Usage-Based Insurance - Ohio Insurance Institute

Usage-Based Insurance The present and future of auto insurance Robin Harbage, FCAS, MAAA August 28, 2012

© 2012 Towers Watson. All rights reserved.

UBI – an overview The current UBI market UBI challenges UBI customers UBI data The game is changing Questions 1 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com

UBI – an overview

2 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com

UBI Step-change Actual driving behavior - not proxies

Game changing - decommoditization Increased loyalty

Enhanced Risk Segmentation

Differentiated Proposition Valued products & services

Not unfairly discriminatory

UBI

Claims Reduction Improve driving behaviour

Enhanced claim handling

Save lives

UBI is inevitable. Only the pace of significant mass-market adoption will vary by territory 3 Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

What is usage-based insurance (UBI) today? Customer Feedback

Real time connectivity

Insurance Insurance Premiums Premium $1,200 $1,200 $1,080 $1,080 $1,000 $1,000 $ $ 900 900

Company Feedback

Vehicle data Policy information Claims information

Vehicle Score VIN: 12345… Miles driven: 6,234 Event 1 per mile: .05 Event 2 per mile: .01

Additional databases

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

Why is UBI game-changing? Significantly increases pricing accuracy Appeals to consumers as it makes sense, is controllable, and minimizes reliance on controversial proxies Attracts lower risk insureds via self-selection Allows customers to understand and eliminate risky behaviors, actually reducing accident frequency

Risk reduction

Better pricing

Claims handling

Improves claims handling Differentiates product offering by offering additional services Self selection

Increased Profits & Retention

Customer satisfaction

All of these advantages lead to increased profits and improved retention. 5 Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Telematics data is very predictive of risk Various studies demonstrate predictive potential

Companies gain competitive advantage through better segmentation Elimination of cross-subsidization is more “fair” 6 Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

UBI is consumer friendly and socially appealing

Makes sense and is fair to vary premium based on the way the vehicle is driven Will ultimately reduce the reliance on other controversial proxy variables (e.g., insurance scores) Consumers control their driving behavior, so with feedback they can reduce their premium “Safe” driving is “green” driving


UBI programs have lower losses… Selfselection Driver Monitoring & Feedback Claims Handling

…which should result in lower premium 8 Proprietary and Confidential. For Towers Watson and Towers Watson client use only.



Is there a self-selection effect? The current programs are voluntary, and those who perceive their vehicle(s) are operated “better than average” opt in to the program Safe drivers Low annual mileage vehicles Highly engaged parents Particularly significant for early programs, but will become diluted over time as more insureds “closer” to the average risk opt in What is the impact of this self-selection? No loss reduction, just more knowledge $800 No industry premium reduction, just a different distribution of premium $1000 $1000 $1000

$1000 10

Yes, there is a self-selection effect, especially in the early stages Proprietary and Confidential. For Towers Watson and Towers Watson client use only.



Consumer feedback can further reduce loss costs Some companies are only focusing on differentiating rates Data has been used effectively to reduce accident frequency for fleets and teen drivers Providing feedback and incentives can reduce risk further and lower loss costs Several companies, including Towers Watson, are creating products to reduce loss costs and save lives using effective driver coaching Effective programs require constant feedback and motivation to change the right behaviors 12 Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Monitoring/Feedback improves 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% average reduction in crash rates Insure The Box (UK): 35-40% reduction in youthful crash rates

Safer drivers decrease fuel consumption roughly 10% 13 Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

UK: Insure The Box 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 Reward Miles

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

Source: insurethebox .com




Claims handling The information can be helpful with respect to claims handling Some technology solutions offer emergency response Faster accident response has saved lives Information can provide valuable insights as to the exact circumstances of the claim Devices equipped with GPS can provide vehicle recovery information The use of this information for claims differs significantly South Africa has a huge theft issue so devices are very prevalent in vehicles. Brazil may be a fast follower The Italian market has embraced UBI as means to address fraudulent claims US companies want crash notification/emergency response, but do not seem to be moving toward using the information for claims handling If used for claims, this technology could drive down insurance losses further 16 Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Value-added services Vehicle usage reports Driver coaching Fuel economy Vehicle diagnostics  Vehicle x-ray  Diagnostic alert  Battery alert  Maintenance alert  Recall notice  Eco impact


What does it mean for the company? 

