IoT Analyzer: The benefits to insurers are downright futuristic.

In our previous post, we outlined some specific benefits accruing to insurers from telematics (particularly our Internet of Things Analyzer — msg.IoTA) and usage-based insurance (UBI). In this post, we present some other benefits to insurers and suggest the ways in which technology-enabled UBI is, indeed, the future of insurance.

The New Model

In a world in which we’re all after newer, better, faster, UBI gives insurers newer, better, faster ways to model risks and manage their risk portfolios. Consider this, for example: In addition to actual driving habits (speed, braking, cornering, etc.), UBI collects data like engine speed; fuel consumption: battery current, voltage, and temperature; accelerator pedal position; and more.

If that data were incorporated into risk modeling and driving scores along with other things — age, credit scores, years of driving experience, location, gender, marital status, vehicle, annual mileage, and others — pricing could be more individualized, and risk-selection could be more favorable. And especially if those more specific and meaningful scores were to be applied to renewals, the quality (and profitability) of the insurer’s book would increase as a result of:

• Individual pricing, based on driving behavior
• The ability to adjust pricing dynamically
• The ability to use actual driving data in actuarial models
• Strong incentives to improve driving
• The ability to identify high-risk drivers and retain good ones
• Indirect positive effects on fuel consumption and the environment
• The ability to track and recover stolen vehicles
• The ability to provide automated eCalls to reduce fatalities
• Reduction in fraud

To be more specific on three points:

• Pricing. UBI enables insurers to apply more refined, detailed, immediate, and relevant criterial to broad actuarial groups, enhancing their underwriting processes and outcomes. That enables insurers to price more accurately and individually. And it lets drivers who pose the lowest risk get the best rates.
• Claims Management. UBI enables instant notifications of accidents, more accurate evaluations of fault (if any), and detection and deterrence of fraud. That benefits insurers and their insureds.
• Loss Mitigation. Bridging underwriting and claims, UBI enables insurers to collect — and policyholders to provide — data that would be otherwise hard to ascertain and verify, such as the age and condition of insured vehicles, potential malfunctions and maintenance needs, tire pressure, driving habits (as opposed to records), and more. Better, safer driving leads to better rates. Better rates lead to happier, more loyal customers.

The Present = The Future

So, as we’ve seen, insurers and policyholders benefit equally from UBI:

• UBI enables insurers to more accurately assess and price risks using actual driving data, to better segment drivers by risk indicators, to improve underwriting, to improve pricing models, to offer policyholders pricing incentives to improve their driving habits, to help reduce the numbers of accidents and claims, to improve their communication and interaction with policyholders, to improve claims processing, to improve fraud detection. [1]
• UBI enables policyholders to reduce their insurance costs 20 to 50 percent, to have a more direct and transparent link between their driving behaviors and their policy pricing, to achieve more affordable premiums by driving fewer miles, to increase their safety with better driving habits, to track and provide feedback on younger drivers in their families, to improve emergency response times and road-side assistance, and more. [2]

If you’ve been waiting for the future, don’t. The future of insurance is now. And it’s brought to you by UBI.

[1] https://www.naic.org/documents/cipr_study_150324_usage_based_insurance_and_vehicle_telematics_study_series.pdf, pages 43, 44

[2] https://www.naic.org/documents/cipr_study_150324_usage_based_insurance_and_vehicle_telematics_study_series.pdf, pages 44, 45