Are We Ready – Usage Based Insurance and Telematics for Motor Insurance

Insurance and Location Intelligence

Rajendra Tamhane

Genesys International

• In 2015, crop insurance market in India is the largest in the world and covers around 32 million farmers.

• Strong growth in the automotive industry over the next decade to be a key driver of motor insurance

Indian Insurance Industry - Scenario • India ranked 11th among 88 countries in the life insurance business, with

a share of 2.0 per cent

• The country ranked 21st in global non-life insurance market, with a share of 0.66 per cent

• The life insurance industry registered 22.55% growth for new business premium in financial year 2015-16, generating a revenue of USD20.34 billion.

• The non-life insurance premium market grew at a CAGR of 12.1% over FY04-16, from USD3.4 billion in FY04 to USD13.35 billion in FY16

• The market share of private sector companies in the non-life insurance premium market rose from 13.12% in FY03 to 45.4% in FY16

Insurance - Opportunities

Non-Life Insurance Potential • In FY16, motor insurance accounted for 48.52% of the gross

direct premiums earned and was valued at USD6.5 billion • Private players accounted for a share of around 45.4% in the

overall revenue generated in non-life insurance sector while public companies garnering around 54.6% share by March ‘2016

• Major private players are ICICI Lombard, Bajaj Allianz, IFFCO Tokio, HDFC Ergo, Tata-AIG, Reliance, Cholamandalam, Royal Sundaram and other regional insurers

• Strong growth in the automotive industry over the next decade will be a key driver of motor insurance

• Proposed IRDA draft envisages a 10–80% rise in premium rates for the erstwhile loss-making third-party motor insurance

• In FY16, number of commercial vehicles and passenger vehicles sold in the country were recorded at 0.8 million and 3.4 million respectively, while the number of 2&3 wheelers sold were 19.76 million

• Players in industry are trying to come up with innovative low cost products to achieve cost advantage

• They are investing in Information Technology to automate various processes and cut costs without affecting service delivery.

• It is estimated that digitisation will reduce 15-20% of total cost for life insurance and 20-30% for non-life insurance

Non-Life Insurance - Strategies

• Companies are trying to differentiate themselves by providing wide range of products with unique features. For example, New India Assurance launched Farmers’ Package Insurance to covering farmer’s house, assets, cattle etc. United India launched Workmen Medicare Policy to cover hospitalisation expenses arising out of accidents during and in the course of employment

• Focus on providing one kind of service help insurance companies in differentiation. For example, SBI is concentrating on individual regular premium products as against single premium and group products

What seems to be particularly missing is a Strategy on Motor Insurance – the largest Non-Life component

• Traditional motor insurance policies use static / statistical criteria to evaluate drivers‘ risks –

– Age

– gender

– vehicle make & age

– place of residence …

Motor Insurance – Is Location / Telematics the Way forward ?

Insurance telematics – based on these criteria and 4

new dynamic parameters leveraging Location

• The rapid adoption of location intelligence / telematics is transforming the insurance industry, including the products and services insurers are providing their customers.

• Billions of probe data points with driver behavior and location information are becoming available from mobile apps, OBD-II ports/dongles, and connected vehicles.

• By using this data to understand real-time risks, road risks, and driver-behavior risks, insurers can facilitate improved real-time safety and develop accurate and profitable Usage Based Insurance (UBI) products.

Insurance – Using Location Intelligence / Telematics With car insurance, if you’re younger, you’re often at a

disadvantage. Statistically, young people have more accidents, so they get charged more for their policy.

This isn’t always very fair: maybe you only drive a few miles a week. Or only drive at ‘off-peak’ times.

Thankfully technology is coming to the aid of drivers at a disadvantage with the rise of Usage Based Insurance (UBI)

using telematics.

Monitoring driving habits with usage-based car insurance Car insurance technology equip your car with a GPS and telematics equipment “Black Box”. These GIS tools examine your driving habits every step of the way. What’s your driving speed? Do you suddenly accelerate or brake? Car insurance companies can examine driver behavior and better estimate premiums.