Better pricing

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Product differentiation & brand awareness

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Reduced loss costs 

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Consumer satisfaction and retention

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The predictive power of the telematics data is undeniable Some companies are offering discounts up to 50% for low risk drivers, highlighting the additional segmentation power Some programs are very basic discount programs that will appeal to price sensitive groups. More sophisticated programs add a wide variety of value-added services that differentiate the product UBI programs promote the idea that the company is “modern” and “green” Consumers understand UBI, so there is a significant self-selection effect Behavioral modification programs have been shown to significantly reduce risky driving and, consequently, accident frequency Potential for further reduction by using data in claims handling Consumers want to pay less for their insurance, and this gives discounts that only their current carrier can offer (as others don’t know their driving behavior) Ancillary services (e.g., teen tracking) greatly appeal to certain consumers and make the insurance product more valuable to them Retaining existing customers is significantly cheaper than adding new ones

UBI programs lead to better retention and greater profits 18 Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

What is the perspective of regulators and society in general? 

Want variables that are “fair”

Like that UBI makes sense and is controllable

Support “green” initiatives

Endorse efforts to save lives

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Most states require that rates are adequate and not excessive or unfairly discriminatory UBI varies rates based on driving behavior, which has been proven to be predictive and is clearly “fair” Regulators are concerned with factors like credit that don’t “make sense” to consumers. UBI makes sense Regulators prefer variables that give the consumer “control” to reduce costs without reducing coverage

Safer driving and fewer miles significantly reduces emissions 14 states have pay as you drive specifically listed in their climate plans

Highway accidents result in approximately 3M injuries and 35K fatalities each year, and the government seeks to reduce that through various programs Driver feedback significantly reduces risky driving

For these reasons, regulators are anxious to approve UBI programs 19 Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Early adopters have a huge advantage “The key to success in UBI insurance will be to move early. Insurers feel an overpowering need to deploy systems absolutely as quickly as they can because the likelihood is that the first module a customer installs will be his or her last. Once the insurer learns that customer’s driving behavior and can accurately and affordably underwrite their risk, the customer is unlikely to switch insurers. The competing insurer will always be at a disadvantage, not knowing the customer’s driving behavior.” (Source: StrategyAnalytics.com)

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This is different than insurance credit scores! 

Credit scores were controversial, so many companies didn’t implement until they began to be adversely selected against. Using publicly available scores, they “caught up”

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Driving behavior is not available from a third-party source, so late comers will not be able to recover

…and late-comers will have trouble recovering 20 Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

The current UBI market


Selection of insurance providers that have launched telematics Widespread development underway on a global basis

Europe Canada Industrial Alliance

U.S.

Allianz

WGV

Aviva

Uniqua

Coverbox

Reale Mutua

CIS

RSA

Allstate

Liberty Mutual

Direct Line

The AA

American Family

Nationwide

Ingenie

Markerstudy

Plymouth Rock

Insure the Box

Equity

Progressive

Polis Direct

Sabre

The Hartford

Mapfre

Young Marmalade

NoCal AAA Elephant Esurance 21st Century GMAC

Japan AIOI

Travelers State Farm SoCal AAA

South Africa

Australia

Discovery

Real Insurance/Hollard

Hollard MiWay


In the US: Market overview At least eight of the top 10 personal motor insurers have implemented programmes in at least one state U.S. companies representing over 75% of the market already have programmes or are actively pursuing them “UBI device sales rocketing from $50 million in 2011 to approximately $2.6 billion by 2015.” (FC Business Intelligence)

