Auto technology personalizes the insurance experience
Here’s how telematics and UBI are driving radical change for personal and commercial auto insurance.
The hyper-connected cars of today not only provide amenities like internet access, onboard entertainment and turn-by-turn navigation to drivers and passengers — they offer a wealth of data that is drastically reshaping the auto insurance landscape. As technology improves and driving data becomes increasingly accurate, usage-based insurance (UBI) policies are gaining popularity.
A move away from third-party devices and toward embedded telematics means vehicles themselves — both personal and commercial — are becoming the conduits of data back to the insurer, offering benefits for policyholders and insurers alike.
Technology yields better data
One of the biggest recent disruptions in the insurance industry is a move toward in-vehicle data collection by original equipment manufacturers (OEMs), who recognize a potential opportunity to monetize valuable consumer data. Over time, third-party devices that plug into a car’s diagnostic board are being replaced by cheaper and more convenient smartphone-based solutions, which will soon give way to technology embedded directly within the vehicle. This embedded technology provides better, more accurate data — a potential goldmine of information.
Until recently, this valuable data had largely only been leveraged by personal lines insurers. But the massive shift in telematics now allows insurers to use it for commercial lines — for claims, FNOL and fraud detection. Further, companies like Progressive are using telematics to support electronic logging (ELD) of driving data for small interstate fleets, as well as tracking the radius of vehicle travel and time of day driven. This, in addition to the use of driving scores to provide commercial drivers with real-time data, encourage them to improve their driving — which can reduce risky driving events by as much as 55% according to a U.S. Department of Transportation study.
OEMs, insurers and related industries must all carefully navigate privacy laws on a state-by-state and country-by-country basis to determine which personal driver information they can track and how long they can store data, but P&C insurers are well-positioned to provide real customer value and drive growth with UBI.
Telematics-enabled UBI
Applied to auto insurance, telematics can be as simple as tracking the number of miles a policyholder is driving or as advanced as tracking behavior — such as driving events like hard braking and cornering, the number of intersections a driver typically crosses within a given time frame and even what time of day they travel most.
While data privacy remains a sensitive issue, UBI has clear benefits for both policyholders and insurers as data becomes more robust and is available in real time. Key advantages for policyholders include safety, convenience and cost savings.
For example, in the case of a crash, telematics sensors can instantly notify a customer’s insurance company, while concurrently sending assistance and emergency vehicles to the crash site as quickly as possible. Because telematics collects very detailed information, insurers can also connect with policyholders immediately after an accident, pushing links or apps to their smartphones so they can capture photos or videos of their vehicle.
For insurers, telematics-driven UBI also helps paint an accurate picture of exactly what happened in a crash, which helps prevent fraud. In the case of an accident, it allows for a better estimate of damages and speeds up the claims process. Insurers can take data from a vehicle that shows the precise angle at which the car was hit and with how many g-forces, then use that information to quickly calculate what the payout should be. As a result, insurers can often pay claims within hours after an accident.
Another key benefit of UBI involves pricing. Using individual drivers’ behavioral data versus generic demographic information, UBI closely aligns driving behavior with premium rates. In this way, telematics allows insurers to assess risk for individual drivers more accurately — and incentivize them with data-based safe-driver discounts. In the fleet world, underwriting is enhanced through tracking garaging location and the radius of vehicle travel as well as hours driven per day and time of day driven.
Platforms & telematics-backed UBI
In the future, platforms that capture OEM data and provide driving scores and FNOL information back to the insurer will have a profound impact on insurers. The cost to access driving information, which has required expensive onboard diagnostics until recently, will be replaced by much more cost-effective capture methods. One application for this evolving technology is the ability to underwrite new policies based on historical driving information.
Telematics has the potential to transform how personal auto and fleet insurance is bought, sold and administered. By driving costs out of the claims process and matching premium with risk more accurately, insurers can reduce their cost and underwriting ratios — and policyholders can benefit from lower rates, improved customer service and safer driving experiences.
Tim Kennedy (tkennedy@guidewire.com) is business owner of commercial lines and IoT at Guidewire Software.
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