usage-based insurance & telematics · new sales within motor are telematics products by 2020...
TRANSCRIPT
Usage-Based Insurance & Telematics
Slutet på traditionell prissättning eller bara en fluga?
Aktuarieföreningen april 2016. Speakers: John Brandel & Martin Einemo, EY
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Introduction & Market overview
Highly engaged customers have a 37% lower rate of accidents and their cost of claims are significantly lower (27%)
Reduce claims cost by 40%
Reduce policy administration by
50%
In Italy approximately 30% of
new sales within Motor are Telematics products
By 2020 the market penetration
is expected to be 15%
Share of telematics enabled policies in Europe and in the US
Telematics in numbers► Usage-Based Insurance is an insurance product with highly personalized premiums that are set after specific behavior
► Telematics is a type of vehicle insurance whereby the costs are dependent upon type of vehicle used, measured against time, distance, behavior and place
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The traditional insurance market is moving towards a big change
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18%
56%
15%2,5%7,5%
Totalpremiumincome
Profit Fraudulentclaims
Admincosts
Behavioralrelatedclaims
Non-behavioral
relatedclaims
Distribution of costs per premium income
► Technically an insurance is a transfer of risk from one entity to another in exchange for money
► Insurance companies earns revenue from two primary sources:
• Charging enough premium to cover for expected claims and administrative costs
• Earning investment returns► There are different types of insurance
How does insurance work?
12 March 2016
Key facts of traditional insurance
Pricing by segmentation
Nordic market: An oligopoly
New insurance mega trends
Issues with insufficient data
Combined ratiosf(x)
Usage-Based Insurance & Telematics
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Agenda
1 Introduction
2 Big Data
3 UBI & Telematics
4 Impact on business
12 March 2016 Usage-Based Insurance & Telematics
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Effective Big Data management
Access to new data sources is a game changer for pricing and business models
What does access to Big Data mean for the insurance company and its market position?
More material to form a competitive pricing model
Individualised pricing
By lowering claim sizes the insurer can stream line the organisation
Better forecasting of future claims
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Data available in the world (Zettabytes*)
*1 ZB ≈ 1,126,000,000,000,000,000,000 bytes
Apple users download
51,000 apps
YouTube users upload
300 hours of new video
► Every minute…
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The customers can benefit from sharing theirdata
What data do we generate?
… and how can the customer benefit from that?
Location
Physical status
Social media data
Transaction pattern
Other smartphone activities
By sharing personal data the customer can benefit from tailored services
Emergency services
Motivation for healthy and safe living
Form base for individual services
Fraud detection
Loyal customers get recognised
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Agenda
1 Introduction
2 Big Data
3 UBI & Telematics
4 Impact on business
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Telematics in cars can increase the claims prediction accuracy
Analysing different types of data:► Speeding► Excessive
acceleration and breaking
► Safe or unsafe road
► Safe or unsafe time of driving
Collection of huge amount of information:► Storage► Ownership► Integrity► Wash and filter
data► Size of data
Measure driving behaviour through:► Application for
smartphone► Built-in black box
in car
Better pricing for safe drivers:► Young drivers
that drive safe► Males that drives
safer than their peers
1. Measure 2. Data 3. Analyse 4. Product
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Telematics has an opportunity to increase traffic safety
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By capturing detailed data on driving behaviour insurers price more efficiently
Traditional insurance
Use the following as proxy of the true risk:
Car factors
► Age of the car
► Make and model of the car
► Value of the car
Driver factors
► Age of the driver
► Claims history
Other
► Socio demographic
► Geographic
True risk of the insured
Car
► Age of the car
► Make and model of the car
► Condition of the car
Driver
► Age of the driver
► Experience of the driver
Where the car is driven
► Traffic density
► Type of road
► Traffic enforcement (e.g. Speed cameras)
When the car is driven
► Day or night
► Weather conditions
► Seasonal use only
How the car is driven (DBD)
► General adherence to laws & regulation
► Length of journeys
► Acceleration, deceleration and speed of car on different road types / traffic density
Telematics Data
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Time for a question!
Telematics
Consider the the following scenario:
Based on a scoring model, drivers get between -20%
and +20% on their standard motor tariff price“ ”What is the most likely effect of this approach?
All customers will get a more accurate price1The good drivers get a more accurate price2Bad drivers get negative behavior punished twice3
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In order to build the price model accurately, one need to consider the full tariff
Let part of the premium be based on a traditional tariff and part be based on
driver score
Telematics
Exempel:
En 25-åring har för en BMW 320 ett tariffpris på 25 000 kr/år, genomsnittligt tariffpris är 8000 kr/år.