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25 states have implemented 4+ Personal Motor UBI programmes Number of Personal Motor UBI Programmes


Telematics in Personal Auto Notable U.S. Programs

Several UBI business models exist Many other companies, including small companies, are moving toward implementation Companies of all sizes and geographic distribution

Sequoia Plymouth Rock

Verified Mileage SoCal AAA

American Family

GMAC NoCal AAA Travelers

Safety Services

State Farm Esurance Allstate Nationwide

The Hartford Liberty Mutual

21st Century

Behavior Rating Progressive


Telematics in Personal Auto — U.S. Current Programs — Progressive’s Snapshot®

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 42 states and Washington, D.C.

“The name of the game is the quantity of data and the quality of analysis and insight. We’ve got a 15-year, five billion mile head start on other insurers, and we’ll only extend our lead as more drivers try Snapshot” - Richard Hutchinson, Snapshot General Manager

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

UBI Products Allstate Drive WiseSM

Drive Wise launched in Illinois in January 2011 Subsequently launched Ohio and Arizona 10% initial discount Up to 30% at renewal No surcharges $10 technology fee semi-annually Driver score based on driving behaviors Mileage Hard brakes Speeding (80+ mph) Time of day


Liberty Mutual Inherited Safeco’s ‘Teensurance’ program for drivers up to age 25 15% discount Participants pay $15 a month for a satellite-tracking service Parents can track vehicle location and disable the car remotely if driven outside set boundaries exceeds a preset speed limit drives past a curfew Launched ‘OnBoard Advisor’ to provide driver coaching ‘Rewind’ introduced which provides forgiveness of violation surcharge with telematics monitoring

Teen programs were extremely popular for early adopters


UK: CIS Device provided by Cobra Limited Young driver proposition Monitors average speeds on different types of road ,how fast and hard the car accelerates or brakes, what times of the day the car is driven and how fast corners are taken If vehicle is consistently driven at ‘excessive’ speed, CIS may cancel cover 12,000 devices fitted in 11 months

Source: co-operativeinsurance.co.uk


Evolution of value — Beyond discounts Personal Goal Achievement Personal and Family Security Value-Added Services Targeted at the 60% –70% of the market that does not self-select basic UBI

Insurance Discounts Security can be monetized

Product designed to attract self-selected customer segment Segment aligns with characteristics  Skims high profit customers “as they are” 

Introduces range of services that customers value Customers will pay for tangible value  Insurers may market in lieu of discounts 

Parent-teen relationships  Enhances overall value of insurer/insured relationship 

Highly empowering  Dynamic and flexible — creates long-term customer “stickiness”  Potential to more significantly impact profitability  Far more defensible than event-based UBI alone 


UBI Products State Farm In-Drive®

Existing program with OnStar in several states Drive Safe & Save with In-Drive® in IL & more states to be added Discount up to 50% based on mileage, turns, acceleration, braking, speed and time of day $10 initial fee and upgrade from $5 to $14.99/month with features including Emergency response Stolen vehicle location assistance Vehicle diagnostic alerts and maintenance reminders Speed alerts Website and smartphone app for remote and mobile access "provide drivers with a wide range of new options that will make for a smarter vehicle and even smarter driver“ (Mike Wey, State Farm) 30 Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Shift in product vs. price focus unclear Progressive

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Will price remain king except with more powerful risk segmentation?

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Price focus will require strong analytic insight with more scope to innovate in risk segmentation as risk factors need creating from telematics data

 Is there an opportunity to de-commoditise the product?  Product/service focus including driver coaching will require 

an understanding of driving behaviour and the key influencing factors Analytical focus on improving driver behaviour 31 Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Vision of the UBI Market

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Mileage and Simple Event-based UBI

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Current Market

Discount driven Insurer paid Customer self-selection Targets most profitable customer segment based on current driving patterns

Event-based UBI Adding High Value Customer Services 

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3

Emerging Practices

Continues insurer paid model Starting to shift services to customer-paid models Value-based retention New customer acquisition is key

