the secret reasons why you have to adopt telematics · insurtech investor and co-founder...

April 8th 2018

The secret reasonswhy you have to adopt telematics

Matteo CarboneFounder and Director, IoT Insurance Observatory

@mcins_

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Insurance telematics and the insurer's feeling• Why should I introduce Insurance telematics?

• Are customers willing to use it?

• How do connected insurance products fit in my current offering?

• Do I need Usage Based Insurance (UBI)?

• Will it hit the profitability of my traditional portfolio?

• What are differences between countries?

• …

• What is the ROI of my main use case?

• How do our customers and distribution channels fit with it?

• Can a telematics use case exist without discounts?

• What kind of user experience are customers looking for?

• How do I influence behaviors?

• …

• Do I have to develop the devices by myself?

• Can I wait until connectivity will be embedded in the customer life?

• How much do I have to invest? What do I have to outsource?

• How can I guarantee security of the data?

• Which functions within our company have to be involved in the introduction of this new processes?

• …

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What is happening in your company?

If you raised your hands one or more times, telematics is your answer

Do you need to growthe number of policies?

Do you want to make more revenues?

Is your claim departmentadjudicating claims?

Are there crashes due to risky behaviors of your policyholders?

Do your company care about corporate social responsibility?

Do you want/need price more accurately policies?

Do you need to increasethe retention?

Is it easy to attract the best risksat each pricing level?

Is there any interest for increasing the technical profitability?

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My experience with IoT insurance

OrganizationsIn the past 6 years,

I advised almost 100 organizations (Insurer, Reinsurers, Brokers, Vendors, and Investors) in

more than 15 different countrieson IoT insurance projects

100Market share

I’ve worked directly with players accounting for more than 80% of IoT insurance volumes (number of policies on auto telematics, smart home, and connected health/life)

+80%

5 +1200

+110 ConferencesI have debated the insurance IoT opportunity at more than 110 conferences around the word since December 2015

PapersI have produced 5 white papers on Insurance IoT,

which have been co-authored with prestigious

international organizations

HoursAlmost 1200 hours discussing concrete experiences, best practices and pitfalls with the executives of the organization members of the Observatory

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Telematics and insurance IoT are my passions

Matteo Carbone

InsurTech Investor and co-founder

Non-Executive Director at Net Insurance

Founder and Director of the IoT Insurance Observatory

+11 years strategic consulting (former Principal with Bain & co.)

Keynote speaker and writer on

insurance innovation

Global InsurTech Influencer

• This Insurance think tank has aggregated more

more than 50 international insurance groups,

institutions and tech firms between Europe and

North America

• The initiative has three concrete outcomes:

‒ The most pragmatic multiclient research

specialized in the insurance IoT domain

‒ One-to-one workshops dedicated to each

member to discuss research outcomes

‒ Plenary symposiums with all the members

together around the same table

I’m helping incumbents to concretely address the IoT opportunity

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I have created a think tank which provides the members access to the most relevant insurance IoT knowledge globally

The most pragmatic multiclient

research specialized in the

insurance IoT domain based on

a constant observation on the

usage of sensors in different

insurance business lines around

the globe

We interpret best practices and

pitfalls for the members

leveraging experience built by

advising almost 100 different

organizations in more than 15

countries on IoT insurance

projects

The knowledge is delivered

through workshops dedicated

one-to-one to each of the

organizations which are

members of the Observatory

and plenary symposiums both in

North America and Europe

Observer Interpreter Storyteller

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Telematics is your answer!










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Number of Insured vehicles >200,000 cars

Discovery scaled-up its auto business with a value proposition based on the promise to receive backup to 50% of monthly gas spending

REAL CASE

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Both in Italy and South Africa insurers are selling the customer an “enhanced road side assistance” (telematics based services)

Source: IoT Insurance Observatory

While Driving

In case of crash

When parked

Short-time theft cover

Parking localization

Alert in case the vehicle is moved when the engine is

off (e.g. tow-away)

Car’s hearth rate monitoring

13141516

Antitheft service if the box is removed/uninstalled

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Bodyguard for emergency outside the car when parked

Stolen vehicle recovery

Alert if the car is hit when parked

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Automatic assistance to the client on the

premises in case of severe accident

Simplified claim notification, including automatic form fill-in

based on telematics data

Claim certification at client’s disposal

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Client assistance and personalized case

management in case of crash

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Weather alert based on geo-localization

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Alert in case speed limits are exceeded

2

Highway/parking area tolling

6

Road or medical assistance via dedicated button

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"Live" conciergesupporting navigation

1 3

Antitheft service if the box registers a different-than-usual driving style

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Alert if the vehicle exits a "safe area" (or enters an "unsafe area") of the city, defined by the client (e.g. parental control options)

Risks on usual routes

warning

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REAL CASES

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The typical insurance telematics offer in Italy

