As the concept of usage-based auto insurance (UBI) becomes increasingly prevalent, global professional services company Towers Watson is working with several large insurers, and has gathered and analyzed information from thousands of vehicles throughout the United States as part of its DriveAbility service offering. DriveAbility provides analytical support for insurers that translates to an individual score for each vehicle to both inform auto policy rating and encourage safer driving habits.
For insurers, UBI offers a new way for companies to differentiate their products, while also increasing profits and retention as the technology utilizes actual driving data to determine more accurate premiums. UBI helps customers by not only empowering them to improve their rates, but also helps them to select the most appropriate insurance product for their needs; for example, parents may select UBI products to monitor their teen drivers.
UBI goes beyond traditional insurance pricing algorithms by using actual vehicle operation data to measure risk exposure, achieved in near real time. With DriveAbility, insurers can provide policyholders with personal driving data via the Internet on a daily basis. Studies have demonstrated dramatic reductions in risky driving behavior with regular feedback.
“Where verified mileage is not already in use as a rating factor, usage-based rating offers an immediate upgrade in price accuracy,” says Robin Harbage, a Towers Watson director. “There are also major advances in risk segmentation from using more detailed vehicle data. An excellent example of this is traffic density and road type based on when and where the vehicle is actually driven.”
In addition to the U.S., several usage-based rating initiatives have emerged globally—in Canada, Europe, Israel, Japan and South Africa.
“Early adopters of UBI will have an enormous competitive advantage—the ability to differentiate their products and services, establish new levels of risk segmentation using information known only to them, and dramatically improve profits and retention,” says Harbage.
Insurer participation in DriveAbility is growing rapidly. Towers Watson is advising 18 North American companies on their UBI programs.
According to Towers Watson research, insurers representing 60 percent of the personal auto insurance market share have implemented a version of a UBI program to insureds in at least one state. Further, insurers representing an additional 20 percent of the private personal auto premium are running or preparing to run internal UBI pilots. From a geographic perspective, UBI programs have been implemented in each state except Hawaii, and 17 states have implemented at least four personal auto UBI programs.
Another arena in which UBI can make great strides is in the commercial auto market, most notably in the long-haul trucking and small, artisan fleet markets. Currently, the technology is being used primarily for fleet management, rather than for insurance purposes. Companies are seeing the value of the data and actively testing the correlation to insurance pricing.