Usage Based Insurance and Big Data – What is a Carrier to Do?

There is little doubt that Usage Based Insurance (UBI) (a.k.a. Telematics) is a hot topic in the U.S. Insurance Market. A recent survey from Strategy Meets Action found that while only 18 P&C insurers have an active UBI program in more than 1 state, 70% of insurers surveyed are in some stage of planning, piloting, or implementing UBI programs.

A carrier cannot venture into this space without considering the data implications. Usage Based Insurance, whatever its flavor, involves placing a device in a vehicle and recording information about driving behavior. Typical data points collected include: vehicle identifier, time of day, acceleration, deceleration (i.e. braking), cornering, location, and miles driven. This data can then be paired with publicly available data to identify road type and weather conditions.

Now consider, a 20 mile morning commute to work that takes the driver 35 minutes. If the data points noted above (9) are collected every minute, that 20 mile commute would generate 315 data points (about 16 data points per mile driven). If the average vehicle is driven 1000 miles in a month, it would generate 16,000 data points each month or 192,000 data points each year. Now consider what happens if a carrier enrolls even 1000 vehicles in a pilot UBI program. Within a year, the carrier must accommodate the transmission and storage of over 190 million data points. Progressive Insurance, the leader in UBI in the U.S. market, has been gathering data for 15 years and has collected over 5 Billion miles of driving data.

Even more critically, the carrier must find a way to interpret and derive meaningful information from this raw driving data. The UBI device won’t magically spit out a result that tells the carrier whether the driving behavior is risky or not. The carrier must take this raw data and develop a model that will allow the carrier to score the driving behavior in some way. That score can then be applied within rating algorithms to reward drivers who demonstrate safe driving behaviors. As with all modeling exercises, the more data used to construct the model, the more reliable the results.

While data transmission and storage costs are relatively inexpensive, these are still daunting numbers, especially for small and mid-sized carriers. How can they embrace the changes that UBI is bringing to the market?

From a pragmatic perspective, these smaller carriers will need to partner with experts in data management and predictive modeling. They will need to leverage external expertise to help them successfully gather and integrate UBI data into their organizations’ decision making processes.

In the longer term, credible 3^rd party solutions are likely to emerge, allowing a carrier to purchase an individual’s driving score in much the same way that credit score is purchased today. Until then, carriers need to make smart investments, leveraging the capabilities of trusted partners to allow them to keep pace with market changes.

Usage Based Insurance – What Systems Implications does a Carrier Face When Implementing a Program?

Usage Based Insurance (UBI) (a.k.a. Telematics) is gaining traction in the U.S. Market.   At least 18 states have four or more Personal Auto programs implemented, and 49 states have at least 1 program.

As mid-sized and smaller carriers venture into this space, they need to consider the system implications that accompany a program implementation. While the specifics will vary depending on the type of program implemented, there are several areas that will be impacted.

First, Policy Quoting and Issuance: Assuming that the carrier utilizes some type of on-line portal to support the quoting process, the carrier must update the portal to accommodate enrollment into the UBI program on a per vehicle basis. Rules may be needed to limit those who are eligible for the program or to encourage certain individuals to join the program. If introductory premium discounts will be given just for joining the program, these discounts must be accommodated within the new-business rating algorithms. Additional data may need to be gathered about individuals joining a UBI program, such as email address, a field not commonly maintained in legacy systems. If the carrier makes rating available through a comparative rater, the carrier will need to decide if and how the comparative rating site will reflect the UBI program. Policy Declarations will also require alterations to reflect the new program. Finally, upon issuance of the policy, a new workflow will need to be triggered in order to issue a UBI device and installation instructions to the insured.

Second, Administration Systems: Once the policy is issued, various back-end systems and processes need to be altered to accommodate the UBI program as well. Policy Administration and Renewal Processes will need to incorporate the data gained from the UBI device, typically in the form of a driving score. Billing System changes may be needed if the carrier decides to charge drivers for lost or damaged UBI devices. Customer Service systems need to be updated so that service representatives know which customers are participating in the UBI program and can answer their questions related to the devices and driving discounts. The carrier may consider special telephone routing so that UBI program participants are handled by specialized customer service representatives. Claim System changes may also be needed if the carrier wants to ensure that Claims Adjusters are made aware that a vehicle is part of a UBI program.  For carriers who rely on independent agents, Agency Download should also be updated to reflect the new program. Finally, back-end data warehouse and management reporting systems will need to incorporate UBI related data and develop new analyses to support the program.

