aspects of the solution
- Set your strategy and launch a single-state program based on the pilot learnings
- Identify the channels through which the launch will occur (e.g. Direct, Agency)
- Get regulatory approval for the product offering – pick a state that is favorable and where customers may already understand the technology and implications
- Engage the marketing department to test messaging campaigns for acquisition
- Expand the automation capabilities for customer acquisition, exchange of customer data and telematics data with the telematics service provider. Allocate adequate time to design, implement and test with the provider including any device fulfillment process.
- Build up the infrastructure where potentially huge amounts of telematics data will be stored and analyzed for future evolutions of the pricing algorithms
- Expand training to sales and service personnel and increase the support team footprint
- Monitor KPI metrics to measure success of the program
- Confirm the strategy and expand the program’s availability
- Tweak processes to be effective
- Establish full automation across all systems
- Raise awareness of the program across the organization, highlighting successes and learnings
- The entire organization must be trained and ready to support UBI
- Launch across multiple channels, in multiple states, with effective marketing messaging and sales support
- Engage with customers to get feedback on what is working and what is not
- Monitor KPI metrics to ensure program success
- Enhance the program to incorporate value-add and convenience features for consumers
Keeping these tips in mind will certainly position a company to be more likely to succeed in adopting a UBI program.
Octo Telematics North America is a leading provider of telematics services to the global insurance industry, having been established in 2002 and now servicing several of the top tier insurance carriers in North America and elsewhere in the world. Octo offers a Try&Drive program which insurers can quickly and reliably evaluate and personalize for adoption, attracting better drivers, increasing revenues, reducing costs and increasing loyalty.
- National Association of Insurance Commissioners (NAIC) – Credit-based insurance scores