prospects for mileage-based insurance ssti webinar series march 27, 2013 presented by ssti march 27,...

Prospects for mileage-based insurance

SSTI webinar series March 27, 2013

Presented by SSTIMarch 27, 2013

• Executive-level Community of Practice

• Technical assistance• Resource for the

transportation community

SSTI webinar 2

State Smart Transportation Initiative

Practical Solutions to Move America Forward. A network of reform-oriented state DOTs, founded in 2010 and housed at the University of Wisconsin.

March 27, 2013

SSTI webinar 3

Today’s panelists

March 27 2013

Allen Greenberg

FHWA Congestion Management and Pricing Team

Kelleen Arquette

Towers Watson

© 2013 Towers Watson Global. All rights reserved.

Can Mileage-Based Insurance Change Our Driving Habits?State Smart Transportation Initiative Webinar

Kelleen Arquette

March 27, 2013

What is UBI?

towerswatson.com 5© 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

© 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com

Usage-based auto insurance

What it is

A device collects real-time driving data Date and time, trip duration, speed, turning forces, and even location (optional) Additional data can be merged including weather, traffic, and more

Data is sent to the insurance company who uses it to rate the driver on actual driving behaviors

What it offers insurers

Enhanced risk segmentation & improved pricing accuracy

Reduced loss costs & reduction in claims

Increased consumer retention & satisfaction

Product differentiation & brand awareness

6

© 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.towerswatson.com 7

Usage-based insurance (UBI)

Insurance Premium

$1,200

$1,080

$1,000

$ 900

Insurance Premium

$1,200

$1,080

$1,000

$ 900

Company Feedback

Vehicle Score

VIN: 12345…

Miles driven: 6,234

Event 1 per mile: .05

Event 2 per mile: .01

Customer Feedback

Insurance Premium

$1,200

$1,080

$1,000

$ 900

http://www.dreamstime.com/royalty-free-stock-image-satellite-icon-image17079656

http://www.dreamstime.com/stock-image-satellite-image22780051





But what is the potential?

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Safety FeaturesEmergency response, Roadside assistance,

stolen vehicle recovery

Vehicle Maintenance Reporting

Green Driving and Fuel Management

Behavioral ModificationPrograms

(teens, mature market, etc.)Infotainment

Concierge Services Door unlock,

navigation, location assistance


Customer Installation Experience

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Telematics data is predictive

Various studies demonstrate predictive potential

Companies gain competitive advantage through better segmentation

Elimination of cross-subsidization is more “fair”

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4.7

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3.2

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Rural Urban

Rel

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rash

Rat

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2003-07 Vermont Crash Rates

Highway

Major Arterial

Minor Arterial

Collector

Local

Market Update

towerswatson.com 11© 2013 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.


Widespread presence of personal lines programs in US

Forty-six states have 4+ personal auto UBI programs implemented


Top 50 U.S. private passenger auto companies

At least eight top 10 personal auto insurers have implemented programs to insureds in at least one state

U.S. companies representing nearly 75% of the market already have programs or are actively pursuing them

“UBI device sales rocketing from $50 million in 2011 to approximately $2.6 billion by 2015.” — FC Business Intelligence

Implemented60%Exploring

14%

Inactive26%


Telematics in personal auto

Several UBI business models exist

Many other companies, including small companies, are moving toward implementation

Companies of all sizes and geographic distribution

Verified Mileage

Safety Services

BehaviorRating

Plymouth Rock

SoCal AAA

Esurance

Nationwide

NoCal AAA

GMAC

Travelers

AmericanFamily

The HartfordLibertyMutual

Allstate

State Farm

Progressive


Progressive’s consumer proposition

Source: Progressive website


Progressive’s Snapshot DiscountSM – 43 states + DC

" Nearly half a million drivers have participated countrywide to get personalized car insurance rates by sharing a picture of how they drive.”

— Richard Hutchinson, UBI general manager


Progressive’s program

Optional program with customer selecting which vehicles to enroll

Wireless device plugged into OBD II port records time, speed and harsh braking

Discount calculated based on first 30 days, then applied for remainder of term

Device removed after first term and discount is fixed until significant endorsement

Maximum discount of 30% and no surcharge in most states

Approved in 43 states and Washington, D.C.