Telematics deviceBlackbox to be

installed on top to the battery for all the year (self-installing)

Insurance coverageAuto liability

insurance coverage with 25% up-front

flat discount

ServiciesBundle of services with an annual fee

charged to the client (50€)

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Many insurers have been able to sell telematic policies without a material discount for the customer

<200€

200-400€

400-600€

600-900€>900€

Insurancemarket

Telematics policies

Auto liability insurancepremium paid

1250 € - 312 €

938 €50 € 988 €

Discount Discountedprice

FinalPrice

Client feeStartingprice

- 75 €225 €

50 € 275 €

Discount Discountedprice

FinalPrice

Client feeStartingprice

300 €

18% penetration

>40% of the 7 million Italians with a telematic insurance policy have chosen it for the services

Business case at the point of sale

30%

40%

Telematicspenetration Q4 ‘17

23%

Note: 2017 data

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Reinvented the claim process through the usage of telematics data

10:40

09/06

10:43

10:58

11:40 13:00

09/07

…Assistance on site, collection of additional information

First contact with the client for assistance, start ofclaim management andresponsibility definition

Adjuster operation in the preferred body shop (geo-located), with crash information shared with the adjuster

Prompt definition of the exposure

Digital customer interactions and claim tracking

Eventual medial visits, with crash information shared with the doctor

…

Adjudication and negotiationleveraging the objective information obtained form the telematics data

Settlement and payment$$$

REAL CASES


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Enhanced the effectiveness of the claim evaluation and the efficiency of the claim process

Is here anyone who thinks that this is a tool which would be useless for your claim handlers’ activities? Please raise your hand

Photo credit: UnipolSai

REAL CASE

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Self-selected risks due to product features

An auto telematics value proposition focused on the claims monitoring has a terrific effect on the acquisition of low risk clients

Market average(4,8%)

Market average(20%)

Claims frequency (district average)

Black box effect on

claims frequency(risk adjusted)

Black box impact by district

Market average

-20%

3.0 6.0 6.5%Market average

4,8%

4.5

REAL CASE

Even if two customers seem to be equal based on their

characteristics. The one who accepts the telematics value proposition is 20% less risky

Source: ANIA

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Repeat weekly

Drive event-free for 100 consecutive

kilometers

Event-freedriving for

100km

Achieve your driving goal

Get rewarded

Trip Score = 80Minute = 50

Km = 30


Km = 50


Km = 25

Upload telematics data by Friday 23:59 for the week’s trips to

count towards the week’s score

Trip 01

Trip 02

Trip 03

MONDAY WEDNESDAY THURSDAY

INSTANT REWARD

A free coffee, smoothie or parking voucher for every 100 consecutive kilometers of event-free driving (one reward a week)

Discovery Insure have used telematics to influence the driver behavior by rewarding them with a cup of coffeeor a smoothie

REAL CASE

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Telematics-based pricing approaches - Taxonomy

Pay-per-mile

1. A customer purchases

the policy and

becomes a

policyholder

2. He plugs-in a dongle in

the car

3. Each month he pays a

different amount

based on the miles

driven plus a flat

monthly rate

Usage based

REAL CASES

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• Persistent monitoring during the

coverage period of "quantity" and

"level" of risk exposition

• Each customers is priced for the

most adequate premium minimizing

the premium leakage in each

coverage period

• Challenges: uncertainty at the

purchase moment of the total

amount to be paid

Usage based


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Telematics-based pricing approaches – Economic benefits


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P&C Insurance Initiation – Credit Suisse Ago ‘18 Additional consideration on the stock price

Increased leverage can create 5-10% RoE lift Higher multiples

• At the same rate of return, the company

with less volatility deserve higher multiple

due to the better risk-adjusted return

• A theoretical company with only auto

business and 100% penetration of the

usage based approach would minimize the

volatility of its results

• Its multiples have to be higher than

companies with the same rate of return

but higher volatility

UBI is good. UBI is great…

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…but UBI doesn’t seem to work

• Usage based pricing have been tried for a

while

• However, only 9% of the 14 million

telematics policies has a usage-based

pricing approach with the CURRENT price

defined by the CURRENT behavior (or

mileage)

• Customers want to know the cost of the

coverage they are purschasing

Source: IoT Insurance Observatory 2017 Data

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Pay-per-mile


the policy and

becomes a

policyholder


the car


different amount

based on the miles

driven plus a flat

monthly rate

Usage based

REAL CASES

Discount at renewal

Discount at renewal

1. A customer purchases the policy

with a small up-front discount and

becomes a policyholder

2. He plugs-in a dongle in the car or

downloads an app

3. He drives and a driving score is

calculated in a few months of driving

4. He receives a renewal quotation

with discount based both on his

data - the traditional ones - and his

driving score

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coverage period



amount to be paid

Usage based

• Discount on renewal based on the collected data in order to increase the retention of the best risk at any pricing level