• Is fair to vary premium based on the way the vehicle is driven

• Reduces the reliance on other controversial proxy variables

– Insurance scores

– Infrequent accidents

– Driver assignment

• Consumers control their driving behavior, so with feedback they can reduce their premium

• “Safe ” driving is “green ” driving

UBI – Implementation Models Pay as you drive (PAYD) means that the insurance premium is calculated dynamically, typically according to the amount driven -

• Coverage is based on the odometer reading of the vehicle. • Coverage is based on mileage aggregated from GPS data, or the number of minutes the vehicle is being

used as recorded by a vehicle-independent module transmitting data via cellphone or RF technology. • Coverage is based on other data collected from the vehicle, including speed and time-of-day information,

historic riskiness of the road, driving actions in addition to distance or time travelled.

Pay How You Drive (PHYD), in addition to above brings in additional sensors like accelerometer to monitor driving behavior - • Sudden Braking • Acceleration

Multiple UBI Deployment Options (Mobile, OBD2, Bluetooth Devices, Hybrid and OEM): Insurers can now easily retrieve vehicle information and driving data through multiple deployment

options to reach the intended objectives and goals of the UBI Insurance program

UBI Deployment and Data Collection Options

• Until now, UBI meant a big investment for insurers with the Black box Ecosystem.

• With the wide proliferation of Smartphone technology, insurance companies will use GPS enabled smartphone technology to offer a pay-as-you-go insurance delivering cost efficiencies to insurers and policy holders.

Smartphones are the form factor of the future for UBI

More sensors than a black box • Use as a universal interface, data hub or tracking device • Feature pilots include customer service, billing, payment, claims... • Can also complement other devices

Global Trends – Location / Telematics Insurance

• Global increase in online insurance • Regulatory mandates such as Contran 245, ERA

Glonass or eCall • More connected services and vehicle leading to

better optimisation • Chain reaction from the first leader

– Since Progressive all US insurers have a UBI product – Since Industrial Alliance, 6 other insurers have

followed in Canada – A new programme every 6 month appears in

Germany – Generali has announced 2 UBI trials in Brazil – 2 brokers announced UBI programs in the same

month in Australia

UBI - Market Outlook

• UBI projects are extremely complex and require cross-functional teams

• Product must appeal to the market while still being profitable

• Managing the legal and regulatory hurdles

• Determining which of the multitude of devices available will best meet the needs of the program

• Extensive IT infrastructure required to collect driving data, to integrate UBI scores with the current system and to give driving feedback

• No publicly 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

UBI Challenges

• Is telematics necessary for Indian Insurance companies and what are its driving factors ?

• What challenges remain and what actions must be taken by each stakeholder in the eco-system ?

• How can customer acceptance for these services be increased ?

• How do various telematic solutions available compare against each other ?

UBI in India – Are We Ready ?

Sep 2016: Bajaj Allianz launches 'Drive Smart' telematics-based car insurance in India

• Which are the best suppliers for each of the solutions and at what price points ?

• How will the industry value chain evolve based on the Insurance companies actions ?

• What is the business case for the mass introduction of PAYD / PHYD UBI ?

• What is the expected market size for these products and services in the mid term ?

• Telematics is not compulsory, Insurance is.

• OBD devices are becoming car data centric service platforms

• Smartphones will provide more features and ease of use

• Insurers will continue to push for more reliable and efficient accident detection and analysis technologies

• A model of data exchange between various stakeholders will facilitate the take-off of the embedded UBI industry

• UBI will accelerate synergies between connected services and improve usage rate

• Expect to see a sharp pick up in the Indian market with connectivity issues getting solved and increased Smartphone usage.

To Summarise

Genesys Maps - Full Stack Capability

16

Base Map • Rich & fresh map data for navigation & planning

3D lane

Data

• High accurate 3D Lane information for positition and planning of the vehicle movements

Probes • Probe Data Processing

Speed restriction

• Speed restriction information

Traffic regulation

data

• Detailed lane level traffic regulation information

Behavioral data

• User behavioral data such as average speed, dynamic routes, ...

… To Support Usage Based Insurance / Telematics