Foundation for Next Generation of Knowledge Creation 

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Granular Rich Data

Expansion beyond “low hanging fruit” Informs behavioral models Complex analytics are a challenge Requires deeper understanding of program goals

Behavior Change

Longer-term Goal — The Game Changer

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Addresses the 60% – 70% of the market not served by current UBI models Impact on profitability higher than core UBI Increased segmentation and potential for customer acquisition

The future is all about customer connectivity and the opportunities presented through a compelling customer engagement proposition 32 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com

UBI challenges


The challenges of UBI

Customer

Data

Systems


Common Wisdom   

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Telematics devices and services are too expensive It will reduce my renewal premium too much Not enough consumers will accept it – Only for parents of teens – Only for good drivers – Privacy too big of an issue Won’t work with enough vehicles (EU) We’ll be a fast follower someday There is no data to prove it works or price it Legal issues need to be sorted out first The benefit doesn’t outweigh the cost My agents can’t (won’t) sell it


Problems to Overcome

What data?

Which device?

Which customers?

When?


What are the challenges? Product must appeal to your market while still being profitable Managing the legal and regulatory hurdles Extensive IT infrastructure required to collect driving data, to integrate UBI scores with the current system, and to give driving feedback Determining which of the multitude of devices available will best meet the needs of the program No publically available data to jump start a program Danger of wasting time and money collecting the wrong data Driving data is much different than traditional experience data and requires special data scrubbing and analysis techniques

Define Goals & Design Product

Legal & Regulatory

Technology Infrastructure

Collect & Analyze Data

Use Results

Towers Watson has experience addressing these challenges. 37 Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Learning from Mistakes       

Don’t overspend on initial infrastructure Find the right solution for your value proposition Get the data you need, not the data your given Understand the consumer need Understand the regulatory environment Test, learn, and adapt Consumers will want choice


Proliferation of devices can be confusing Devices developed continuously and not all devices are created equally TW is in contact with the device manufacturers and aggregators Providers have sought our input to design and improve their products What will the future hold? Dedicated or shared service devices Smart phones Others?

Octo Telematics

Evogi DriveCam

NavSeeker

Applus


Need to define the proposition that is right for the customer UBI allows companies to significantly differentiate product offerings Key is developing a product that fits with company goals and can be marketed effectively and profitably Understand range of products in the market Behavioral Rating today as well as the direction of the industry Assist companies as they design the “right” product for them Safety Other  Offering incentive discounts? Services Services  Two-way price changes?  Technology charges? Additional fees for services? Behavioral Highlight some of the potential Modification regulatory and legal “hot spots” A cost/benefit analysis can help validate chosen model


More to the technology than just a device Many clients view UBI simply as a “device” issue, but that is a small piece of the technology infrastructure needed for a successful project Interact with customer to get needed information Provide information for device provisioning Collect and store massive amounts of telematics data. Identify and scrub basic data issues Merge insurance and claims data Provide feedback to UW and customer

DriveAbility is a hosted infrastructure that minimizes the technology needed by the company 41 Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

UBI customers


What is the perspective of the consumer? Understand it and like to control their premium Want access to useful driving feedback

Like options for value-added services

Value companies that are socially responsible

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Consumers don’t like the use of credit scores because it doesn’t make sense. Generally speaking, “good” drivers opt in, get participation discounts, and have the opportunity for even greater discounts Accidents are the leading killer of teens. UBI programs give parents a variety of tools to help monitor and counsel their teen drivers. Many adults are faced with elderly parents whose driving is deteriorating. UBI can help evaluate skill deterioration and provide helpful safety tips Consumers generally like options Programs vary from basic to deluxe in their service offerings. Some consumers really like the added services

Society is becoming increasingly environmentally conscious, and consumers value companies that are “green” Younger consumers like new and different products even when the product may not appeal to them

Most consumers view UBI favorably and participants are very satisfied 43 Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

