Telematics for InsuranceThe promise, the challenge and a guide for executives

If you only have two minutes 3

Table of Contents

Chapter 1. Telematics in insurance 4

Chapter 3. Is implementing telematics easy? 7

Chapter 2. Telematics + big data 5

Chapter 5. Saama and telematics 11

Chapter 4. A telematics guide for the busy insurance executive 9

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Over 50 percent of carriers today have a pilot or telematics program. As an insurance executive, how can you prepare on your path to telematics? How do you navigate a complex ecosystem? In our telematics guide for insurance executives, we show you what to expect from Telematics Service Providers and analytics providers and what you need to chart your journey.

We hope you will also check out our website and see how Saama helps insurance carriers solve their analytics challenges.

Talk to us:

sales@saama.com

1.888.205.3500 1.408.371.1900

The traditional insurance model is being disrupted by the use of telematics. Telematics, or the Internet of Things, and big data analytics are expected to grow and to lead innovation in the insurance industry. The cumulative annual growth of UBI programs, for example, is expected to exceed 25 percent.

Telematics, applied in Auto, Home, Commercial, Health and Life insurance, creates a number of opportunities for carriers: increased pricing sophistication, preventative risk management, more detailed customer segmentation, and increased claims efficiency, among others. Telematics products have the potential to increase profitability for insurance carriers by more than 20 percent.

Realizing the benefits of new technologies isn’t always straightforward. The top concerns among carriers are time to market, cost, the shortage of skilled resources, concerns surrounding privacy, and technology challenges. But the consequences of not initiating a telematics plan can be dire: adverse selection, reduction in profitability and loss in market share.

IF YOU ONLY HAVE TWO MINUTES

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What is telematics? Is it new?Traditionally, insurance premiums have been determined by factors such as life history, age, gender, residence location and credit score. Telematics, through the use of sensors, video cameras, and mobile communication technologies, has been one of the most disruptive innovations in the insurance industry. The term Internet of Things (IoT) is often used to describe the same technologies. Throughout this ebook we will use the term telematics.

Telematics enables the development of innovative and highly accurate insurance models. The first such program was developed in the U.S. about a decade ago when Progressive and General Motors Assurance Company (GMAC) began a mileage-linked discount program.

Telematics became more economically accessible to insurance carriers around 2010, when prices for sensors and other transmitting devices started to decline. Although telematics was initially applied only to Auto insurance, the applications have continued to grow to Home, Commercial, Health, and Life insurance.

CHAPTER 1. TELEMATICS IN INSURANCE

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CHAPTER 2. TELEMATICS + BIG DATA

The combination of telematics technologies with big data analytics creates tremendous opportunities for carriers. Let’s look at some of the benefits.

The promise of telematics and big data

Increased pricing sophisticationTelematics data, analyzed through modern big data analytics technologies, lead to powerful predictive models for assessing and pricing risk. Companies who can price risk more accurately have a competitive advantage and realize better operating results. Insurance carriers without these capabilities tend to accumulate underpriced risks and suffer increasing combined ratios.

Preventative risk management and loss reductionWith telematics data, carriers are able to assess risk in near real time, and take a preventative approach to risk management. At the same time, behavioral conditioning, as consumers adjust their behaviors over time, leads to a reduction of losses for the carriers.

Greater insight into risk exposureCarriers can identify a wide range of additional risks, such as aggressive driving, leaking water, or roof deterioration, and use them to reduce risk exposure. Telematics data provides ambient and contextual information that lead to improved insights into risk exposure.

More detailed customer segmentationThe number of customer segments can increase dramatically from a handful to hundreds or even thousands. The larger number of segments and their associated risk profiles allow carriers to price more competitively, and to tailor products to the unique needs of each segment.

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Increased claims efficiencyCarriers are able to use sensor, video, and other remote data to quickly assess the nature, severity, and fault in a loss incident. The entire process from First Notice of Loss (FNOL) to reserving to subrogation becomes quicker and less costly.