Third, Workflow and System Capabilities: First, the carrier must manage an inventory of UBI devices, tracking which have been issued and associating issued devices to specific vehicles. The carrier must also develop a number of communication protocols in partnership with their Telecommunications Services Provider. For example, if an issued UBI device stops communicating, the carrier will need to communicate with the insured. The timing and format of these communications requires some forethought. If a UBI device goes silent for a day or two, it could mean that the vehicle is temporarily out of range, perhaps in a remote vacation spot, or the device was removed while the vehicle is in the shop. On the other hand, the device could have been unplugged for routine service and accidentally left unplugged. If the carrier reacts too quickly, they could easily annoy the insured and appear like “Big Brother”; if they wait too long to react, they could lose valuable data. Changes are also needed to accommodate drivers who want to add, remove, or change vehicles within the UBI program during a policy period; this may require a separate management system altogether and could impact the scoring algorithms created. Thus, establishing the right communication protocols is critical to the program’s success.

Similarly, the carrier needs to determine how they will receive and model the driving data collected by the UBI device.  Will they gather the detailed data, transform it into meaningful information, and develop predictive models based on that data that can be applied within renewal rating algorithms. Or will they partner with an expert who can manage data collection and manipulation for them, providing them with some type of a score to apply within their rating algorithms. In either case, the carrier needs to understand the data that they will be receiving and establish systems for managing and utilizing that data.

Finally, the carrier must establish a means to provide feedback to the drivers participating in the program. Typically this is accomplished via a web-site where the driver can view his/her driving history, compare that history to some type of benchmark, and view tips to improve driving behaviors.  Again, the carrier may be able to partner with the Telecommunications Services Provider to deploy this functionality, but the carrier must work with the provider to define what data will be presented, and the carrier must be prepared to answer questions that their insureds will have about the data presented.

In closing, successfully implementing a UBI program has ripple effects across a wide swath of an insurance carrier’s infrastructure.  Before embarking on this journey, a carrier must give thought to both the initial launch and ongoing support of the program, making decisions about how to best integrate the program into its underlying systems and processes. Strong partners, both those with specific UBI expertise and those with more generic system, process, and project management expertise, can ease implementation and speed time to market.

Usage Based Insurance – What Value Can Carriers Offer Customers Beyond A Premium Discount?

Within the U.S. market, Usage Based Insurance (UBI) (a.k.a. Telematics) is primarily marketed as a means of lowering premium.  As discussed in a previous post on Usage Based Insurance, a driver allows the insurer to monitor his/her driving behavior, and in exchange for safe driving habits, the driver receives a discounted premium.   But these programs also offer an opportunity for a carrier to provide value-added services to their customers, an opportunity to craft a product rather than to offer the lowest price on what is often seen as a commodity.  Depending on the device chosen and the data collected, a wealth of services can be offered that allow for additional touch points between the carrier and the insured, beyond bill paying and claims settlement.

For example, safety related services could form the foundation for an offering.  The UBI device could be used to monitor, and proactively report to the driver, information about needed car maintenance items.  It could also be used to offer road-side and accident assistance, to remotely unlock a vehicle, or to locate a lost or stolen vehicle.   For a driver who is searching for his/her car in a large, dark parking lot, this last ability could be both a major convenience and a huge safety feature.

Teen or Elderly driver monitoring services could be the basis of another offering. For example, the UBI device could send text messages when a vehicle arrived, as expected, at a certain destination (e.g. when a student arrived home from school each day).  Similarly, the device could issue an alert when driven outside certain preset geographic boundaries, speed limits, or curfews (e.g. when an elderly driver operated the vehicle at rush hour). The device could also be used to provide mapping, showing where a vehicle was driven or locating a vehicle/family member at any given time.

Innovative gaming techniques and feedback mechanisms could be used to provide driver guidance. These tools would allow each driver in the household to profile and compare his/her habits to others in the household and to the “average” driver. The integration of gaming into current feedback loops would better engage drivers. By comparing driving profiles over time and by competing to improve their profiles, drivers would also improve their driving habits.

