The great savior for mid-tier and smaller insurance carriers in the past decade has been the Web. Regional insurers could suddenly do business in the same manner as national carriers and customers found it nearly impossible to distinguish between the two. Life was great for these smaller insurance companies.
Alas, life rarelystands still, particularly when it comes to finding better ways to do things—quicker and less expensive—than your competitors. Midtier and smaller insurers are once again reminded of their status as their larger competitors are finding even more ways to operate effectively through the use of predictive modeling.
Telematics, one form of modeling, has become a game-changer for insurance carriers operating in the personal auto line. Soon, it will become impossible for those without this technology to compete for the good drivers of the world with larger carriers. Good drivers have long been saddled with less efficient underwriting tools that lump their rates together with less careful drivers, pushing the rates of better customers higher despite fewer driving mishaps.
Towers Watson recently issued a report on predictive modeling among p&c insurers and reported some incredible data. When looking at their bottom lines, 83 percent of carriers surveyed report a positive impact on rate accuracy through predictive modeling.
If that wasn't enough, 76 percent report a positive impact on loss ratio and 73 percent report a positive impact on profitability.
This survey crossed both personal and commercial lines, but it's important to remember that personal lines carriers, particularly ones that have moved, however gently, into telematics will likely have higher expectations than even those numbers mentioned above.
According to Towers Watson: “Currently, personal lines respondent carriers that use telematics are focusing on only a few areas, including measurement of annual mileage, tracking how and when a vehicle is being driven, who is driving the vehicle, and where it is being driven. But more expansive plans are underway: 89 percent of personal lines respondents that either use or plan to use telematics have plans to use the data proactively in rating and 83 percent plan to use it to provide information to insureds to help improve driving behavior.”
The race to use telematics will likely be a quick one. Informed drivers who realize they can get better rates because they have been and continue to be good drivers will seek out those companies that offer telematics, while companies without the technology will be stuck with the rejects from demolition derby. Which carrier do you want to be?
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