In response to the auto insurance revolution caused by the rise of usage-based auto insurance (UBI) also known as “pay-as-you-drive”, the global consulting firm Towers Watson announced this week that it is now offering a new drive-score analytic service to insurers. DriveAbility will provide analytical support for insurers that translates to an individual score for each vehicle to both inform auto policy rating and encourage safe driving habits. The company already has been working with several large insurers to collect and analyze data obtained from thousands of vehicles across the country.
For insurers, UBI will offer more ways for them to differentiate their products as well as allowing them, through the transmittal of actual driving data to provide more accurate premiums thereby increasing profits and retention. Moreover, by using DriveAbility, Towers Watson boasts that insurers will be able to provide policyholders with personal daily driving data via the Internet which studies have demonstrated results in dramatic reductions in risky driving behavior. As of now, Towers Watson is the only consulting firm to provide this type of drive-score analytics to insurers. It is currently advising 18 North American insurance companies on their UBI programs.
Various versions of UBI exist, the first having started with the original equipment manufacturer producers (OEM) like OnStar that were plugged into a vehicle’s on-board diagnostics (OBD) port. Today, the most powerful version of UBI provides a risk segmentation tool which comes from vehicle data obtained from a telematic device installed into an insured’s vehicle. Unlike traditional insurance pricing algorithms, UBI uses actual vehicle operation data achieved in almost real time in order to measure risk exposure.
“Early adopters of UBI will have an enormous competitive advantage — the ability to differentiate their products and services, establish new levels of risk segmentation using information known only to them, and dramatically improve profits and retention,” says Robin Harbage, Towers Watson director. “Where verified mileage is not already in use as a rating factor, usage-based rating offers an immediate upgrade in price accuracy. There are also major advances in risk segmentation from using more detailed vehicle data. An excellent example of this is traffic density and road type based on when and where the vehicle is actually driven.”
The consulting firm says that Driver benefits from the use of UBI will include:
- Reduced accident frequency and severity
- Faster emergency response time on an accident
- Improved tracking to recover stolen vehicles
- Greater accuracy in establishing fault when settling claims
- Reduced driving, pollution, traffic congestion and energy consumption
- Empowering customers to improve their rate
- Allowing drivers to more accurately select the appropriate insurance product that they will need
The downsides include privacy issues for drivers using devices that collect this data and the actual price of the UBI technology, which is still costly. Towers Watson says that aside from these challenges, however, consumer acceptance of UBI is largely positive.
Furthermore, based on the research it conducted approximately 60% of insurers in the personal auto insurance market now have some form of a UBI program being offered in at least one state and insurers representing an additional 20% of the private personal auto premium are running or preparing to run internal UBI pilots. From a geographic perspective, UBI programs have been implemented in every state but Hawaii, and at least 17 states have implemented at least four personal auto UBI programs.
In Massachusetts, the Division of Insurance announced in January of this year that the Commonwealth would be instituting a Pay-As-You Drive Auto Insurance Pilot administered by both the Massachusetts Department of Transportation, the Massachusetts Executive Office of Energy and Environmental Affairs and the Massachusetts Division of Insurance.