While many of these services are available through various venues, a carrier can use a telematics offering to craft a product that provides both value and service to its customers. It can attract and retain customers by providing a unique blend of tools that provide benefit on a daily basis rather than a basic promise of service when an accident occurs. By carefully considering its target market and by focusing on services of benefit to that market, a carrier can differentiate itself within an increasingly commoditized field. As UBI programs permeate the market, smart carriers will leverage their capabilities for far more than another way to compete on price.

How did you find Nemo?

The blizzard of ’13 hit the northeast pretty hard this past week.  Communities still reeling from Sandy now have to deal with feet of snow too.  Power outages and downed communication lines make it extremely difficult for people to contact utility providers to report problems, as well as to receive information regarding service restoration.  Many providers are turning to social networks and to text messaging to help them get the word out and to keep their customers informed.  Others are leveraging mobile apps to assist customers, allowing them to report problems and follow repair progress.  Some utility companies are doing both.  Utility companies have to provide service 24/7; but, while insurance carriers will accept claim reports outside the regular work week, their work really begins on Monday.

Like the utility companies, many insurance organizations, carriers and agents, communicate via their social network accounts and some communicate with mobile apps.  Customers may have already reported the tree limbs falling on their cars, collisions from sliding on the roads, or restaurant food spoilage when refrigeration goes out, and now they need to know when they will hear from the claims representative or damage appraiser to move things along as quickly as possible.  If the power and phone lines are still out, your smartphone becomes your only window to the world.  This is where the carriers that have embraced and leveraged smartphone technology shine, and those that are still dependent solely upon on web sites and telephone communication fall behind, and lose customers.

Thousands of customers could be trying to contact you via your phone lines, and find the never ending phone tree wildly frustrating.  When that becomes exasperating, maybe there’s a mobile app to download, but all you can do with that is pay your premium.  Next, look at Facebook for updates, but that’s just a Hall of Fame for charitable acts and follower counts, nothing on the company’s efforts to reach out to customers about the storm.  How about Twitter?  Maybe the company is broadcasting where mobile claim centers are being set up, tips on how to minimize damage, or special phone numbers that have been arranged?  What about the agent?  They may be without power and communication as well, but they may still be able to provide support taking reports and providing information for claims – if they can get it.

This is the time when the rubber meets the road for insurance, and if you can’t keep in touch with your customers and help them when they need it most, they’ll solve the problem for you – they’ll find out about the companies that do, and they won’t be your customers for much longer.  Now is a good time to rethink and update strategy for carriers who aren’t where they should be.

Customer Intelligence – Analyzing and Acting on the Data

Part one of this topic addressed leveraging social media to improve customer satisfaction.  This is the initial step towards a broader goal to create a robust Customer Intelligence framework that allows P/C insurers to listen, connect, analyze, respond and market to customers in a much more proactive and targeted way.

Customer Intelligence is the process of collecting relevant and timely information about customers and prospects, consolidating the data from all the different sources into a cohesive structure, and providing the sales, service and marketing functions with tools that can leverage this intelligence.  The sources of this data not only include the obvious ones such as a carrier’s Customer Service Center, and Policy or Claims Admin system, but should also originate from the Agent, Marketing Surveys, Telematics, and Social Media, including Twitter and Facebook – all mashed up to produce a Balanced Scorecard and Predictive Analytics.

Most CRM systems need to be updated to include new columns in their user profile for data in addition to email and phone number such as Facebook name, Twitter Handle, etc. With the social listening and response management connected to your CRM, a social inquiry can be viewed in context and the activity recorded for future interactions, available to Customer Service Reps or even Agency personnel. This level of social customer intelligence is going to differentiate companies that do it right, becoming a key element of a carrier’s business strategy.

A fully integrated Customer Intelligence platform provides benefits such as:

• A single integrated interface to many social media outlets
• The ability to manage multiple writing companies
• Create and track cases, contacts, accounts, and leads from real-time conversations
• Manage marketing campaigns and track social media marketing ROI
• Cue CSR’s on upsell and cross sell opportunities

A carrier should determine the Key Performance Indicators (KPIs) that matter most to their business goals, then view the appropriate data in graphical dashboards to track effectiveness of their efforts.  It’s important to tie those KPIs to their influence on customer behaviors such as loyalty and increased sales.  But carriers must also be aware to not look at positive or negative changes in the wrong way and fully understand the reasons for success or failure.  Reacting to success by following up with more online advertising in certain media outlets, may not produce the desired results, when in fact the reason for an increase in sales is due to the upsell and cross sell efforts of CSRs.

