Little innovations lead to big change

When carriers think about innovation and achieving competitive advantage, most focus on big changes: introducing new products like Usage Based Insurance, redesigning business processes, deploying major technology initiatives like customer and agent portals or new policy administration systems. They think of trends like social media, predictive analytics, and big data.

But innovation and competitive advantage can be achieved by making smaller improvements in everyday processes. For example, understanding and keeping current with ISO changes is critical to most carriers. Consider ISO’s recent Commercial Lines updates. Per their October briefing, ISO CL Update, the Commercial Automobile Program alone included a new auto dealers program and 26 new optional endorsements.

datagrailFor most carriers, hearing that major updates are coming raises shudders. Carriers know that analyzing ISO updates, comparing them to the current version of rates and forms in use, and identifying changes is a challenge. It takes significant time and knowledge to pour through the various ISO materials and determine what has changed and how the changes impact the carrier’s book of business. Since so many carriers already have too much on their plate, they often let ISO updates slide, failing to adopt them in a timely manner. Thus they miss the small innovations that can improve their product offerings and improve their bottom line. When they do choose to catch-up, it is often a daunting effort to jump several versions in one leap, introducing massive change to their systems, processes, and books of business.

Applying automation to the comparison of ISO changes could improve the efficiency of the analysis process, allowing carriers to more quickly determine the impact of adopting or not adopting ISO changes. This targeted solution is not a major system implementation, but it is an innovation that would allow you to best leverage your investment in ISO content, and improve a cumbersome process. It is a small innovation that would allow a carrier to dramatically improve its ability to analyze and react to ISO changes. A small innovation with a big payoff in more efficient internal processes that can translate to improved products, product pricing, and the bottom line.

A solution already exists. Edgewater Consulting has leveraged its deep industry and technical knowledge and long-standing ISO relationship to develop a cloud-based solution to address this critical business need. The solution compares ISO rate books and quickly identifies what has changed, and presents results in Microsoft Excel, a familiar yet powerful analytical tool.

We will be hosting a webinar with ISO to demonstrate the tool, using it to analyze ISO’s commercial auto changes released on October 1. If you’re interested in attending, register here.

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

sma ubi tableThere 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 3rd 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.