UBI The Promise of Usage-Based Insurance
The promise of usage-based insurance The competitive landscape of the auto insurance industry is changing rapidly. Systems and staff costs are increasing, fraudulent claims are becoming more commonplace and customer experience expectations are rising. Costs of medical and property claims continue to escalate, forcing insurers to improve accident and claims data collection while winnowing out attempts at fraud. Meanwhile, pricing distortions, access to comparative pricing online, difficulty building trusted relationships and lengthy delays in claims processing have led to increasing levels of customer churn. While some insurers look upon this dynamic landscape and see only trouble, others see opportunity. New products and services are addressing the industry s challenges: Leading P&C auto insurers, for example, are increasingly leveraging telematics technology to take advantage of its benefits for their business and their policyholders. Today s telematics technology can provide insurers with granular data based on real driving habits and behavior, revolutionizing the ability to rate risk. Instead of a traditional pay-as-you-drive (PAYD) program that merely considers self-reported miles driven, a pay-how-you-drive model (PHYD) provides insurers with detailed data on individual driving activity, as gathered by telematics devices in the vehicle. The detailed usage data enables insurers to implement usage-based insurance (UBI), creating a much more precise risk profile and more optimized policy pricing for each customer. With UBI programs, leading insurers can attract the safest drivers, provide guidance that increases safety, facilitate reward programs for good driving, increase customer engagement, and ultimately reduce risk within the portfolio of insured drivers. Elsewhere across the insurance value chain, telematics helps: Build better customer relationships and increase customer engagement through value-added services like roadside assistance and contextual alerts and suggestions. Improve claims processing by providing first notice of loss, reconstructing accidents remotely at lower cost, predicting repair costs, and improving responsiveness and customer service. Deter fraud by enabling insurers to estimate costs based on actual, captured accident data; predict the likelihood of physical injuries; adjust for road and weather conditions; and ultimately flag incident reports that don t match the data collected for further review. 2
Insurers that effectively embrace telematics and UBI can reward safer driving with better pricing. As a result, they will be well positioned to cultivate an increasing number of safe drivers. Getting there from here Despite the advantages, many insurers have held back their UBI programs due to several social and technical challenges: Customer concerns. Some customers are reluctant to use the technology because they feel it violates their privacy. They don t want their insurer monitoring their driving, even if it means potentially lower premiums. Some customers feel inconvenienced by the installation of an add-on device and concerned about its effect on their vehicle. If done right, marketing and communications efforts can allay some of these concerns, but that can also increase customer acquisition costs. Cost of technology. Telematics technology including the device, data communications, mobile app, infrastructure, data management and other core systems components is expensive to implement and operate, and it may seem out of reach for many insurers. Complex operating environment. Telematics complicates insurance organizations technology environment with the required management, security and regulatory requirements. Competition for low-risk customers. Early adopters have started to capture the low-risk customer base, and there s a growing concern that the safe drivers remaining out there will be more difficult to capture. Watching and waiting, though, may jeopardize insurers businesses. That s because the emergence of UBI represents more than just an opportunity for the earliest adopters. For those that are slow to implement it, UBI represents a sizable risk. As innovative insurers leverage UBI to reduce their portfolio risk, they leave their competitors with a higher-risk pool from which to draw their customers. UBI offers a path forward for many insurers, but implementing a UBI model can be a daunting project. Insurers must first create the business case, defining how to offer products and the overall value to the business. Next, they need a technology plan, as they make the many choices on implementation. Use in-car ODB-II devices or dongles to collect driving data? Leverage newer smartphone apps that can reduce costs and speed adoption but reduce the reliability of the data? Launching a pilot program with a constrained set of customers moves the project from the whiteboard to the real world. The team must distribute the dongles or the smartphone app. The driving data must be collected, stored, analyzed and made accessible to a rating engine one that is approved by the target states in this highly regulated insurance world and insurers must then rate policies and update premiums. After the results are in, the team must consider what they learned, adapt the approach to achieve their business goals, and then move from pilot to production. 3