Consumers can try before buying


State Farm In-Drive®

Existing Drive Safe & Save Program with OnStar in fourteen states

In-Drive® for IL and Utah

Now includes Ford Sync in Utah

Discount up to 50% based on mileage, turns, acceleration, braking, speed and time of day; 40% for mileage only

Free 6-month introductory period, and $6.99 to $11.99/month standard pricing depending on additional features Emergency response Stolen vehicle location assistance Vehicle diagnostic alerts and maintenance reminders Speed alerts Website and smartphone app for remote and mobile access

Building a comprehensive product offering with many consumer options


Existing smart phone integration

Vehicle LocaterVehicle Locater

Daily Drive Summary Including mileage, time,

stops, trips and MPG

Daily Drive Summary Including mileage, time,

stops, trips and MPG

Real-time Vehicle Diagnostics Battery status Emission status Engine trouble codes

Real-time Vehicle Diagnostics Battery status Emission status Engine trouble codes

Accident Assistance Expedited claims handling Location and information

documentation

Accident Assistance Expedited claims handling Location and information

documentation


Example of State Farm IPhone application


Device platform for ‘added value’ customer services

Emergency call Use 3D-Accelerometer and OBD speed to detect

significant impacts Use cellular connection to post an SMS with details Require a back-end real-time service to pick up the event

and dispatch help

Breakdown service Ability to trigger a ‘Where am I’ SMS message from the

server, to assist a customer breakdown call

Limited phone capability To pre-defined numbers for call center support

Satellite navigation If linked to a PND screen in car

Business trip log Distinguish business travel from personal use

Theft service Detect motion without ignition start-up Tracking and call for help (in extreme implementations,

disable the car)

Remote safe mode activation Activates Geo-fence and other driving thresholds via an

SMS message

Geo-fence service Detect location outside boundary zone Trigger notification (in extreme implementations, disable

the car) Notification of driving exceeding other thresholds (speed,

braking)

Driver feedback Real-time buzzer in car facility Reports and mapping in customer portal website

Subscription services could enhance claims management, address fraud,subsidize cost of launch and generate revenue


Will price remain king with more powerful risk segmentation?

Price focus will require strong analytic insight with more data to create new risk factors from telematics data

· Opportunity to de-commoditize the product· Product/service focus including driver coaching

require an understanding of driving behavior and the key influencing factors

FEATURE FOCUS

P

RICE PROPOSITION

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Shift in product vs. price focus unclearProgressive


UK: Insure The Box

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Young driver and low mileage driver proposition

Pre-paid insured mileage and a retail voucher scheme. Bonus miles can be earned with good driving

Insure The Box has fitted 85,000 devices since June 2010, 6,000 new customers per month

Online portal allows customer: To view how many miles they have

used and how many remain To view their bonus miles

To top up their mileage

To make changes to their insurance, such as change of address

To visit ‘ShoppingBox’ to purchase items online and earn RewardMiles

Company claims “incentives reduce accidents involving young motorists by 35%-40%”

Source: insurethebox .com


Canada: Industrial Alliance “Mobiliz” Program

Aimed at improving driving behavior for youthful drivers (age 16 to 24)

Web portal for drivers to view data

Weekly activity report sent to drivers

Web-based operations – quote, purchase, payment, claims

Hard-installed device

Monitors distance, speed, acceleration and hard braking

Premium varies monthly

Discounts up to 25%

Claims history does not impact premium

Available in Quebec

Source: CNW Newswire, April 12.


Telematics in commercial auto

Implementation varies widely dependent on type and size of fleet Large, long haul trucking has significant penetration – ~80% Small, artisan fleets - <10%

Primarily used for fleet management, not insurance Many telematics manufacturers and distributors; professional installation

typically required Annual maintenance provides opportunity High average premium justifies cost

Commercial auto insurers are moving quickly to catch up with personal auto insurers At least four top 10 commercial auto insurers have

implemented programs with others in exploration phase

A third of the top 50 insurers are exploring or implementing programs; the size of the segment is increasing quickly


The Future of UBI

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Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

The Customer Evolution of value beyond discounts

Behavioral Change

Effective and Safe Fleet Operations

Value-AddedServicesInsurance

Discounts

Simple rating based programs Discount-driven, relying on self-selection Targets high profit customers as they are

Introduces range of new services Customers opt (and pay) for services they value Insurers use these to differentiate product

