Usage-based insurance

From the start of the Usage-based insurance revolution, PTOLEMUS Consulting Group has tracked & analysed the UBI global market. Through our dedicated UBI dashboard we’ve followed all market activities, recording precisely the nature and evolution of the UBI market since 2012.

Machine learning and data science are pushing the abilities of UBI models ever further. Below you can find the most common business models and the impact of telematics in the motor insurance industry.

Pay How You Drive Insurance

From the outset, most current insurance policies use static / statistical criteria to evaluate drivers’ risks. These include age, gender, vehicle make & age, place of residence, occupation, etc. Discounts are only given to customer with no claims.

Telematics insurance is a policy based on the static criteria above + 5 new, dynamic parameters:

  • The distance travelled is still a primary factor in the Usage-based Insurance (UBI) sector today and recognised as the most predictive factor. It is also a very simple way of explaining how UBI is fairer.
  • Time includes the time of the day the drivers are on the road and highlights specific higher risk ranges for them to avoid. It also includes the average length of the trips highlighting potential fatigue and distraction issues.
  • Place looks at the type of road, the type of traffic, the type of driving (urban or country lanes) and is often augmented with road attributes.
  • Context is where external datasets are added to the algorithm to take into consideration where the vehicle was when the event was recorded to qualify whether or not it was appropriate. For example, the contextualised data will differentiate an acceleration on a slip road or in front of a school.
  • Finally driving behaviour reflects the driver’s risk profile expressed through a score calculated from various datasets produced by the device.

The impact of the TBYB model

Try Before You Buy (TBYB) is one of the fastest growing model for advertising, selling and  distributing insurance while scoring the driver before it enters the risk portfolio. It is also very often the first serious step into UBI for insurers that do not have a defined UBI strategy.

By providing a free trial showing how risky the driver is, it is used to appeal to new customers, to collect data on them and potentially convert them.

Benefits for finishing the trial can be easily tailored based on personal criteria, measured risk and further monitoring.

The same model can be applied to existing customers 3 months before renewal to measure their driving behaviour and offer a quote. This model is often quoted as Try Before You Renew (TBYR)

TBYB is a more efficient acquisition tool than price comparison websites. It allows the insurers to quote drivers on more predictive factors. They also scale much better as the concept can be integrated in a city-wide safety contest programme.

Claims management and FNOL is also improving thanks to telematics

Vast new datasets are now flowing to insurers and used to solve issues of fraud and operational inefficiency. Driver’s risk data has never been so accurate, granular and personal.

Crash data sources are multiplying and the OEMs are positioning rapidly alongside data platform providers to take their place in the claims management value chain.

The same platforms are now connecting real time data with adjusters. In some case, AI-powered claims solutions use crash photos to help auto insurers predict a vehicle total loss in seconds.

As a result, the whole industry is changing

The paradigm of insurance has now evolved from cure to care. Protection will increasingly become the goal as insurers seek to avoid accidents altogether through tariff incentives, driver behaviour change and incentives to use ADAS functions.

Insurers have had to choose between insourcing and outsourcing

  • Allstate, Progressive, and more recently Unipol and Generali have been insourcing their development of driver scoring. Alongside, they have developed expertise in machine learning / data analytics, efficient claims management and driver behaviour modification.
  • Traditional Telematics Service Providers (TSPs) are being challenged by insourcing but also competition coming from many different types of companies
  • Despite internet and mobile insurance sales, agents are still a very important element of the value chain. Many are however dragging their feet in terms of promoting new programmes such as UBI. Important differences exist between geographical insurance markets. In China for example, agents have more control over the offering and aggregate UBI products from multiple insurers.
  • From the beginning, telematics meant a device was attached/plugged to the vehicle, this is also changing and the smartphone is now rewriting the rules on insurance service provision.

Our expertise and experience

PTOLEMUS started to analyse the insurance market from the start of the UBI revolution. We advised insurers, service providers and technology providers throughout the various changes the industry has seen since 2012.

We have also recorded very precisely the nature and evolution of the UBI market since 2012 and are able to provide accurate quantitive analysis based on a unique understanding of the past.

To date we have run over 100 strategy consulting assignments in the Insurance domain advising the largest carriers, OEMs, technology and service provider. We assisted them with:

  • Defining their connected vehicle services strategy,
  • Developing their market forecasts and business plan,
  • Translating their plans into reality by helping in their product specification, business development, partnerships, sourcing and project management.

Key strategic area in which we are helping insurance companies define their strategy:

  • Defining the impact on customer selection and the risk portfolio, of having to compete with or without telematics offerings
  • How to continue to differentiate your offering and effectively predict actual driving risks using Big Data analytics. Both in terms of strategy definition and implementation.
  • How to define and deploy your automatic crash detection, eFNOL, eCall or product strategy
  • How to fully seize the loss reduction potential of telematics by connecting it tightly with your claims management systems.
  • How to embed or integrate your offering with other connected vehicle services such as vehicle real-time diagnostics, bCall, eCall, stolen vehicle recovery, eco-driving or fleet management.