Turning raw driving data into actionable insights is a major challenge facing carriers trying to turn the corner and write usage-based auto coverage profitably. So how might insurers crack the code with telematics?
Carriers writing usage-based insurance (UBI) are looking to base their underwriting and pricing decisions at least in part on direct experiential data culled from actual driving behavior. The trick, of course, will be determining exactly how telematics data points—alone and in tandem with other usage factors—might translate into a more precise predictor of risk.
Insurers will have to take into account what happened during a driver's trip, including event-related data (location, time of day, miles driven, weather conditions, etc.) and behavior-related information (how they drive—braking, acceleration, speed, turning, etc.). They then must analyze that data to generate correlations to the potential for an insured loss.
The result will be the creation of an insurance telematics score, reflecting the totality of the many driving attributes being monitored. Those correlations will be incorporated into the carrier's underwriting and pricing models.
Telematics analytics also need to be sensible and contextual. Driving fast and cornering quickly in a car able to handle such behavior has different risk factors than doing the same in a less capable vehicle, while driving like that in rural Kansas has different risk factors than doing so in suburban New Jersey.
Still, as the use of UBI expands, more data is collected and correlated, and predictive models grow increasingly sophisticated, the advantage will likely shift to those who were among the first to make productive use of the information they've collected via telematics, putting them in position to both segment and price risks more accurately.
Such a competitive edge could be fortified by carriers that build a suite of value-added services to de-commoditize the insurance product and thereby boost their retention rate.
As the telematics-based market is developed by early adopters, non-UBI insurers that are slow to follow suit might be stuck playing catch-up to implement a competitive program of their own. Such carriers could perhaps accelerate their learning curve and offset this competitive disadvantage by accessing larger data pools compiled by third parties. (See our prior blog on this topic, "Collaboration Can Help Level the Playing Field on Telematics.")
Meanwhile, those carriers that decide against adding UBI to their product mix will have to come up with a strategy to retain better-performing drivers without a telematics weapon in their marketing arsenal.
What's the bottom line?
UBI has already significantly disrupted the auto insurance market, as more and more carriers look to change the way they assess and price risks based on telematic data.
For the next decade and beyond, UBI will continue to evolve as auto insurers generate more data and gain additional experience analyzing it to provide actionable insights. At the same time, they will likely look to differentiate their UBI offerings by introducing a wider range of telematics-associated benefits and services to connect with customers at a deeper level.
The goal for both UBI carriers as well as those who stick with more traditional underwriting criteria will be to somehow remain competitive in a society where behavioral monitoring may eventually become the rule rather than the exception for a growing number of insurance companies and policyholders alike.
In our next blog for this series, "Overcoming Speed Bumps on the Road to Telematics,"we'll explore how carriers might differentiate themselves with usage-based programs beyond the potential for premium discounts. You can also learn more about this subject during a Deloitte webcast on June 24 at 2 p.m., Eastern time, "Auto Insurance Telematics: Where the Data Meets the Road."
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