© 2011 towers watson. all rights reserved. the case for usage based insurance telematics-based...

© 2011 Towers Watson. All rights reserved.

The Case for Usage Based InsuranceTelematics-based insurance revolution

2nd December 2011

© 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com 2

Additional data provides step change in insights but some challenges

Contents

Customer and business benefitsThe case for Usage Based Insurance (UBI)

The power of UBI data

What do UBI products look like?Example products

The case for UBI

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Recent news headlines about UBI

The little black box that could help fight soaring car insurance costs

- The Independent, 10 September 2011

Is the black box pay-as-you-drive system really helping slash motor insurance costs?

- The Mail, 10th September 2011

Black box technology cuts motor insurance premiums by £700

- The Telegraph, 13 September 2011

More than two-thirds of U.K. drivers over age 35 would consider having a telematics monitoring device installed in their car to save money on their insurance, according to new consumer research commissioned by Towers Watson. Willingness to potentially participate in a pilot was higher still, at 77%.

TW consumer survey, London, April 2011

Eye on the road:Some insurance companies are introducing monitors that track driving habits to determine possible discounts

- Chicago Tribune, 3rd October 2011


What do we mean by UBI?

Insurance Premium

$1,200

$1,080

$1,000

$ 900

Insurance Premium

$1,200

$1,080

$1,000

$ 900

Company Feedback

Vehicle Score

VIN: 12345…

Miles driven: 6,234

Event 1 per mile: .05

Event 2 per mile: .01

Customer Feedback

Insurance Premium

£1,200

£1,080

£1,000

£ 900

Risk data from an in-vehicle device offers new rating scores and a platform for new services


The Vision: What if…

...you want a proposition that can proactively engage with your customers, enhance the customer experience and provide insight and guidance on risk activity?

...you implement a process that reduces the loss ratio by more than 20% for the portfolio as a whole?

...you found a variable that could segment your current book such that 20% of your vehicles had a loss ratio five times lower than the highest 20%?

Usage based insurance can provide all of the above - and more…


UBI is changing the game for motor insurance Geographic trends

North America Early adopters and fast followers Competitive factors driving

development Self-installed OBD devices

frequently deployed Product propositions range from

‘safety focus’ to promoting ‘good driving behaviour’ rating

Europe Emerging market Competitive factors driving

development Insurers compete for ‘self-

selection’ of better risks Focus on ‘young driver’

proposition (except Italy, where focus is on theft and safety)

Use of hard-wired devices

South America Potential market

South Africa Developing market due

to high theft and fraud

Asia – Pacific Limited movement

Different markets are at different stages of development,but UBI is increasingly being used across the world


Why UBI is game-changing - for insurers and customers

Significantly increases risk rating capability and pricing accuracy Differentiated product - and provides platform for new, value-add services Appeals to consumers as it is tailored to their driving activity and behaviour,

and allows product/pricing ‘control’ Attracts lower-risk customers via self-selection Allows customers to understand and

eliminate risky behaviours, actuallyreducing accident frequency

New data available to increase efficiencyof claims handling and reduce fraud

Positive impact on road safety

All of these advantages lead to increased customer satisfaction, improved retention and opportunities to manage profit margins more effectively

IncreasedProfits andRetention

Risk Reduction

Claims Handling

Customer Satisfaction

Better Pricing

Self Selection

What UBI can mean for insurers



Effective market positioning: ‘what,’ ‘how,’ ‘price’

Source: CIS website.


Example Consumer Proposition - U.S.

Source: Progressive website


Example Consumer Proposition - U.S.

Source: State Farm website.

The power of UBI data



Device Technology Evolution

Early adopters: Hard-wired devices installed in vehicles by professional engineers

Mid-term: Customer self-install devices via onboard diagnostic port (OBD) with other types of ‘light’ or self-install devices imminent

End vision: Smartphone or SatNav app/link providing connectivity todata streamed directly from vehicle via Bluetooth

End visionMid TermEarly adopters

2010 2020?2012

NOW


UBI data is unlike typical insurance data

Without Telematics With Telematics

Update frequency

Annual Real time, trip, daily

Data quality Renewal UW Daily scrubbing

Variables Pre Defined Manufactured

Records per policy

Few A Million per Year

Data size* GigabytesTerabytes (when uncompressed*) 0 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23

Hour of Day

Trip Distribution by Time of Day


Sample data

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Score


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0 100 200 300 400 500 600 700 800 900 1000

Scor

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Annual Premium

Sample data


Towers Watson is represented in the U.K. by Towers Watson Limited, Towers Watson U.K. Limited and Towers Watson Capital Markets Limited.

The information in this publication is of general interest and guidance. Action should not be taken on the basis of any article without seeking specific advice.

© 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

© 2011 towers watson. all rights reserved. the case for usage based insurance telematics-based...

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