Personen har en driving score på 55. Genomsnittlig driving score är 70.
Vilken driving score förväntas utifrån ett tariffpris på 25 000 kr/år?
There are different ways of setting up a tariff including Telematics
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Using driver score as a separate argument in the GLM2
Using a normed driver score as a factor giving a discount or penalty3
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There are three main sources for premium pricing with telematics
► Using studies, public data and trials one can obtain a very accurate risk model even with small collected datasets
► Most common parameters to use for risk diversification under UBI are exposure, speeding and acceleration profile
► Some insurance companies apply a pay-per-mile insurance premium
In our experience, the difference in predicted accident frequency is very large between drivers
Exposure Speeding Acceleration profile
Weekday, time of day and season are important indicators of exposure risk
Around 20-30x difference in accident probability between the best and worst time to drive, however aggregated results are showing smaller differences
Speeding and type of road are the most used factors among insurers
Here we can observe a 4-10x difference in accident frequency between the safest and the most unsafe driver
Usually, a filtered acceleration signal is used to obtain indicators of unsafe driving
Among drivers, this factor stands for around 4-12x difference in accident frequency between the safest and the most unsafe driver
12 March 2016 Usage-Based Insurance & Telematics
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Agenda
1 Introduction
2 Big Data
3 UBI & Telematics
4 Impact on business
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In our point of view, the business case for telematics is complex and contains several components that are of importance for success
Pricing Strategy…
Using more data, and more data that is directly relevant to the individual customer can help to bring pricing to the next level
1Customer Experience
Providing services such as streamlined claims handling, advice to improve driving and reduce premiums can improve the customer experience
2Expense Reduction
Improving claims underwriting can help to reduce costs, and through better understanding of customers marketing can be targeted more effectively
3Revenue Enhancement
Value adding services coupled with increased market share and cross selling can increase revenue
Risk Management
Improved understanding of customer behaviour can be used for a more refined portfolio risk analysis, and can also help to identify fraud incidents
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The business case for telematics contains several components
Telematics is an opportunity to improve not just pricing, but all parts of the insurance business
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Reward customer for driving well, improving his/her driving knowledge and awareness and making sure the car is safe to drive.
► To maximise rewards one needs to earn as many DQ Points as possible and aim for an Advanced Vitalitydrive status
► Good drivers experience a 37% lower rate of accidents and their cost of claims are significantly lower (23% lower)
Example of motor UBI programs worldwide
Carrot Insurance (UK)
Young driver program using a black box installation.
► Quarterly appraisal of “Driving Style score” used to calculate cash rewards, loaded onto a pre paid MasterCard
Recently introduced a mass market telematics program that is app based.
► Weekly rewards are given for good driving
Moderna (Sweden)
Discovery (South Africa)
Mobile app on a pay-how-you-drive approach:
► Gives up to 15% discount
► Need to drive 500 km while the appregisters your driving behaviour
► Uses speed and accelerationmonitoring
In Sweden, the large players are expected to introduce UBI programs shortly after the release by Moderna and the release in May 2016 by Folksam
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How can an insurance company increase profits with decreased premium income?
Company X earn 100 MEUR in premiums
Scenario:
► 30% of their customers engage in the telematics offering
► These customers lower their premium in average with 12.5%
12 March 2016
Company X
Usage-Based Insurance & Telematics
If you were the CEO of this insurance company, what would you do?“ ”
Do nothing. Claims cost will decrease so the result will be better anyway
Increase the total premium with 3.75 MEUR for all customers prior to the offering
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Increase the premium for customers who decide not to engage in the telematics offering
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How will big data, data analytics and telematics affect FS-business?
12 March 2016 Usage-Based Insurance & Telematics
There are many stakeholders that have an opportunity to be market leading
► How can insurance companies increase their profits with telematics?
► Why are telcos applying for
banking licences and setting up
telematics solutions?
Insurance
Telecom
► Why are big retail companies expanding outside of their core areas i.e. banking, insurance and pharmacies?
► How can car producers use
their position as being the
suppliers of the user data?
Retail
Car producers
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Time for a question!
Telematics
What do you think about Telematics on the Swedish market:
How many of the medium and large insurers will offer Telematics
products within 5 years?“ ”> 75%150% to 75%2
25% to 50%3< 25%4
The better the question. The better the answer.The better the world works.
Thank you!