Usage Based Insurance – Who are carriers’ target audience and who will be left?

Unless you live totally off the grid, you have seen a commercial for Progressive’s Snapshot program.   Progressive and other major carriers are offering and forcefully marketing usage based insurance (UBI) to their customers.   The idea behind usage based insurance (a.k.a. Telematics) is that the insured’s premium is based on his/her actual driving behavior as captured by a device that is plugged into the vehicle and transmits data about driving habits to the carrier.

At least 18 states have 4 or more Personal Auto programs implemented, and 49 states have at least 1 program implemented.  In December 2012, Strategy Meets Action released research findings that about 70% of carriers have a UBI program in place, in pilot, or under consideration.  It was noted that if UBI captures only 10% of the market by 2020, 25 million cars will be insured through some type of UBI program.   If UBI captures 20-25% of the market, carriers without UBI will see the impact of adverse selection on their current book-of-business.

So what kinds of customers are carriers targeting, and if UBI takes hold of the market as promised, who will be left in non-UBI programs?

The obvious answer to the first question is safe drivers – the very slice of the market that every carrier wants to attract and to retain.  Progressive has released findings from its detailed analysis of 5 billion driving miles that demonstrated that drivers with the highest-risk driving behaviors have loss costs that are approximately 2.5 times the loss costs of drivers with the lowest-risk driving behaviors.   By targeting these lowest-risk drivers with special discounts, carriers attract the best of the best while improving their overall book of business.  Once a safe-driver is enrolled in the program, the special discounts also improve retention because the discounts get larger.  Given the proprietary nature of the driving behavior data that the carrier has collected, it is much harder for another carrier to match or beat that price point.

Beyond the safest drivers, there are other market niches that are well-suited to UBI programs. Consider the household with teen drivers or with aging drivers. UBI is an attractive product because it offers a way to monitor driving behavior among higher risk drivers within the household, and the very act of monitoring driving behavior and the feedback mechanisms have been shown to improve their driving behaviors. UBI programs are also a good fit for households where one or more vehicles see little use. With a growing cadre of telecommuters in the workforce and growing numbers of retiring baby boomers, how many vehicles sit parked for days at a time, especially during peak drive times?  Even if these drivers aren’t among the safest of drivers, their limited usage mitigates their exposure. Finally, consider the driver who has had 1 or 2 tickets or 1 or 2 accidents but is convinced that he/she is a safe driver; they were just unlucky. A UBI program allows these drivers to prove that they are safe drivers, lowering their rates and allowing the carrier to capture a truly safe driver that other carriers write-off as accident prone. At worst, a UBI program ensures that these drivers will pay rates based on their actual driving behavior, and the feedback loop provided with the programs can actually improve their driving behavior.

So who is left?   The drivers left outside a UBI program fall into two categories – those who could benefit from a UBI program but haven’t made the switch yet, and those unsafe drivers who would be penalized by entering a UBI program.

As better drivers join UBI programs, the majority of drivers in non-UBI programs will reflect poorer driving habits and much poorer claims experience. Carriers who offer only non-UBI programs will see their loss ratios deteriorate which will force rates higher. However, this will simply give the remaining safer drivers an even greater incentive to switch to carriers with a UBI program.  The market will bifurcate and carriers without a UBI program will find themselves essentially managing a book-of-business that is focused on non-preferred business.

The later that a carrier chooses to launch a UBI program the harder it will be to capture desired market share. At this point, the driving behavior associated with these programs is proprietary to the carrier.  While that may change in the future, it is currently impossible to purchase a driving score in the same way that a carrier purchases a credit score for a prospective insured. Therefore, once a driver is tied to a carrier’s program, it will be difficult to lure that driver to another program because the new carrier won’t know nearly as much about him/her as the current carrier.

The questions that remain are: how quickly will customers embrace these programs; how quickly will this change happen?   UBI programs have the potential to upend the Personal Auto market in much the same way that the introduction of credit scores did.   Will 2013 be the year that we begin to see real evidence of this coming trend?