Higher frequency of customer interactionsTypical carrier-customer interactions occur at the time of renewal or policy review. Telematics data is available and accessible both by customers and carriers, thereby increasing the frequency of the interactions dramatically.

New product introductionsCarriers are able to create value-added products and services such as teen monitoring, senior monitoring, family safety and security, home monitoring, and life and health coaching services.

Prevention servicesInsurance carriers have traditionally focused on risk transfer and indemnification. Telematics data enables carriers to offer prevention services that can eliminate losses. It is a new paradigm for insurance, and one that offers great potential. with great potential.

Figure 1: Telematics benefits for insurance carriers

Pricing

• Pricing sophistication

Sales & Marketing

• More customer interactions

• Detailed customer segmentation

Claims

• Increased claims efficiency

Product

• New product introductions• Prevention services

Underwriting & Loss Control

• Risk management & reduction• Insight into risk exposure

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CHAPTER 3. IS IMPLEMENTING TELEMATICS EASY?

It is estimated that over 50 percent of carriers today have a pilot or telematics program. Creating and implementing a telematics plan is not easy, and can consume a lot of time and resources.

The top concerns among insurance carriers

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Time to market. The time to implement telematics-based insurance depends on the type of product, and the maturity of the predictive model. Simple versions of telematics-based products can be developed within six to nine months but good predictive models can take much longer.

A shortage of skilled resources. Interpreting, translating, and analyzing sensor, video, and other data is a skill that takes years to develop and is in short supply.

Technology challenges. Many carriers don’t have the right environment to support the “four Vs” of big data: volume, velocity, variety, and veracity.

Profitability. An acceptable profitability target for a carrier is one that is better than credit scoring. Most carriers are satisfied with an average 4 percent underwriting profit on a credit-based product. A well-developed telematics-based product should exceed this goal in the long run.

Privacy concerns. Many consumers are still skeptical about giving access to private information. The concerns may be easing as consumers start to realize policy discounts of 20 to 25 percent. According to a recent Gartner report1, consumer interest in telematics is growing and mobile telematics offers speed and convenience to consumers, which enable the telematics growth.

1 Gartner, 9 November 2015. Best Practices in Running a Telematics-Based Auto Insurance Program.

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Why is telematics important for carriers?Although creating a telematics plan is not easy, it is becoming more and more a necessity. What is the potential of telematics and why should you pay attention?

Figure 2: The necessity of telematics

2 Ptolemus Consulting Group, 2016. Usage-Based Insurance Global Study.3 http://www.iii.org/

Avoidance of adverse selection.

Insurance carriers without an advanced analytics capability will experience adverse selection. Current penetration rate for UBI programs is around 5 percent of the total U.S. auto market2. Several experts project the cumulative annual growth of UBI programs to exceed 25 percent.

Reduction in losses through digital innovation.

Telematics-based insurance products tend to attract self-selectors, and customers motivated to change behavior in order to reduce their premiums. These telematics products have the potential to increase profitability for the carriers by more than 20 percent.

Advanced analytics capabilities.

According to the Insurance Information Institute3, analytics helped the top ten carriers grow their combined auto market share from 59 percent in 1999 to 70 percent in 2013. Carriers without advanced analytics will likely continue to lose market share.

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CHAPTER 4. A TELEMATICS GUIDE FOR THE BUSY INSURANCE EXECUTIVE The telematics ecosystem is complex and so are the technologies that enable the connectivity. The ecosystem can be divided broadly into two categories: Telematics Service Providers (TSP) and analytics providers. TSPs, like Octo and IMS, provide the hardware devices, connectivity, and data aggregation, while analytics providers collect, cleanse, mine the data for insights, and develop predictive models.

Many factors can derail a telematics plan. Below is a quick guide to help you on the path to telematics.

• Specify scope. It’s best to start small and learn as you go. Select one line of business to pilot.

