The mass of new telematics data sources coming on stream for usage-based auto insurance (UBI) providers will take the analytics required in new directions.
Connected cars, the Internet of Things (IoT) and other new point-of-sale data sources make information about a consumer’s driving and other behavior available prior to policy issuance. This opens the door to groundbreaking opportunities in marketing, underwriting and pricing for UBI carriers.
Nonetheless, new analytics techniques will be required to unlock those opportunities. Three critical areas that we believe insurers will need to address are:
- How to manage multi-source, open format data and organize technology resources.
- How to synthesize driving and location data into meaningful content for consumers.
- How to integrate policy pre-qualification data from telematics sources with traditional rating and underwriting methods.
Managing multi-source data
The range of data sources that the industry may be able to tap in to is substantial. But data variability will present challenges.
The keys to getting the most value out of this diverse and growing pool of data will be a flexible platform, to manage it, combined with sophisticated analytics to turn data into knowledge.
Although many insurers in the U.S. and around the world either are updating or have recently modernized their systems, most have initially focused on reorganizing existing data and information. Many may need to widen their scope to include the capability to leverage new data sources for current or future UBI programs.
But even when such data are accessible, only sophisticated analytics will turn them into useful information. The most granular datasets typically reveal truly risky driving characteristics that can then be applied to less detailed data, although more data doesn’t always correlate to better insights without the right analytics. We have determined from our own analysis that some UBI driving scores in use today actually create less value than simply analyzing mileage.
Redefining customer experience
Information about when, where and how much a vehicle is driven is not just useful for an insurer but also for capturing the attention of the insureds. Studies showing how telematics-based insurance products have improved driving behaviors, fuel efficiency and reduced distracted driving are well documented.
For UBI providers, the expanded data universe should give the opportunity to move the customer relationship to a different footing. This will require an insurance carrier to be able to turn the detailed granular data into timely, meaningful and intuitive insight for the driver. Consumers, in turn, benefit from a combination of incentives and rewards complemented by effective communication to encourage safer driving.
Market-disrupting rating and underwriting
UBI rating plans are already changing due to the proliferation of data. Several companies have also begun to vary the weighting of traditional pricing factors based on what they have learned about actual driving behavior.
Obviously, those with more in-depth experience of handling driving behavior data have an advantage to create market-disrupting rating from new data sources. Yet, this doesn’t preclude others – if they plan and, crucially, start executing a plan. This will typically begin with learning more about the driving behaviors that are actually causing claims and about the industry resources that can help deliver risk segmentation ‘quick wins’.
While gaining scale, there are some significant incremental changes that companies can begin making to ensure rating stays aligned with occurring and anticipated changes. For example, with just a little experience, a company could start by validating current rating assumptions (such as mileage and garaging zip code). An insurer could then adjust traditional factors that are proxies for true driving exposure (such as age, gender, marital status and insurance score) and use data available from new data sources prior to making a quote.
More data should equal more opportunity for providers to differentiate products. Equally, success in this changing auto market is likely to boil down to three main components:
- harnessing data
- engaging customers
- pricing accurately
While the end goal is lofty, insurers can incrementally use these vast and growing data pools to create relevant, differentiated products that satisfy changing consumer expectations.
Katie DeGraaf specializes in helping P&C insurance companies launch or optimize insurance telematics programs. She’s a leading expert in usage-based insurance and has implemented customized programs for two top 20 insurers, as well as advising numerous others in the U.S. and around the world. Katie also manages Willis Towers Watson’s usage-based insurance sales and product delivery along with state approvals Willis Towers Watson’s DriveAbility® score.