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Marty Epstein, FCAS, MFE Global Auto Actuary, AIG Casualty Actuaries of Greater New York (CAGNY) December 6 th , 2012. Telematics: What’s New?. What is Telematics Anyway?.
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Marty Epstein, FCAS, MFE Global Auto Actuary, AIG Casualty Actuaries of Greater New York (CAGNY) December 6th, 2012 Telematics: What’s New?
What is Telematics Anyway? • Broadest definition: the technology of collecting, sending, receiving and/or storing information via telecommunication devices or
Telematics Today • The three most popular Telematics products in use: in vehicle navigation systems, stolen vehicle recovery systems and fleet management systems • A distant 4th most popular product is what current discussion focuses on most: Pay How You Drive, Pay As You Drive, or User Based Insurance
Global Adoption of Telematics • Telematics products are most common in countries with high rates of theft (Italy, Brazil, South Africa) or in expensive, sophisticated markets (UK, Western Europe, United States) • Penetration of Telematics products is globally very low but expected to grow gradually until product is commonplace (10-20 year timeframe)
Drawbacks with Current Telematics Offerings • Too expensive for most markets • Hardware is pricy, though becoming cheaper • Data plans must be purchased for each device • Too complicated • Operationally complex • Data volumes can be massive, challenging to interpret • Pricing implementation is a challenge • Intellectual property/patent claims on existing technologies act as a barrier to entry • Most insurers are taking a wait and see approach or investing smaller amounts in pilot projects to test program viability
Expected Changes in Telematics Landscape • Smartphone’s are now being piloted to enhance or replace dedicated boxes for the collection and transmission of driving data • Mobile only solution is a fraction of current operational costs with the advantage of piggybacking on the customers own mobile plan • Also, the user experience can be dramatically enhanced as context relevant information can be displayed immediately after completing a trip and a variety of additional services can be made available • Mobile phone solutions have their own drawbacks, such as estimating the risk of the phone owner which may not be the same as the vehicle risk • Some countries have plans for mandating Telematics • Singapore plans to mandate use Telematics devices to determine fees for driving on public roads • Brazil seeks to reduce theft through mandatory Stolen Vehicle Recovery systems
Expected Changes in Telematics Landscape • Risk models that use Telematics data will soon consider the context of driving events, advancing sophistication • Current models adopted in the US market that determine price credits from mileage, braking, accelerating and speed data may be considered crude relative to their potential accuracy • Some examples of driving context: • How do you evaluate a drivers risk if she exceeds the speed limit but travels at the average speed of other drivers on a particular road segment at a particular time? What if she is driving in inclement weather? • Is a driver more risky if you learn that he often brakes midway through a turn rather than before the turn? • What is the risk difference between a driver who rarely texts while driving and one who frequently texts while driving? What if the “texter” only does so while the vehicle is not in motion? • Psychological profiles are being mapped to driving data as a way to understand and explain driving behavior but also to predict behavior of customers in situations outside of driving
What’s in it for me? (Current Customer Value Proposition) • Most common incentive for enrolling in Telematics in the US is the potential for premium reduction: • Progressive: “you could save up to 30% extra for your good driving” • Allstate: “rewards safe drivers with the big savings they truly deserve” • State Farm: “you have control of how much you save, with the opportunity for discounts up to 50%” • Additional services are offered by some programs, for example, State Farm’s In-Drive program (monthly fee based): • Get help locating your vehicle if stolen • Vehicle diagnostic reports • Emergency response notification • Monitor high-risk drivers in household, such as teen or elderly drivers • Pay as you drive offers a way for low income and uninsured drivers to acquire insurance
Future Value Proposition • Context specific driver education • Praise for things you did right, guidance for things you could improve • Eco driving (feedback on your CO2 footprint and how to improve) • eCall (in vehicle emergency service call button) • Planned for the EU in 2015 • Claim submission and accident reconstruction • First notice of loss (identify location and time of crash, allow user to attach photos of damage) • Verify facts such as speed prior to impact, location of impact(s), estimate likelihood of property damage and soft tissue damage; reduces fraud risk • Gameification / social networking • Prizes for “safest driver” • User portals with detailed information on driver behavior • Targeted driver safety training and alerts for families with inexperienced or elderly drivers
Implications • Insurers will have an opportunity to dramatically change the interactive experience with their customers • What can be learned about your driving behavior will be used to help predict your behavior in other situations (subject to user agreements) • Insurers will have an opportunity to understand their customers behavior in ways only dreamed of until now • Human behaviors to be measured such as: aggression/calmness, focus, consistency, thrill seeking, avoidance, pacing
Implications • Pandora’s box of nearly unlimited, intimate data is open, whether we like it or not • Insurers have been loathe to use the stream of data out of fear of being called “big brother” or seen as taking advantage of privacy standards • Technology focused companies are jumping in to driver safety space with new ideas that have the power to transform the insurance business • How will customers make a value judgment as to whether they should share their data? • Worst-case scenarios have mostly been speculative so far
Questions for Discussion • Will the addition of Telematics data to loss cost analysis result in a significant or only marginal lift in predictive power? • Does the use of Telematics data bring us too close to individual risk rating? What might be the unintended consequences? • Telematics models indicate that many drivers ought to receive a surcharge rather than a credit for their riskier than expected driving – US insurers currently only provide price discounts (no discount for riskier drivers) -- is this sustainable long-term?