Customer Intelligence – Leveraging Social Media to Improve Customer Satisfaction

Customer satisfaction for Property and Casualty (P/C) insurers has been on the slide over the past few years for many reasons, but most notably due to increased premiums driven by natural catastrophes.  Carriers can work to offset these premium increases by improving upon the intangible values policyholders receive, such as customer satisfaction.  Improving customer satisfaction can be supported by improving upon Customer Intelligence.  Customer Intelligence is the process of collecting relevant and timely information about customers and prospects, consolidating the data from all the different sources into a cohesive structure and providing the sales, service and marketing with tools that can leverage this intelligence.

Insurers must begin to look at ways to respond to customer needs outside the old fashioned methods of phone and email, and embrace the social media outlets.  Most carriers look at social media as a marketing tool but used well, it is much more of a relationship, loyalty and service tool.  Many carriers already have a Facebook page and Twitter account to disseminate information and respond to complaints posted directly to them, but the most damaging words are those posted where the carrier does not respond because they do not even know they exist.  Integrating with social monitoring tools can help carriers avoid these situations, creating a competitive advantage.

Carriers need to be able to serve their customers in the channels they wish to be served in, and helping customer service representatives to address issues early, before they become a costly live call or a crisis, can decrease CSR expenses.

The first step to monitoring social media is actively listening, using tools that provide real time alerts on relevant mentions, questions and discussion topics that should be responded to, then route them to the appropriate responder.

Imagine how impressed a customer will be, when they are contacted in response to a tweet that was posted after a bad claims experience.  Carriers can capitalize on opportunities to turn negative feedback into positive, if they take advantage of the chance to make things right with the customer.

In addition to providing this service level response involving their own interests, carriers can extend this service to assist their top tier agencies as well, and educate them on the proper way to interact online.  While policyholders may jump carriers, they are generally loyal to their agency, and if carriers can help protect their agencies, they may find more, and better, risks on their books from those agencies. Conversely, it can also provide an opportunity for carriers to rethink some of the agencies they work with, if they consistently find negative feedback about them related to their support of their policyholders.

With carriers and agents working together, marketing executives can provide management with overall reports on social media sentiment, issues and the activity metrics for agents and their customer service organization.

This is the initial step of a broader goal to create a robust Customer Intelligence framework that allows P/C insurers to listen, connect, analyze, respond and market to customers in a much more proactive and targeted way, leveraging the new communication channels Social Media provides.

The next step becomes tracking this information within the carrier’s CRM and linking with customers’ Twitter names or Facebook accounts, to help CSR agents get a complete picture of the customer.  CRM projects are expected to be near the top of the list for many carriers in 2013 that look to get out ahead on this front and gain a better of understanding of their current customers, and the customers they are going after.

Why do Carriers feel the need to turn to Analysts for key decisions such as PAS replacement?

I have been pondering this more and more – I mean the sell prop seems so good at the onset. An Analyst firm is agnostic, so we are lead to believe, they spend every waking moment researching the exact topic, they do countless rfps and they promise to be right by your side all the way to….that’s the nub isn’t it, to the end of the selection. So let’s not even think about the fact they do not have to live with the decision let us really focus on the value prop.

So we look to an analyst because all they do is research topics like PAS replacement or legacy moderization, and that seems to me to be yet another problem — if you never actually go through the whole process how can you truly have a full understanding? I am not talking about asking carriers and CIOs about lessons learned; I am talking about learning them for yourself and having the key knowledge to really know how the “theory” reacts in the “real world”.Let’s take a fun example – if you decided one morning to reenact William Tell with modern weapons, who would you want to take the shot……shall we review the candidates?

Candidate 1) A man that analyzes weapons every second of every day, he knows every single moving part, the exact interactions, the kick, the muzzle velocities, heck he even talks to sharp shooters about the guns longevity, it’s reliability and confidence….seems to be the perfect candidate – he knows everything with the one exception of ever actually aiming and pulling a trigger.

Candidate 2) A US Army Ranger sharp shooter, he knows all he needs to know about the weapon, he may not know the exact rifling pattern but he does not need to he has something different; he knows exactly how the weapon reacts, the wind, the elevation and air pressure, the distance and drop of flight – he knows where the bullet will end up in the real world, not on paper.

So forget the original question – let’s have a new one – you are an Insurance CIO with an apple on your head and a lot to lose, who takes the shot at the apple? Who do you choose? Interesting thought…….

