UBI Brings Paradigm Shift to Claims Handling Feb. 2015

UBI is transforming the car insurance ecosystem in Europe in many ways. Here, Siegfried Mortkowitz looks at how it is radically changing the claims handling process.

There are many reasons players in the auto insurance ecosystem are eager to see usage-based insurance (UBI) become the insurance method of choice for car owners. Matteo Carbone, manager, Financial Service Practices, at Bain & Co. Italy, cites five “really material” benefits telematics-based insurance can provide an insurer.

“First, an insurer can select its clients at the underwriting stage,” he says. “Second, UBI enables the carrier to more accurately price individual clients. Then, value-added services improve the customer experience with the insurance product. Four, it can increase the profit of the business by limiting the loss ratio of the motor insurance portfolio. Finally, it can increase client loyalty based on rewarding the client for changing his driving behavior.”

Carbone says that typically insurers started to approach the telematics opportunity on the underwriting side and are only now discovering how telematics can increase a firm’s profit pull by enabling a proactive and speedy claims management process. He cites a recent Towers Watson study which found that proactive claims handling was crucial for the delivery of superior customer service and effective loss containment.

“Traditionally, companies are reactive and wait for the client to notify them after an accident,” he says. With a telematics program the insurer can receive instant crash notification and proactively initiate the claim management process.

“The insurer can tell the client where to fix the car and get a replacement vehicle,” Carbone says. “And they can settle the claim quickly.”

In addition, the carrier can call assistance in case of an injury and help the client through the claims process by explaining how to declare a claim. “This is a new experience for the consumer,” Carbone says. “You give him information and you simplify the process.” This adds up to a vastly superior customer experience, “which generates loyalty and creates differentiation with other companies that don’t have UBI,” he notes.

In addition, UBI provides the insurer with better-quality information about the accident. “With telematics you have a new paradigm,” Carbone says. “There is a new kind of information around the claim.”

Telematics provides what Carbone calls “objective information” about an accident, giving the claims handler “a better description of what the car did in terms of braking, speed, cornering, etc.”

Having this objective data will also help prevent frauds, he says. Claims fraud has plagued the Italian market for many years, with some analysts suggesting that as much as 12 percent of personal injury claims are fraudulent.

“With telematics, one of the first benefits is to identify claims that could be fraudulent,” Carbone says. “This will help lower the overall cost of claims and also prevent new frauds by discouraging people through word of mouth.”

This is already happening in Italy, he says, where companies using telematics are “feeling a very positive effect” in this regard because “people intending to defraud won’t use a policy from a telematics solution.”

Kurt Rowe, associate solicitor, Advisory and Market Affairs and insurance specialist at Weightmans LLP, agrees, and adds that telematics will also provide significant benefit in mainstream motor claims, and thereby bring significant savings to insurers. He gives the example of one client who was accused by a third party of having been involved in an accident.

“He denied it,” Rowe recounts. “But the insurer was able to call up data from the telematics device in real time. The data showed that the vehicle had suffered massive deceleration and then remained stationary for 5 minutes. The evidence tells us that something happened, that an abnormal event occurred.”

Confronted with this information, the insured was persuaded to settle the third party claim, saving everyone a great deal of time and cost.

“Without telematics, liability would have been denied on the strength of the insured’s statement,” Rowe says. “Claims investigators would have been instructed to take statements, visit the location of the accident and assist in determining the merits of the case. The case could even have gone to court.”

Telematics is very useful when it comes to understanding speed, says Rowe, and cites another case in which the technology cut short what could have been a long, expensive and messy claims process.

“A policyholder of our client was driving on the motorway when the vehicle in front stopped suddenly. The policyholder alleged that there was only minimal contact and disputed whether the third party could have been injured as alleged. A review of the telematics data showed that immediately prior to the accident his car was rapidly decelerating to a speed of about 20 to 30 mph at the point of impact. This was clear evidence that the accident was not a low-speed impact and could therefore have caused the injuries claimed by the third party.”

Telematics enabled the claims handler to access the data in real time and determine the speed prior to and at the point of impact. “Low-speed impacts can be very difficult to argue, take a long time to defend, involve forensic engineers and regularly end up in court,” Rowe explains. “All this adds to the expense of the claim. Telematics allowed the handler to have a frank discussion with the policyholder, resolve the liability aspect of the claim and ultimately saved the insurer a lot of money in unnecessary investigative and legal fees.”

It can save on time as well, since it can take weeks and sometimes months to obtain a police accident report in the U.K., he says and, echoing Carbone, adds: “Telematics data gives you the opportunity to get real-time data on speed, distance, location, cornering.”

The data collated from telematics devices will become more detailed, and therefore more accurate, once the technology becomes embedded in a vehicle’s systems, Rowe says, providing such additional data as force of impact and direction of impact.

Over the long run, he says that UBI could mean fewer claims where liability is disputed, which in turn could reduce the number of claims going to court. “Only a small fraction of motor insurance policies sold in the U.K. are telematics policies, but this is on the increase,” Rowe says. “As the number of telematics policies increase, the number of claims requiring legal input will undoubtedly decrease.”

The Insurnace Telematics Europe Conference & Exhibition (14th-15th April) will explain how the insurance community can stay relevant by integrating telematics into claims and responding to evolving automotive tech.