The customer experience A telematics proposition provides the opportunity to offer customers a tangible product proposition - including: • control – based on transparency of rating factors • options – based on use of vehicle, driving activity, travel needs and lifestyle • promises – of service and support when needed; and • engagement - no longer based around once a year with • flexibility – to swap product, switch on/off, change or upgrade • feedback – designed to suit target audience interests; and • features – not previously available to the motor insurance customer

Breaks the mold – and the annual cycle towerswatson.com


Device platform for ‘added value’ customer services Emergency call

Theft service

Use 3D-Accelerometer and OBD speed to detect significant impacts

Detect motion without ignition start-up

Use Cellular connection to post an SMS with details

Tracking and call for help (in extreme implementations, disable the car)

Require a back-end real-time service to pick up the event and dispatch help

Remote safe mode activation

Breakdown service

Activates Geo-fence and other driving thresholds via an SMS message

Ability to trigger a ‘Where am I’ SMS message from the server, to assist a customer breakdown call

Geo-fence service

Limited phone capability

Trigger notification (in extreme implementations, disable the car)

To pre-defined numbers for call center support

Notification of driving exceeding other thresholds (speed, braking)

Satellite navigation If linked to a PND screen in car

Business trip log Distinguish business travel from personal use

Detect location outside boundary zone

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

Customer proposition - summary A usage-based insurance offering will need to be set in the context of the overall business objectives for telematics, which may include: reinforcing customer attachment

helping to sustain a distinctive customer proposition linking to other relevant products and services consistency with existing/new brand values meeting standards of service delivery realising appropriate value from customer and data ownership balancing investment and risk with expected reward

Product, price, distribution and service options to be aligned


UBI data


Data brings significant and new challenges Some are developing programs using simple event counters as a means to save data transmission and storage fees Important to collect granular data Data scrubbing Score refinement Behavioral change models

Unlike typical actuarial data Updated second-by-second Daily scrubbing Hundreds of variables Terabytes of data

TRIP: DATE:

1 12‐Jun

Time 0:00:00 0:00:01 0:00:02 0:00:03 0:00:04 0:00:05 0:00:06 0:00:07 0:00:08 0:00:09 0:00:10 0:00:11 0:00:12 0:00:13 0:00:14 0:00:15 0:00:16 0:00:17 0:00:18 0:00:19 0:00:20 0:00:21 0:00:22 0:00:23 0:00:24

MPH 2 2 0 0 0 2 6 7 9 9 8 8 7 7 7 7 7 8 9 12 13 14 15 15 14

Towers Watson Compressor allows collecting granular data at reduced cost

Time 0:00:25 0:00:26 0:00:27 0:00:28 0:00:29 0:00:30 0:00:31 0:00:32 0:00:33 0:00:34 0:00:35 0:00:36 0:00:37 0:00:38 0:00:39 0:00:40 0:00:41 0:00:42 0:00:43 0:00:44 0:00:45 0:00:46 0:00:47 0:00:48 0:00:49

MPH 12 11 10 9 9 9 9 10 11 12 12 14 14 15 14 12 11 10 10 9 7 7 6 6 7

Time 0:00:50 0:00:51 0:00:52 0:00:53 0:00:54 0:00:55 0:00:56 0:00:57 0:00:58 0:00:59 0:01:00 0:01:01 0:01:02 0:01:03 0:01:04 0:01:05 0:01:06 0:01:07 0:01:08 0:01:09 0:01:10 0:01:11 0:01:12 0:01:13 0:01:14

MPH 9 12 14 15 14 12 12 11 9 8 6 5 5 5 4 4 4 4 4 4 2 2 3 4 5

Time 0:01:15 0:01:16 0:01:17 0:01:18 0:01:19 0:01:20 0:01:21 0:01:22 0:01:23 0:01:24 0:01:25 0:01:26 0:01:27 0:01:28 0:01:29 0:01:30 0:01:31 0:01:32 0:01:33 0:01:34 0:01:35 0:01:36 0:01:37 0:01:38 0:01:39

