Filed Under:Agent Broker, Personal Lines Business

Big data set to rewrite the UBI playbook

Opinion

How will auto insurers and data suppliers line up for the expected impact of big(ger) data upon the UBI market? (Photo: iStock)
How will auto insurers and data suppliers line up for the expected impact of big(ger) data upon the UBI market? (Photo: iStock)

Smartphones, the Internet of Things (IoT) and connected cars are generating a deluge of new data about people’s behaviors and preferences that have already led to disruption and opportunities in many industries. Insurance is now firmly in the front line, particularly the usage-based auto insurance (UBI) market

Between 10 percent and 20 percent of U.S. drivers are now estimated to have some form of UBI auto policy. Yet, market growth has mainly relied on UBI pioneers persuading consumers to have an in-car device or an app on their phone to gather details such as speed, braking and location in exchange for the chance of getting a discount. This has created operational challenges for insurers that don’t usually have the expertise to manage devices and apps.

Related: Designing a UBI program for the 'average Joe' — and anyone else

In contrast, leveraging the data from these new sources will alleviate the need for insurers to gather the data. Also crucial, most can be analyzed before someone buys insurance and will enable insurance carriers not only to understand and price risk earlier and more precisely, but also to offer the kind of digital customer experience to which people are becoming accustomed from large online retailers. In a recent Willis Towers Watson survey, 81 percent of consumers said they would consider letting this pre-collected data be used to allow them access to customized insurance offers.

As a result, these data create the very real potential for UBI to become a true mass-market product — by reducing insurers’ costs and enabling policyholders to determine at the quote stage if a telematics policy will benefit them before they buy one. One report from analyst firm SMA Research has forecast that around 70 percent of all U.S. auto insurance carriers will be using telematics UBI by 2020.

Early scrimmages


The early scrimmages to gain ground in this fast-changing market are already taking place. Auto manufacturers are the obvious source of this data, but telecommunications providers, consumer electronics manufacturers and location-based app providers all supply data that could enhance auto insurance rating and customer relationships. Many of these data suppliers are actively trying to monetize their data assets through insurance applications.

Related: 5 reasons to embrace telematics for the connected car

Meanwhile, auto insurers are rapidly having to come to terms with how the new data could alter the market.

Data suppliers could set up insurance operations themselves, for example, but this is fraught with logistic and regulatory difficulties. The other options are to generate income by contributing data to a data exchange or providing new business leads to insurers with whom they partner. These data suppliers will most likely prefer the lead generation option as it enables them to more directly show value to their customers by giving them access to tailored insurance. Here again, though, there will be challenges to establish relationships, develop suitable IT platforms and generate value-adding customer insights from the data.

Insurers participating in these relationships will also have challenges. While they may have the capacity to integrate with a data supplier or two, it will be challenging to integrate with the wide range of data suppliers who will have customers and data. Even if they could integrate with all of them, they would struggle to cope with the wide range of data that will be available from the different providers.

Role of data platforms


That’s where telematics data platforms may play an important role for all those involved.

Telematics data platforms connect a variety of providers of driving data with a wide range of insurers. Importantly, they overcome the logistical challenges of creating the necessary “many to many” relationship and standardizing the voluminous data from multiple sources to provide a consumer-friendly driver score or related analyses.

Related: Carriers: It's time to rethink UBI approach

In the case of Willis Towers Watson’s DriveAbility Marketplace, this is accomplished by leveraging the aggregated telematics and insurance data gathered on behalf of insurers participating in the program (starting in 2010) to develop a robust and flexible telematics scoring algorithm. Furthermore, the essential licenses and rating certifications are already in place, as are the mandatory privacy and data security safeguards needed when dealing with potentially sensitive consumer data.

Figure 1: DriveAbility Marketplace aggregates and analyzes telematics data for convenient, personalized insurance offers

Figure 1: DriveAbility Marketplace aggregates and analyzes telematic data for convenient, personalized insurance offers

The primary motivation for insurers going down this route is simple: to gain speed to market by making connections and making sense of the mass of non-uniform data. For companies that are currently less data-driven, joining a worthwhile data platform should help them move several steps forward in one leap.

But carriers that are able to gain access to the data for a wide range of their customers and integrate granular telematics data into rating plans should also be better positioned to attract and retain the most profitable customers. Other potential applications are to apply more in-depth understanding to new sources of pre-quote data coming on stream, and potentially create new distribution channels for products, leaving those without similar capabilities increasingly vulnerable to adverse selection.

Driving on


Naturally enough, not everyone agrees that investment in telematics is worthwhile. Some skeptics continue to doubt telematics’ ability to provide a return for insurers. Yet, in the Willis Towers Watson survey, only 7 percent of respondents said that telematics wasn’t a better way of calculating auto insurance premiums, and our analysis has proven that this data significantly increases the ability to price accurately. And there is a reason why so many car manufacturers and telecommunication companies have been very active recently in building links with insurers.

Related: Imagining UBI's frictionless future

Already there are signs of the UBI market moving on. Progressive has gone public about its relationships with OnStar and Zubie, while Liberty Mutual/Subaru and Allstate’s Arity are other examples of a transformation in this industry. Telecommunication companies like Verizon are aggressively pursuing direct-to-consumer connected car products that will position them strongly to generate data revenues from insurance.

If you factor in that virtually everyone in the U.S. already has a smartphone and that nearly every car on the road is likely to be connected to the internet in the next five to 10 years, the incentive for auto insurers to move quickly to integrate wider data sources and build new partnerships looks to be growing by the day.

Katie DeGraaf is the global telematics sales and delivery lead for London-based Willis Towers Watson, a global advisory, broking and solutions company. Contact her at  Katie.DeGraaf@willistowerswatson.com.

Geoff Werner is the UBI global product lead for London-based Willis Towers Watson, a global advisory, broking and solutions company. Contact him at Geoff.Werner@willistowerswatson.com. Opinions expressed are the authors' own.

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