Protecting the insured and employees Employer-employee relationships Enhances overall value of insurer/insured

relationship

Influence drivers to improve driving behavior Potential to save lives and significantly impact driving

safety Dynamic and Flexible – creates long term customer

“stickiness” Potential to significantly impact insurer profitability


Changing Driver Behaviour – Keys to Successful Program

Measurement Measuring and interpreting driver

behaviours and decision making Based on accessible telematics

data with other relevant data to put behaviours in context Measurement

Feedback

Motivation

Feedback Providing drivers with information Frequent and timely Allows drivers to reduce frequency

and severity of risky behaviours

Motivation Creating an environment within which a driver is motivated to

change behaviour Best practice tends to focus on positive reinforcement


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Evidence of improved driving

Iron Mountain: 93% reduction in fleet crash rate

Iceland postal service reduced crash rate by 56%

Pepsi (Iceland) reduced fleet crash rates by over 80%

GreenRoad: 54% improvement in fleet crash rate

DriveCam: 50% averagereduction in crash rates

Norwich Union – 30% crash reduction

Safer drivers decrease fuel consumption roughly 10%


Contact information

Kelleen Arquette, FCAS, MAAA

(509) 258-8876

[email protected]

Towers Watson

www.towerswatson.com

mailto:[email protected]

http://www.towerswatson.com/

Can Mileage-based Insurance Change Our Driving Habits?

Allen GreenbergU.S. Department of TransportationFederal Highway Administration

Webinar of theState Smart Transportation Initiative

March 27, 2013

What is PAYDAYS Pricing and its Relationship to Usage-Based

Insurance (UBI)?

Pay-as-you-drive-and-you-save (PAYDAYS) pricing converts hidden and lump-sum costs of auto ownership and usage to transparent, variable costs.

Such costs may relate to insurance, but also to parking, vehicle taxes and fees, or to the car itself through car sharing.

Why PAYDAYS Pricing?

Most of the costs of owning and operating a vehicle are fixed.

The financial incentive not to use personal vehicles heavily is relatively small.

Many households, especially low-income ones, would prefer variable costs to fixed ones.

Various studies project substantial driving reductions, public policy benefits, and consumer savings resulting from PAYDAYS pricing.

UBI Is Not a New Concept(But Tools to Offer It Are New)

As early as 1929, virtues of charging for car insurance by the mile were recognized.

Concept promoted by Nobel economist William Vickery in his 1968 work: “Automobile Accidents, Tort Law, Externalities and Insurance.”

Results of UBI

Cuts vehicle miles traveled Curtails crash claims in excess of driving reductions Relieves congestion at a rate greatly exceeding driving

reductions Diminishes air pollution and carbon emissions Lowers infrastructure costs Strengthens cities and lessens urban sprawl Provides substantial consumer savings Increases insurance company profits

Features of UBI To Maximize Driving Reductions (An Objective of Some

Federal Grant Funding)

Direct and transparent per-mile or per-minute-of-driving pricing—avoid rebates

In-vehicle graphic displays of “insurance pricing meter” with e-mail and Web summaries

Frequent billing without automatic bill payment Transit pass discounts for UBI customers or bundling

transit passes with a few free miles of insurance Individualized assistance to identify alternatives Peer comparisons and “regret lotteries” to encourage

continuous mileage reductions

Research Provides Actuarial Justification for UBI Pricing

Research from Massachusetts that combines vehicle mileage and loss cost data shows a compelling relationship (R2 rises 0.15 to 0.72).

Host of mostly small instrumented vehicle studies consistently shows a strong linkage between certain driving habits and crashes.

Actions of insurance companies also suggest actuarial underpinnings for UBI.

Instrumented Vehicle Studies Support UBI Pricing

“100-Car Naturalistic Study” in No. VA found that the 12.5% most dangerous drivers had over 100X the crash risk of the 12.5% safest drivers.

An Israeli 103-vehicle monitoring study found that aggressive drivers were responsible for 16.6X the crash costs of the safest drivers.

A 95-driver test of incentives to reduce speeding in Sweden led to a decline in speeding frequency from 15% to 8% of driving time.

Typical Company Approach to Introduce UBI Pricing—Premium

Discounts for Data

Willing participants are likely lower risk

Gets data that companies need to offer an attractive UBI product

Pricing power comes with data control

No Long-term Solution

Customers will ultimately gain control of their data and use it to get competitive price quotes, as they do today for non-UBI policies.

