Telematics - Movements in Behavioural Underwriting & Pricing

Jon Tindall

• Evolution in the application of behavioral information in the pricing and underwriting of risks

• Traditional ‘class’ variables are only a proxy for driving behavior – capturing driving statistics provides a more direct link to risk

• Early attempts at capturing driver behavior No-Claims bonus Prior Claims history Distance driven (Pay-as-You-Drive)

• Moving towards Pay-How-You-Drive policies (PHYD)

Behavioral Underwriting & Pricing

Behavioral Underwriting & Pricing Some usage / behavioral questions are currently asked in Australia – others act as proxies for driving behaviour:

Distance driven [Real, YOUI, Allianz, Suncorp, RAA, CGU] Days-per week driven [YOUI, Allianz] Other transport modes used to work (Ferry, bicycle, Bus etc)

[YOUI] Colour of Vehicle [YOUI, Allianz] Usage for work (incl. parking) [YOUI] Other Vehicles driven [YOUI, Allianz]

Behavioral Underwriting & Pricing Where could driving behaviour information be useful?

How could it be used? - Risk differentiation

(Pricing / UW) - Marketing - Claims

Comprehensive Motor

Commercial / Fleet Insurance

CTP? Other Insurance

Products - Home & Contents - Travel - Life

Other Financial Products

- Loans - Investment products

What is Telematics?

A (very) Short History

1998 2000 2002 2004 2006 2008 2010 2012

2013

1st Generation UBI products, patented by Progressive

‘Pay-per-km’ style products grow in popularity US / Europe / South Africa

Real PAYD

2nd Generation UBI products. Progressive launches Snapshot (now ~1m policies)

No. products growing : AA, Co-Op, State Farm, Insurethebox

First Australian comp motor telematics product?

What’s in the box? • GPS • Accelerometer • Gyroscope • Modem • Sim Card

Depends on the technology solution – doesn’t all have to be in the box – can utilise mobile phone, on-board computer

Key Rating Factors / Enabler

Accelerometer

Gyroscope

GPS

Acceleration / Braking

Cornering Speed

Distance Driven

Speed (by road type)

Time of Day

Lower Claims Cost Base - Selection - Driver behaviour

Retention & Cross-Selling - Price positioning - Customer engagement

Claims Handling & Fraud - Location, time of day - Fault determination

Ancillary - Roadside assistance - Petrol prices, parking - Targeted marketing

Benefits of Telematics

Australia is Different • US and UK comprehensive policies cover both

bodily injury and property damage

• Market issues especially in UK – Aggregators – Prohibitively high premiums for young drivers

• 21 year old driver in London: – Ford Focus 2006 – from £2,650 (£2,200 with a

box) – Holden Commodore GTX – from £6,500

• “Gender Directive” in EU

Car Running Costs*

41%

31%

52%

19%

31%

10%17%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

All Drivers (incl. dep.) All Drivers (excl. dep.)

Depreciation

Running Costs

Standing Costs

ComprehensiveMotor

52%

29%

47%

25%

31%

46%

28%

40%

17%25% 25%

35%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

All ages - 13,500km All ages - 5,000km <25 - 13,500km <25 - 5,000km

* RACQ Vehicle Ownership Costs 2012

Segmentation Benefit

Source: Progressive Source: Market Finesse

Pricing Dynamics

Pricing Dynamics

Some Key Drivers “Lift” from additional factors Decrease in cost from improvement in

driver behaviour Portfolio mix – “selection” Quantum of discounts / loadings Premium size Cost of device and infrastructure Potential market size

0% 10% 20% 30% 40% 50%

1% - 5%

6% - 10%

11% - 15%

16% - 20%

Over 20%

Requ

ired

Disc

ount

Discount Required to Install Telematics Device

Source: Progressive

Challenges Product Design

Privacy and Data Ownership

Pricing

Technology and Infrastructure

Analytical Capabilities

The trailblazers of insurance telematics in the early 2000’s - available in 42 states across the US • 6-week monitoring period – no ongoing

monitoring • Utilises OBDII port - Device installed by the

user, delivered in post • No GPS. Not based on location or speed -

Rating on acceleration / braking, distance, time of day

• Premiums only adjusted downward, maximum 30% discount.

Collaborative product with a panel of underwriters – CoverBox provides the technology • Assessed every 90 days, initial discount

of 25% • Device installed by technician • Online ‘dashboard’ to view behaviour –

updated daily • 60% policyholders log on 3 or more time

a week

Smartbox

“The UK’s Leading Telematics Insurer” – Insurethebox website • Device installed by a technician behind

the dashboard • No installation cost – they will come to

you • Gives away free miles rather than $

discounts • Claims 95% receive a discount on

renewal – average discount £601 • Online ‘portal’ to view driving statistics

Insure-the-box

Potential Early Adopters

Coles

The South Africans

Motor clubs

Allianz

IAG, 32.3%

Sun, 34.6%

QBE, 3.3%

Allianz, 6.4%

A&G, 2.7%

Clubs, 13.5%

Comminsure, 1.8%

Youi, 1.7%

Wesfarmers, 1.6%

Hollard, 0.8%Progressive, 0.1%

Other, 1.3%

Other, 7.2%

Market Share - Australia

Source: Roy Morgan

Price Positioning in NSW

Coles is significantly more expensive for younger drivers and parts of western Sydney

Hollard – “Pay-as-you-Drive”

~R60 (A$6) per month for device – provides distance and behaviour summary statistics for the user

Real Insurance in Oz Woolworths Insurance

Outsurance – “Safe_Driver@Out”

Behaviour monitored through out the year and considered at next renewal

Maximum of 20% discount based on the experience YOUI in Oz

The South Africans

• Different financial imperatives to big listed

• Seeking to maximise reach

• Need to remain relevant to young driver segment

• Good alignment with road safety advocacy position

• Offer range of aligned services eg roadside assistance, petrol pricing

Motor Clubs

• Telematics technology in over 80,000 vehicles across 9 countries – primarily Europe

• A global telematics strategy – personal and commercial lines

• Allianz has a dedicated Telematics division explore global opportunities

– Italy (2012)

• Self-installed, OBDII technology

• Roadside assistance

• ~7% market share in the Australian market

Allianz

Conclusions

Big changes afoot

Coming quicker than you might think?

Australian insurers slow to move

Pricing new technologies Telematics

Some challenges involved

Clearly surmountable

Game changers?

Potentially large impact on product design and pricing Bigger incumbents will be slow to move

Thank-you

Questions?

jon.tindall@finity.com.au