March 23, 2015

Kathryn Walker, FCAS, MAAA, CPCUGary Wang, FCAS, MAAA

Usage Based Insurance: Trends and Considerations in the Current Personal Auto Market

Midwestern Actuarial ForumSpring 2015 Meeting

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About the presenters

Kathryn A. Walker, FCAS, MAAA, CPCU• 15 years of property/casualty experience• Consulting actuary in the Chicago office

Gary Wang, FCAS, MAAA• 18 years of property/casualty experience• Consulting actuary in the Bloomington office

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• The current UBI landscape • A survey of current UBI offerings• Customer segmentation• Telematics data and technology

• Into the Wild – A New Frontier for the Actuary• UBI strategy and program considerations• Customer Response to Usage-Based Insurance• Urban Traveler- UBI in the City

Discussion topics

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The current UBI landscape

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• Major companies• Allstate: Drivewise®• American Family: mySafetyValetSM

• Esurance: DriveSenseTM

• Hartford: TrueLane• National General: Low-Mileage Discount• Nationwide: SmartRide®• Progressive: Snapshot DiscountSM

• Safeco: Rewind®• State Farm: Drive Safe & SaveTM (In-Drive®)• Travelers: IntelliDrive®

Understanding UBI landscape - major US programs

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• Types of programs• Mileage based• Behavior based• Value added services

• Discounts• Most give enrollment discount of 5 – 10%• Usage based discount of up to 50%

Understanding UBI landscape - major US programs

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Number of personal auto UBI programs by stateData as of September 2014

Companies included: Progressive, State Farm, Allstate, Hartford, Esurance, Travelers , National General, Nationwide, DTRIC and Metromile

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• Policies written by insurers in the National General Insurance Group

• Monthly base rate plus cents per mile– Mileage capped

• 150 miles/day CA, IL and OR• 250 miles/day WA

Metromile per-mile insurance program

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Customer segments• Teenage drivers• Young adult

operators• Millennial• New families• Empty nesters• Senior operators

Behavior• Saving money• Self-selection• Environmentally

friendly• Decrease in car

ownership levels• Ride sharing/car

sharing

Customer segments and behavior

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Types of telematics data

Usage• Basic usage data• Mileage

Behavior

• Measures vehicle behavior on road• Time of day• Acceleration/deceleration• Speed• Location

Geospatial

• Measures conditions of and surrounding vehicle• Operating state of vehicle• Weather• Road type• Traffic

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The mobile app option is quickly becoming a viable alternative to the traditional OBD solutions

• The overarching issues with the mobile app solution– Amount of time the app is off

• Phone off• Phone not present in vehicle

– The inability to guarantee data captured relate to the driver and vehicle

• Passenger in car pooling situations• Public transit

Mobile app solutions

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• Price of the solution• Upfront cost, in time and money• Per driver/vehicle/policy cost

• Completeness of the solution• Comparison against the OBD alternative• Accuracy against actual results• Correlation to claims potential

Mobile app solutions – considerations

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Into the Wild –A New Frontier for the Technical

Actuary

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Internal

• Understanding various options and approaches for launching a UBI program

External• Understanding UBI landscape• Research customer demand and industry trends• Evaluate potential investment given the company distribution model

and value proposition

Strategy• Articulate a UBI strategy consistent with company strategy

and goals• Develop the data and analytics plan required for a

successful program• Identify market triggers that would signal key timing

for market entry

UBI – a strategy for success

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Product Positioning •Premium discount•Value-added services