Why? Because customers have smart phones and their vehicles have OEM-installed telematics, the data will be theirs to share.

A “green brand” comes from an external credible source (e.g., CERES/NRDC/EDF PAYD Insurance Product Rating System; State Climate Action Plan UBI goals tied to driving reductions).

Evolutionary UBI ProductsFail with Revolutionary Demographic Changes

Changes noted in Zogby’s “The Way We’ll Be,” CCC Info Services “Crash Course 2012,” etc.:

– Young people delay licensure (75% of 19 year olds in 2008 v. 87% in 1983 in the U.S.), own fewer cars, live in cities, and take transit

– “Automobility” increasingly met through car sharing (beginning on college campuses) and “dynamic ridesharing”

Insurance Industry Failings

Auto companies respond with car sharing partner-ships; insurance companies are unresponsive.

Instead of looking at peer-to-peer carsharing as a business opportunity, insurance companies threaten or hide (NY Times, 3/17/12).

Consumer Federation of America Report—Low-income households forced to pay high insurance rates.

Insurance Company and Regulator Flexibility Needed

Be a leader and problem solver, not the problem.

Don’t over-price new risks; find constructive approaches to reduce exposure and price.

Adopt to new markets—car owners want to rent their cars to their neighbors and some renters will become owners; build business relations now.

Take heed of behavioral economics and U.S. Federal pilots.

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Federally-funded Pilots (“Insurance-led” Projects)

King County, WA with Unigard Insurance (company pulled out; substitute to be named)

Texas DOT with MileMeter Insurance and NuRide (insurer exited; substitute to be named)

MassDOT with Plymouth Rock Assurance Corp. and Conservation Law Foundation Ventures

45

Federally-funded Pilots (Insurance “Add-on” Projects)

Portland, OR peer-to-peer carsharing with Getaround is supposed to include UBI for renters and owners

DriveSmart NYC, a test program to move toward mileage-based user fees (in response to declining fuel tax revenues), will include UBI

46

Comparing Federally-funded Pilots with Other UBI Products

Only Federal pilots include control conditions to enable before-after comparisons.

Smaller companies won funding for their pilots in part by demonstrating greater flexibility than larger companies, but launches sometimes failed.

Federal pilots have required premiums to vary a minimum of 70% based on mileage, which is larger than for other products in the marketplace.

47

Comparing Federally-funded Pilots with Other UBI Products

(cont.)

Federal pilots require the mileage and pricing relationship to be transparent to the customer, which is not consistently so with other products.

Federal pilots generally test more than one pricing protocol (e.g., rebates v. direct bill in Massachusetts), while other products do not.

Federal pilots are unique in also testing add-on incentives (e.g., transit passes in Washington State and NuRide incentives in Texas).

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Company Challenges in Participating in

Federally-funded Pilots

Good pilot design to measure driving changes takes work and requires creativity with customer interface and public relations.

Must interact closely with a research design team, typically from a university.

Internal company support and some flexibility are required throughout the entire pilot period.

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Company Benefits from Participating in U.S. Federally-

funded Pilots

Reliable funding (despite occasional contracting and billing complexities), but unreliable timing.

Potential for very good on-the-ground product and implementation advice from top-notch researchers and behavioral economists (advisory panel).

Credible, independently verified research results on environmental, safety, and consumer equity effects lead to consumer and regulator enthusiasm.

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Federal Government Actions to Watch

UBI Request for Information (RFI) to further actuarial knowledge closed on 1/14/13. Request for Proposals to follow ($300k suggested by RFI).

New insurance company partners needed for projects that are already Federally-funded ($1-$2 million).

2,500-vehicle Naturalistic Driving Study is underway.

Government transportation funding shortfalls lead to tests of mileage-based road user fees; could, as NYC is doing, combine with UBI tests.

Thank you!

Allen Greenberg

U.S. Department of Transportation Federal Highway Administration Congestion Management and Pricing Team 1200 New Jersey Ave., SE HOTM-1, Mail Stop E-84-402 Washington, DC 20590 (202) 366-2425 (ph)

[email protected]

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March 27 2013

This presentation will be available on the SSTI website later today.

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March 27 2013

QUESTIONS?

prospects for mileage-based insurance ssti webinar series march 27, 2013 presented by ssti march 27,...

Documents

towers watson client

towers watson global

fair slide

location assistance

progressive website

fc business intelligence

insurance company

personal auto ubi programs