Does Claims BI Just Mean “Bodily Injury?”

Anyone in the insurance claims industry that works on BI is not talking about Business Intelligence. Rarely is BI ever applied in insurance claims to mean business intelligence because most carriers only use business intelligence generically to examine closure rates, expense payments, and contact rates. Business intelligence is most often used primarily to analyze data in other business units like agent performance, product profitability and policy discounts.

By properly applying business intelligence and measuring analytics in the claim handling process, carriers have the opportunity to review and grade adjusters for improvement and development of claim adjudication best practices. Monitoring and reviewing claim handling practices will ensure adjusters are performing quality investigations resulting in fair and proper claim settlements for the carrier and the insureds.

A claim is the core of why people purchase insurance products – to get reimbursed when they incur a loss. A claim becomes a personal touch point with the insured, as well as a prospective insured when third parties are involved. How many carriers have used claimants switching to them after a claim to advertise their service? Leveraging analytics to generate business intelligence on claims processes, insured retention, and claimant satisfaction, as well as measuring things like allocated loss expenses, the number of claimants with attorneys, and post closure actions, can be used more directly and efficiently to impact the success of claims handling.

Of course you may not want all of your insureds since there are those that are working to use insurance claims to make money. Properly applied analytics and techniques can detect patterns and trends in claim participation, injuries, supplemental repairs, etc. I know of one specific case where analytics found that a claimant was paid five times for a single leg amputation, and another where a doctor was treating an average of 1,600 patients per day. Business intelligence can also capture the effectiveness of independent medical exams on claim settlements, better understanding and control on reserves, back to work rates, and therapies to move claimants from total disability to partial disability.

The next logical step is moving into predictive modeling.  Properly applied claims analytics helped one western insurer realize their return on investment in a matter of months, when they could proactively augment and deploy needed field staff to respond to several catastrophic storms.

By improving best practices, identifying fraud early, and employing predictive modeling, not only will customer satisfaction be effected, but this will also trigger claims closing more quickly and at lower costs, increasing the number of claim files adjusters can handle and lowering loss ratios. In this tough economy, lowering loss ratios by even as little as 1% can have a big impact on a company’s bottom line.

Agent Mobility As A Customer Touch Point Opportunity

Agents still say ease of doing business is the key to working with a carrier.  But that means different things to different people, and certainly different things between agent and carrier.  For years carriers have been working to streamline operations within their organizations to make life easier for agents.  Recognizing and implementing standardization such as the use of ACORD forms for applications was an initial step.  Then there was integration between the carrier’s systems and the agency’s management systems that allowed agents to submit applications through online integration.  Finally came the age of the real time online portal where agents can log in to carrier systems and submit applications directly.  How much easier can it get than that – A LOT.

All of these technological advancements are offered by almost every carrier.  So what becomes the differentiator to an agent when they can place business with multiple carriers?  It’s still ease of doing business.  Which carrier allows me to get a quote the easiest by entering the fewest data points and then complete that application and close the business fastest?  Many agents try to close business in volume because more volume means more premiums, which means more commission.

Most of this work is done by agents within the confines of their office.  They can make visits to customers and prospects to talk about other offerings, but then many have to make a follow up appointment to review the quote requested in the meeting.  How about the chance encounter in the supermarket or the church social when you don’t have a computer with you?  This is where insurance agent mobility comes in.

The ubiquitous smartphone is always available and at the ready within its holster.  There are many carriers, such as Amica, Nationwide and Travelers, that have developed smartphone apps for insureds, but not as many allow agents to access information that way.  MassMutual, as an example, developed E4 (Electronic Enhanced Enrollment Experience) which allows agents to enroll retirement plan participants entirely over their smartphone.

If I can check in to, or change my flight on a mobile web site for an airline using my smartphone, shouldn’t an agent be able to get a quick quote for a prospect, file an endorsement for an insured, or even bind coverage and email the policy documentation to their customer?  Imagine the response by the insured to the agent when after about a 2 minute conversation, the newly insured’s phone beeps because the email with all the policy documentation just arrived in their inbox.

Wow, that was easy.

This is a major opportunity, not only for the agent, but also the carrier, to utilize the latest technology to make things easier not only for the agent, but the insured.