Telematics Devices •On-board devices•Smartphone

UBI Data •Cost focus•Data focus

Rating Considerations •Driver scoring•Privacy considerations

Program Monitoring •Driver feedback•Customer service & support

Market Entry Considerations

•Barriers to entry / Market cycle•Key metrics

UBI – Strategic Considerations

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Barriers to entry

Entry considerations – what signs

support entering UBI

market

Identification of key metrics

Market entry considerations

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Market entry considerations

Expenses

Market share

Competitive position

Innovation

Legal considerations

Internal challenges

Consumer response

s

Customer Response to Usage Based InsuranceAn Analysis of Social Media Sentiments

September 2014

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Positive Negative Neutral0%

10%

20%

30%

40%

50%

60%

26%

55%

19%

28%

48%

25%25%

19%

56%

2013 Study 2014 Study UK Study

Sentiment of comment

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Savings

Excitement

Tracking

Better Driving

0% 10% 20% 30% 40% 50% 60% 70% 80%

76%

14%

6%

4%

76%

14%

0%

2%

35%

12%

0%

0%

UK Study 2014 Study 2013 Study

Customer positive responses

• Well defined customer value proposition

• Customer Recommendations

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Privacy

Misunderstanding of Program

Rate Can Go Up

Concerned About Results

0.0% 5.0% 10.0% 15.0% 20.0% 25.0% 30.0%

23.4%

18.2%

14.1%

13.4%

18.9%

24.4%

9.8%

12.2%

3.0%

9.3%

3.0%

0.0%

UK Study 2014 Study 2013 Study

Non-customer negative responses

“That snapshot thing by Progressive just seems like an easy way for the govt to

spy on you.“

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Savings

£0 - £50£51 - £100

£101+

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

42.9%

73.3%90.9%

7.1%

13.3%

9.1%

50.0%

13.3%0.0%

Pound Savings by Tone

Positive Neutral Negative

Pound Savings

“Thought I earned a 30% discount through the @Progressive snapshot only to learn that policy rates

went up the amount of my discount #notcool.”

Zero Less than 10%

10% to 19%

20% to 29%

30% and Greater

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0%

50%

83%93%

100%

8%

15%

0%

2%0%

92%

35%

17%

4% 0%

Reported Snapshot Discount by Tone

Positive Neutral Negative

Reported Discount

To

ne

Per

cen

tag

e fo

r E

ach

Dis

cou

nt

Cat

ego

ry

Urban Traveler – UBI in the City

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• 6 month evaluation of Driveway UBI app

• Smartphone-based• I’m a Good Driver!

Usage-Based Insurance Apps

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• Projection is 13,000 miles vs. an average of 12,000– 35 miles per day?!?

• Recommendations– Use public transportation– Drive less– Car pool

• Where am I driving?

Annual Mileage

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In my world….

2012 Toyota HighlanderPurchased: August 2012Odometer reading: 3,248 miles

March 2015Odometer reading: 11,276 miles

8,028 total miles over 31 months = 8.5 miles per day260 miles per month3,100 miles per year

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How does the Urban Traveler travel?

Driver Driver - rental

Passenger Train Taxi UberX Other0

20

40

60

80

100

120

140

160

180

200

0

5

10

15

20

25

30

35

40

Trips Average Trip Length

# T

rips

Avg

Trip

Len

gth

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Average Driving Scores

Driver Driver - rental Passenger Train Taxi UberX Other0

10

20

30

40

50

60

70

80

90

100

Average Driving Score Distance-Weighted Score

BEST

WORST

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Overall Trip Scores vs. Trip Distance

0 to 2 2 to 5 5 to 10 10 to 20 20 to 30 30 to 50 50 to 100 100 to 3000%

5%

10%

15%

20%

25%

30%

35%

40%

45%

50%

-

10

20

30

40

50

60

70

80

90

100

% Total Trips Average Driver Score

TRIP DISTANCE

% T

OT

AL

TR

IPS

TR

IP S

CO

RE

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0 50 100 150 200 250 3000

10

20

30

40

50

60

70

80

90

100

Rental Car Driver Passenger

Trip Distance

Performance vs. Trip Distance

0 5 10 15 20 25 30 35 40 45 5050

55

60

65

70

75

80

85

90

95

100

Rental Car Driver Passenger

Trip Distance

0 5 10 15 20 25 3050

55

60

65

70

75

80

85

90

95

100

Rental Car Driver Passenger

Trip Distance

0 1 2 3 4 5 6 7 8 9 1090

91

92

93

94

95

96

97

98

99

100

Rental Car Driver Passenger

Trip Distance

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Overall Trip Score vs. Trip Distance

0 to 2 2 to 5 5 to 10 10 to 20 20 to 30 30 to 50 50 to 100 100 to 3000%

10%

20%

30%

40%

50%

60%

-

10

20

30

40

50

60

70

80

90

100

DRIVER PASSENGER

TRIP DISTANCE

% O

F T

RIP

S

TR

IP S

CO

RE

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Mobile app solution has become a strong contender

Existing programs continue to expand into new states

Successful UBI Implementation requires alignment with company value propositions

Positive progress has been made in customer awareness

UBI lessons learned will come both domestically & abroad

Consumer experience is imperative

Conclusions

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Thank you for your time and attention

Katey Walker, FCAS, MAAA, CPCUkwalker@pinnacleactuaries.com

630-457-1298

gwang@pinnacleactuaries.com

309-807-2331

Gary Wang, FCAS, MAAA

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