Implementing UBI can be a costly endeavor, and one that may seem like a new product designed specifically to offer lower premiums and create customer discounts. Yet it s actually a tool that can increase efficiencies and optimize the underwriting process, improve customer engagement, attract low-risk drivers, increase growth and profitability, and ultimately create loyalty and cross-sell opportunities with the best, lowest-risk customers available. This is where the program delivers its ultimate value. Benefits of UBI Costs Savings Benefits Data collection hardware Mobile connectivity Data infrastructure Implementation and integration Service delivery and support Lower customer acquisition costs from reduced customer churn Driving improvements/fewer accidents from driving feedback and rating Increased product differentiation Enabling platform for add-on services More efficient claims processing and reduced fraud Higher value relationship with customers for cross-sell and upsell opportunities Add-on roadside services including safety and security, roadside assistance, emergency response Increased visibility to car maintenance; OEM notification; vehicle health Contextual services: weather; traffic; concierge; infotainment Optimized policy pricing
Partnering to move forward Partnering with entities experienced in UBI is key for any insurer seeking to overcome these challenges and shift its UBI program into full gear. The amount of technological and logistical expertise required to stand up an effective UBI program is too great for a company to develop quickly on its own. By leveraging partners that have UBI experience, insurers can leverage best practices to more quickly get up to speed while learning from the mistakes of earlier adopters. Insurers can take one of two primary paths with a partner-based approach to UBI: Systems integration. Large insurers may choose to implement UBI on their own and with the expert help of a systems integrator. An integrator can use its experience to put in place a project to define objectives, choose technologies, implement the entire UBI system, train staff, and integrate with core insurance systems. By engaging with industry consultants and focusing on R&D, insurers can work toward a best-of-breed UBI technology platform with the support of an experienced team. Hosted services or full business process outsourcing. For those in mature markets, where the top carriers already have a majority of UBI policies in force and telematics service providers offer maturing solutions, insurers may feel the imperative and opportunity to move more quickly to introduce UBI products. An outsourced model where either the technology is hosted and ready for deployment or the solution is completely outsourced and ready to issue policies can help an insurer quickly introduce a market-ready UBI program in a short timeframe and with a smaller upfront investment. Determining the best path involves developing a clear business plan with short- and long-term goals. For many companies, conducting a workshop led by telematics experts is a logical first step. This exercise can help establish whether the project is meant for information gathering with a short time horizon or for filling an immediate need to build a robust solution for the longer term. Understanding the enterprise s technology capabilities and capacity internally is also critical: Does the organization have the necessary commitment, resources, time and budget to build out a UBI program? If the goals are long term and the necessary resources are available, then building and running a UBI program in-house may make sense. However, most organizations particularly those just starting out will find that going with an experienced telematics service provider has real advantages. Cloud-based solutions, for example, allow insurers to start a pilot program in a matter of months. Since the service is already up and running, the first step of distributing dongles and collecting data is fairly straightforward. Setting rates and writing policies is the next challenge, but other partners can provide actuarial support; many have already been through U.S. state approval processes. And for insurers that want to get started with an entirely independent system as they learn, a fully outsourced business process service may be the best approach. Clearly defining the business needs and goals provides a compass to find the right direction.
The time is now Insurers that haven t yet embraced UBI via telematics can benefit from the lessons learned and experiences of early adopters. However, those that delay further run a very real risk of losing their best customers and the cost to regain lost business is steep. The good news is that telematics capabilities are progressing, and data collection is becoming a more integrated part of every vehicle. The connected car will ultimately obviate the need for dongles and smartphone applications. In addition, technology providers like DXC Technology are working with telematics leader Scope Technologies to deliver UBI solutions ranging from custom projects to complete end-to-end solutions. Together with DXC, insurers can realize the potential of telematics to build a better relationship with customers, attract the best drivers, and speed claims processing with actual incident data that can bolster reports while weeding out fraud. The result? Reduced costs, and better and happier customers that are loyal, stay longer with their insurer and buy more products. About DXC DXC Technology (NYSE: DXC) is the world s leading independent, end-to-end IT services company, helping clients harness the power of innovation to thrive on change. Created by the merger of CSC and the Enterprise Services business of Hewlett Packard Enterprise, DXC Technology serves nearly 6,000 private and public sector clients across 70 countries. The company s technology independence, global talent and extensive partner alliance combine to deliver powerful next-generation IT services and solutions. DXC Technology is recognized among the best corporate citizens globally. For more information, visit www.dxc.technology. www.dxc.technology 2017 DXC Technology Company. All rights reserved. DXC_CSC-286_MD_9152a-17. March 2017