Insurance Telematics London 2012 represents a unique opportunity, this week, to discuss in open forum the suddenly center stage issues related to establishing industry standards for insurance-related applications. While the focus has lately been on reducing whiplash claims in the UK, there is a wider range of issues including data portability between carriers, standards for implementing different types of usage-based insurance, discounts/incentives/requirements for safety system installation and new ways of using vehicle data to improve underwriting.
Many of these irons are already in the fire. In the weeks leading up to the event, Wunelli abandoned an industry “think tank” after finding universal support among insurers for an industry data standard. Just last week the Association of British Insurers created what it called a “telematics committee” headed by Ageas’ managing director to get its arms around the issues and opportunities bound up in insurance-related telematics solutions.
The implications of these inquiries and initiatives go well beyond the shores of the UK. Standardizing the collection and interpretation of vehicle data for insurance purposes has potential application to both insurance and vehicle telematics applications around the world.
The initiatives described above follow by a couple months the now-famous insurance summit at 10 Downing Street where the UK government and insurers agreed to explore the use of telematics systems to help reduce whiplash claims and the related increase in the cost of insurance. Wunelli chairman Sandy Dunn captured the moment best when he was quoted: “And it’s clear from the response we’re received that the industry recognizes the need to move quickly to rensure we establish standards for the quality and security of data and the way data is collected in order to optimize the future benefits for customers and providers of telematics-based insurance products.”
As discussed in a previous blog post (http://bit.ly/yRukTp - Will UK Turn to Telematics to Fix Auto Insurance Woes?) the UK has been hit by uninsured drivers and fraudulent whiplash claims representing as much as £2B. Whiplash claims are estimated at 1,500/day adding £90 to the average auto insurance premium.
Proposals suggested by the ABI include:
• A system where whiplash claimants receive no compensation for alleged pain and suffering (general damages) unless there is objective medical evidence of injury.
• Capping or reducing the level of damages for whiplash claims.
• Having a panel of independent doctors to assess whiplash claims, rather than the claimants GP.
• Greater use of bio-mechanical evidence that might enable the introduction of a speed threshold under which there would be a presumption that whiplash has not occurred.
One of the potential outcomes of a standardization effort may be the broader acceptance of event data recorder inputs from aftermarket devices for forensic analysis of crash data. What began as a device targeted at theft deterrence and the fleet market has evolved into UBI applications and, now, is taking on EDR functionality. A single aftermarket device can now be used by an insurer to prevent theft or recover a stolen car, provide discounts based on driving behavior, and diagnose the causes of accidents, reducing the rate of fraud claims.
While reducing whiplash claims is the focus of these standardization efforts, those efforts should not stop at UBI devices. The government can use the opportunity of the whiplash debate to take up the issue of enabling and encouraging the wider adoption of crash avoidance systems.
Few, if any, UK insurers offer discounts for crash avoidance systems such as Volvo’s City Safety technology. These systems have been proven to reduce claims as much as 20% by the Insurance Institute for Highway Safety In the U.S., and yet there is not insurance discount to the customer that elects to purchase these systems.
But the industry need not stop there. What if car companies with embedded telematics systems could sell the vehicle data to the insurance company, thereby obviating the need for an aftermarket device? At a recent Telematics Update event in Munich representatives of Fiat and Volvo both indicated a willingness to participate in such a scheme.
Standardizing data will better enable the portability of UBI insurance coverage between carriers. Is the industry prepared to empower consumers by letting them own their data and take it with them from carrier to carrier looking for the best deal – something that will be facilitated by data standards.
And, finally, what if standards were agreed to regarding in-vehicle user interfaces that correlated directly to UBI insurance discounts. Such standards could allow a driver to limit his or her use of mobile devices or touch screen interfaces in exchange for insurance savings. Airbiquity has created just such 'dashboard"-type tools for customizing the interfaces of existing systems. The Airbiquity solution is capable of allowing a car maker, insurer or the customer him or herself to manage the policies governing in-vehicle interfaces.
The insurance industry’s embrace of standards promises to slay the dragon of fraudulent whiplash claims but, more importantly, it is opening the door to a wider range of industry reform that promises to save lives and money. The insurance industry has the ability to provide the kind of incentives that will mobilize consumer adoption of safety technologies at the same time that it is creating a more attractive underwriting environment.
Of course standards also promise to raise the transparency level of an already fairly transparent UK insurance industry. But Wunelli is raising the bar with the relaunch of the Comparethebox Website – enabling consumers who are already fitted with a telematics insurance system to compare the rates of competing providers. Further innovation in this direction can be expected.
In the midst of all of the insurance telematics enthusiasm it is important to remember the nature of the UBI advantage. UBI insurance provides for greater underwriting accuracy and helps insurers hang onto their best customers, while poaching those same attractive customers from competitors.
The UK is fairly unique in its embrace of surrendered privacy for both public and private puroses. This behavioral aspect is manifest in the thousands of cameras installed along roads and in public places.
Still, it is important to keep cause and effect carefully sorted. The Co-operative has a release out claiming a reduction in car crashes of 20% thanks to the use of “smart box” technology. Since UBI insurance customers are self-selecting it is perhaps best to be more careful about drawing statistical conclusions between those insured with telematics-enhanced policies and those not.
The most important objective of any UBI scheme is behavior modification, as suggested by The Co-operative’s findings. More often than not, though, UBI insurance products attract a combination of good drivers (most likely to benefit from the discounts) and not so good drivers (who either cannot afford or are legally compelled).
Effective UBI programs should include data reporting tools available to the drivers themselves. Wider application of UBI will make it possible for all drivers to benefit from learning more about and thereby potentially modifying their driving behavior in the interest of an insurance savings.