IoT's impact on the future of car insurance, explored by Andrew Williams.

Until recently, insurers have largely determined car insurance premiums based on proxies for actual driving behaviours but this is changing rapidly as other sources of data emerge, particularly from IoT and telematics technologies.  So, how best can insurers eliminate overlaps of telematics data and traditional proxies in calculating provisional premiums and avoid further adjustments pending a telematics-based driving score?

Proactive Services

In recent years, more and more automotive insurers have begun to issue policies that expressly employ data collected via IoT and telematics applications to underwrite, rate and manage claims.  As explained by Dawn Mortimer, assistant vice-president of IoT/telematics claims product management at Verisk Insurance Solutions, this is largely because many insurers now view it as critical to rate and price drivers according to the way they actually drive rather than relying on aggregate data to infer correlations about their habits.  As telematics technology becomes ever more widely adopted, she also predicts that customers who do not share their driving data with their insurer will one day pay more for their insurance.

In reacting to these ongoing changes, she reveals that insurers can also change the relationship with their customers by offering more proactive services and support to avoid further accidents, thus further helping to reduce the number of claims. “By providing driver feedback after every trip, customers can understand what their score is and understand how they drive impacts their insurance premium costs.  Additionally, proactive services like distracted driving solutions, embedded into the vehicle, and proactive weather alerts can help the customer avoid incidences altogether,” she says.

David Pratt, ‎general manager usage based insurance at Progressive Insurance, agrees that IoT and telematics technology, as well as the data it generates, is changing the way insurance policies are sold, underwritten and rated, in particular by allowing good drivers to pay less for auto insurance. “Before the availability of telematics data, insurers could only use proxy variables such as age and gender.  Now we can offer lower prices to people who demonstrate their good driving behaviour,” he says. “Progressive has more than two million policies in force that have enrolled at least one vehicle in our Snapshot programme.  Those customers have earned more than $600M (£461M) in discounts.  Because we give them very competitive prices, they stay with Progressive longer than customers who didn't choose to participate in Snapshot.”

Avoiding overlap

In the immediate future, Mortimer predicts that insurers will need to account for, and be inclusive of, both telematics data and traditional proxies when calculating risks and rates. “I would run experiments in looking at the various data points of the proxies and the actual driving data to understand the actual value of these various data types before eventually, within the next 18-24 months, moving away from the proxies and using the driving data to develop their score and models,” she says.

In her view, insurers that can use “actual real-time data” will also be more accurate in their underwriting and be able to better quantify the pricing. “For customers who don't want to share their data, they can still use the proxies but [they] will likely see a higher rate because the insurer does not have access to the actual data,” she adds.

Paradigm shift

In the future, Mortimer also think that the data gathered from sources like carmakers, telecom companies and mobile handset providers will “eventually be required as part of the policy data, much like showing proof of prior insurance is required”. As the data from vehicles becomes ever more ubiquitous, she also believes it will help insurers to better underwrite the risk and apply more accurate ratings to each customer. The customers can then realise accurate rates based upon how they drive.  The way insurance in the US is today, many of the safer, more conscientious drivers pay for the riskier ones, this will change that paradigm,” she says.

In reacting to this ongoing paradigm shift, she predicts that insurers will also need to make use of IoT and telematics derived data faster than ever before in their workflows and system processes, meaning they must be able to “ingest the data, glean insights, pair this with other external data (like weather and road conditions) and drive more automated underwriting and no-touch claims”.

“Insurers will need to make their systems able to ingest these new data elements and insights in real time.  That means cloud computing, updated policy and claim management systems, enabling artificial intelligence with rules and workflow routing, so the combined technologies work in concert with each other and insurers are prepared to bring the data in and leverage it quickly for their customers and optimal operational management,” she adds.

[Ins.Williams.2017.06.29]

Connected Fleets USA 2017

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