MPH 2 0 2 5 7 9 11 13 15 17 18 19 19 17 15 14 13 11 7 3 0 0 0 0 0

Time 0:01:40 0:01:41 0:01:42 0:01:43 0:01:44 0:01:46 0:01:47 0:01:48 0:01:49 0:01:50 0:01:51 0:01:52 0:01:53 0:01:54 0:01:55 0:01:56 0:01:57 0:01:58 0:01:59 0:02:00 0:02:01 0:02:02 0:02:03 0:02:04 0:02:05

MPH 0 0 0 0 0 0 0 0 0 0 1 7 11 12 13 13 12 12 13 15 18 20 23 26 28

Time 0:02:06 0:02:07 0:02:08 0:02:09 0:02:10 0:02:11 0:02:12 0:02:13 0:02:14 0:02:15 0:02:16 0:02:17 0:02:18 0:02:19 0:02:20 0:02:21 0:02:22 0:02:23 0:02:24 0:02:25 0:02:26 0:02:27 0:02:28 0:02:29 0:02:30

MPH 30 32 32 33 33 34 35 35 35 35 35 33 30 28 24 21 17 14 11 7 5 3 0 0 0

Need expertise with telematics data 48 Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Why granular data? Just an event is not sufficient – it is equally important to know all of the context and the behavior leading up to that event High severity events are not necessarily the most interesting. The high frequency of low severity events and modest speed changes are much more indicative of individual driving “patterns” which differentiate good and bad driving and allow us to identify behaviors which can be identified, managed, and improved for the drivers safety If one driver has five harsh brakes in a week and another has three, who is really worse and how do you coach them to change behavior without knowing traffic congestion, speed limits, road type, etc. Many events below the “harsh” threshold provide much more insight into true behavior with greater frequency Identifying and scrubbing errors is critical to providing useful data for modeling. Many false events can only be identified through granular data. With second by second data surrounding a harsh brake, no change in speed clearly points to an accelerometer which was jostled, improperly oriented, or faulty. Undetectable error with even 5 second intervals in speed recording


Data must be scrubbed Telematics data will have errors and must be cleansed Event counters will be based on the raw, unscrubbed data Granular data is critical to data scrubbing

Without it, can get phantom events With it, can cross-check using several sources and/or external data to determine real versus phantom events Per minute data is not sufficient to clean the data effectively

feed_trip_start_time distance_troad_type horizontal road_spee ra 942 17/08/2010 01:58 0.0621 Fourth 95.69 20 ra 936 17/08/2010 00:41 0 Fourth 80.16 20 ra 183 07/07/2010 12:25 0.7456 Fourth 78.91 20 ra 429 21/08/2010 16:31 1.0563 Fourth 77.05 20 ra 399 17/08/2010 20:06 1.0563 Fourth 72.7 20 ra 936 17/08/2010 00:38 0 Fourth 67.73 20 ra 936 17/08/2010 00:39 0 Fourth 67.73 20 ra 936 17/08/2010 00:37 0 Fourth 67.73 20 ra 942 17/08/2010 01:57 0.0621 Fourth 65.24 20 ra 957 17/08/2010 04:27 0 Fourth 116.2 30 ra 522 26/07/2010 14:36 0.3107 Fourth 114.95 30 ra 595 02/08/2010 13:53 0 Fourth 108.12 30 ra 595 02/08/2010 13:52 0.0621 Fourth 108.12 30 ra 520 26/07/2010 13:08 0.0621 Fourth 96.93 30 ra 527 26/07/2010 15:39 0.2485 Tertiary 85.75 30 ra 599 02/08/2010 15:11 0.0621 Fourth 83.26 30 ra 586 01/08/2010 22:11 0.1243 Fourth 80.78 30 ra 520 26/07/2010 13:07 0 Fourth 78.91 30

Imperative to automate as much of the validation as possible to facilitate ongoing scrubbing