• Decide on the types of data you need to collect. You may not need to collect all possible data, at least not initially.

• Set realistic cost expectations for a telematics rollout.

• Set realistic timeframes. Getting the right data and analyzing it can often take longer than anticipated.

• Educate your sales force. Telematics insurance products will be new to your agents. They will need the tools and support to sell the new products.

• Educate your customers about the benefits of new telematics products, and the cost savings involved.

How to prepare

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What you need from an analytics partner

What you need from a Telematics Service Provider

• Experience in the insurance business.

• Devices capable of delivering the data you need. Whether you plan to use self-installed sensors or application-enabled smart phones, you’ll ensure the devices are compatible with your specific products.

• An established customer support desk. This will become extremely important once your policyholders need support for the equipment installed in their homes, cars etc.

• A mature provisioning process. Select a TSP who can prepare and ship the necessary equipment quickly, and whose site can be integrated with yours easily.

• Easy access to the results and a user-friendly view for your customers.

• Products that follow industry standards such as ACORD4.

• Industry experience in telematics for insurance.

• Expertise in cleansing and aggregating data from disparate sources.

• Deep analytics and data science capabilities for predictive modeling.

• A partner who can work with your existing infrastructure and also map a path for your future infrastructure.

4 https://www.acord.org/

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CHAPTER 5. SAAMA AND TELEMATICS

Every successful telematics program starts with the data infranstructure and foundation for advanced analytics. Over the past nineteen years, Saama has developed unparalleled expertise in analyzing massive amounts of data, creating predictive models, and getting to business-critical decisions.

Capabilities

MobilitySaama integrates with a carrier’s existing infrastructure to collect data from personal and commercial vehicles and homes through mobile applications. Smartphone-based apps offer a fast and low-cost way to deliver telematics programs.

Data management and strategy• Data Ingestion. Core data like vehicle speed,

acceleration, traffic conditions, driving frequency, and home warnings are ingested into the analytics environment.

• Data Cleansing. The data is cleansed for consistency and accurate analysis.

• Data Enrichment. Weather conditions, social media, and sentiment data are brought in to provide the context that aids analytics.

• Master data management. Saama’s solution uses a client’s existing data lake or warehouse to create a single, accurate, and unified view of all telematics data.

Predictive modeling and analyticsData is analyzed to streamline the claims process, reduce the number of claims, and improve a carrier’s ability to detect fraud.

Data ScienceSaama’s data scientists mine the telematics data for customer patterns, risk, and triggers for fraud. Our informed scoring algorithms help insurance carriers identify the highest value customers and cater to them.

Real-time evaluationSaama provides intuitive dashboards and reports to help carriers monitor the effectiveness of their telematics program.

Saama Fluid Analytics℠ for insurance: A single platform for all analytics

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What you get with Saama insurance telematics• Better understanding of the book of business• Avoidance of adverse selection• Improved customer loyalty• Increasedclaimsefficiency• Improved product marketing and pricing• Improved risk mitigation

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Saama Telematics for Insurance

LEARN MOREVisit http://www.saama.com/ins

TALK TO USsales@saama.com

1.888.205.3500

1.408.371.1900

Headquartered in Silicon Valley, Saama is the leading Big Data solutions company delivering Analytics Advantage to Global 2000 clients. Our Fluid AnalyticsSM maximize the existing customer infrastructure, allowing us to focus on the critical business questions to be answered. We are unique in our ability to combine our Fluid Analytics Engine orchestration with our vertical expertise and drive the rapid adoption of advanced analytics in a matter of weeks. Saama has broad experience in industries such as life sciences, healthcare, insurance, financial services, CPG, high-tech and media. Clients include Actelion, Bill and Melinda Gates Foundation, Brocade, Broadcom, Cisco, CSAA Insurance Group, Dignity Health, GoPro, Motorists Insurance Group, Otsuka, PayPal and Unilever.

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