• The possibility to create value is linked to the level of churn-rate

• If surcharges are also added, opportunity to partially reduce the premium leakage identified on some risks, or push the worst risks – for any pricing level - to competitors

Tailored renewal price

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Discount at renewal


Pay-per-mile


the policy and

becomes a

policyholder


the car


different amount

based on the miles

driven plus a flat

monthly rate

Usage based

REAL CASES

Driving score

Try-before-you-buy

1. A customer (not yet a policyholder)

downloads the app and fills-in his data


calculated in 2-3 weeks of driving

3. He receives a quotation based both on

his data - the traditional ones - and his

driving score

4. If he likes the proposed price for all

the period of coverage, he will

purchase the policy and become a

policyholder

Discount at renewal

1. A customer purchases the policy

with a small up-front discount and

becomes a policyholder

2. He plugs-in a dongle in the car or

downloads an app


calculated in a few months of driving

4. He receives a renewal quotation

with discount based both on his

data - the traditional ones - and his

driving score

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A full stack insurtech which is based on this approach has already achieved the unicorn status

• Auto telematics insurance carrier

(founded in 2015)

• $177.5M of funding, last round at $1B

evaluation

0

10,000,000

20,000,000

30,000,000

40,000,000

50,000,000

60,000,000

Q1 '17 Q2 '17 Q3 '17 Q4 '17 Q1 '18 Q2 '18 Q3 '18 Q4 '18

Quarterly gross written premiums ($M)

Lemonade

Root

60

50

40

30

20

10

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coverage period



amount to be paid

Usage based

• Availability of the telematics data at the underwriting stage (e.g. Insurer’s access to third-party data) in order to provide a quotation

• The more accurate pricing allow:

o positive selection attracting the best risks for each pricing level

o partial premium leakage reduction

• Challenges:

oavailability and reliability of third parties data

ocustomer onboarding

Driving score

• Discount on renewal based on the collected data in order to increase the retention of the best risk at any pricing level

• The possibility to create value is linked to the level of churn-rate

• If surcharges are also added, opportunity to partially reduce the premium leakage identified on some risks, or push the worst risks – for any pricing level - to competitors

Tailored renewal price

Data exchanges can be an alternative to

the TBYB apps

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Telematics value creation frameworks

Tradition-

al

bottom

line

Service

fees paid

by the

customer

Partners

Contribu-

tion

Bottom

line

with

Telematics

Telematics

costs

Hardware

Services

Services

Self

selection

Risk

selection

Claims

cost

reduction

Loss

control

Risk

reduction

Beha-

vioral

change

More

accurate

pricing

Risk-

based

pricing

Incentives and discounts are ways of sharing with the customer part of the value created in order to deliver superior value propositions

Value

sharing

Intermediary

additional

remuneration

Discount and

incentives to

the costumer

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RISK SELECTION:• Low-risk customer acquisition due to the storytelling

of the IoT insurance product

• Improved quality of underwriting process based on sensors data (including constant insights on exposure)

• Increased underwriting process efficiency

RISK-BASED PRICING• More accurate rating: based

on measured "quantity" and "level" of risk exposure

• Value propositions more attractive to the customers

BEHAVIORAL CHANGE• Indirect impact on risk level through:

-positive behavior reinforcement (including gamification)

-culture creation

• Loyalty systems based on detected behaviors (retention of low risk clients)

LOSS CONTROL• Usage of the device information in order to anticipate claim

management and improve reimbursement valuation

• Initiatives acting directly in real-time on single situations to:

-mitigate risks before damages occur

-contain damages

• LAE reductions

• More accurate reserving

ValueCreationLevers

It is key to do a strategic use of telematics data: you have to activate the 5 value creation levers

SERVICES…• …based on sensor data to deliver enlarged value propositions

for the clients orchestrating an ecosystem of partners

• …concerning information about insurance coverage and insured risks

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The telematics portfolio has an higher retention

Traditional policies Telematics% of clients changed insurance provider in the past 12 months

Sources: IVASS

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This is a 9 steps guide to help you to assess if telematics make sense for you

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I’m supporting this evolution through the ObservatoryThe scope

Any insurance solution based on sensors for collecting data about the state of an insured risk

and telematics for remote transmission and management of the collected data

Some of the additional focus for the 2019 edition

Health and life Industrial risks and

workers’ comp

Auto and

motorbike

Home & commercial

property

Extended

warranty

EcosystemsIntermediary engagement

Small commercial

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I’m extremely proud to serve these Prestigious Organizations with the North American and European IoT Insurance Observatories

To join the Observatory feel free to write to [email protected]

the secret reasons why you have to adopt telematics · insurtech investor and co-founder...

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