Insights for lowering UBI-claim risk
Telematics can jump-start the change process by providing insurers with an accurate picture of a driver’s behaviors.
It’s normal for people to get excited when a new technology comes along. Many people expect the latest tech innovation to automatically fix the problem it was designed to solve — with little or no management involvement or oversight required.
Big mistake. In complex business scenarios, technology typically can’t function in isolation, no matter how good it is, and especially when its role is to fuel better management decisions and business results.
For example, automotive telematics software has the ability to reduce claim rates in usage-based insurance models but success depends on far more than the technology itself. In fact, the most advanced telematics system in the world can’t change driving behavior without an active intervention program to make it happen.
Behavioral science means business
In the insurance industry, reducing claim frequency beyond forecasted risk levels means something significant must change after the initial underwriting process and during the policy period. In the case of driver safety, this translates to a consistent shift in behavior.
Telematics can jump-start the change process by providing drivers and insurers — and in the case of commercial products, fleet managers — with an accurate picture of the driver’s personal driving behaviors, in addition to providing feedback on behaviors that are deemed both safe and risky.
To realistically lower claim frequency, however, drivers must be proactively trained to identify and abandon undesirable behaviors and adopt safe ones. This is where the practical use of behavioral psychology arises.
Rewards and coaching
Two commercial applications were developed by our company using extensive academic research. Designed using the latest behavioral psychology techniques, these programs have proven to improve risk. The first is a rewards program similar to loyalty programs commonly used in retail. Such an approach provides frequent, positive reinforcement and substantially improves driving behavior.
In the rewards program, drivers earned points for safe driving practices over 1,000 miles. The safer a participant drove, the more points were earned. Points could then be redeemed for reward vouchers, such as Amazon gift cards, food and coffee items, each personally selected by the participant. When compared to a control group of similar telematics users who did not participate in the rewards program and earned a traditional usage-based Insurance discount at renewal, the results showed a 54% improvement among the riskiest drivers.
The second approach combines a traditional usage-based insurance program with optional driver coaching. In another study, a coaching feedback unit contacted the lowest-performing drivers and, with their full consent and participation, developed a specific driver profile for each.
Using behavioral psychology techniques, coaches provide ongoing recognition and reinforcement via dedicated phone calls where they motivate behaviors towards positive outcomes through recognition and reinforcement. Further, coaches deliver relapse prevention strategies that included tactics such as reflection, accepting responsibility, creating a willingness to change, developing personalized action plans and setting goals. For those participants who took all of the calls and “graduated” from the program, risk scores improved by 30%, and claims frequency rates were lowered by another 30% as well.
The program proved to save 13 claims per year for every 100 graduates. The numbers speak for themselves. However, lower overhead is far from the only benefit. Data shows that coaching is often most successfully applied to younger and newer drivers, where the human cost from an accident can be enormous. When combined with smart management practices and proven behavioral modification programs, telematics can provide insurers with the tools needed to cut claim costs significantly and, more importantly, to lower accident rates dramatically.
Nathan George (nathan.george@thefloow.com) is the director of business development for The Floow, a provider of device-agnostic telematics solutions for the auto industry, where he leads the company’s sales efforts in North America.
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