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

Risk per policy 120

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Device Score

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Device Rank 52 Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

Correlation of score with premium 120

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Highly independent R-squared < 3%

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Premium 53 Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

UBI knowledge Behavioral Change Models

Use of the information

Trends in Context Real Time Driver Feedback Vehicle Type and Usage

Context of the event

Environment

Device information

Insurance + external information

Related Actions Isolated Event

Providing a unique ratings score for individuals

Giving insurers manageable datasets to enrich underwriting and pricing capabilities towerswatson.com


Components of complete Behavioral Model


UBI game-changing 

Offers drivers premiums based on their own individual driving activity and behavior – insurance costs start to come under their own control

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Allows customers to understand and reduce high risk behavior, actually reducing accident frequency

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Self-selects low risk drivers

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Makes a positive impact on road safety

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Significantly improves pricing accuracy

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Increases effectiveness of claims handling and fraud detection

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Provides a platform for differentiation – for new “value-added” services

There are real advantages to both drivers and insurers 56 Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

The game is fast changing

Next

Now 

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The emerging UBI market is focused on devices fitted by service providers, though the more advanced US market has moved quickly to self-install

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Vehicle manufacturers facilitate integrated technology in more sophisticated markets

Vehicle manufacturers are already introducing on-board connectivity but it will take time for the proportion of new vehicles in the car pool to rise significantly

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Use of Smartphone apps for insurance

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Multiple device providers remain

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Emerging use of Smartphone apps

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More opportunities to own the customer for insurance purposes

Multiple opportunities for primary owners of the customer:  Vehicle manufacturer  Combined TSP/brokers  Insurer  Mobile technology suppliers

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Stand-alone device in vehicle now selfinstalled: in ageing car pool and less developed geographic territories

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Many cars produced for the UK support self-install since 2001

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Some cars still require “light install” option

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Market supports multiple device providers

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Insurers own the customer

Future: 1 – 5 Years

Doing nothing is not an option! 57 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com

UBI represents a whole new ball game for the auto insurance industry 

Transforming relationships between insurers and their customers and influencing behaviours and resultant claims patterns

The challenge is on for insurance competitors to seize the opportunity that UBI presents


Questions?


Towers Watson’s UBI strengths Strategy

Business Change

Capability/ Data Analytics

Customer

UBI Vision

Implementation 60 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

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Towers Watson UBI services Strategy Development 

UBI strategy development



Business case development



Operating model design



Market entry strategy



Educational workshops

Consumer Proposition Design 

Towers Watson’s analytical services

Brand (or new brand) values



Target market proposition development



Pricing model



Reward mechanism



Additional services



Claims handling enhancements



Policy wording

Granular data Data cleansing Risk analysis Powerful risk scores

Marketing & Distribution Strategy Marketing & distribution strategy





Target market segmentation



Media optimisation





Consumer surveys

Campaign management



Initial UBI score



Implementation Support

Driver feedback analytics

Development of trybefore-you-buy app



Operational project plan



Customer communication plan

61 © 2012 Towers Watson. All rights reserved. towerswatson.com Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

DriveAbilitySM 

Complete program that includes product development assistance, hosted infrastructure, data management and vehicle score development



The only active program with more than a year of aggregated telematics and insurance data that allows for a score tailored to the insurance industry



Includes ten participating companies, three top 10 US insurers, thousands of vehicles and millions of collected trips matched with insurance loss costs



Hosted infrastructure to collect, store and analyze data minimizes the system and process changes for participating companies



Participating companies use Towers Watson proprietary compression algorithm allowing for granular data at significantly lower cost



Towers Watson will not resell data to other carriers to give participating companies maximum early adopter advantage


Data is vital but knowledge is king...

TOWERS WATSON

DriveAbility

Ability to manage complex data flows

Using our insurance industry capability to provide valuable business insight

Insurance industry knowledge and expertise to shape business strategy 63 © 2012 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com