Talking Telematics

Insurance Telematics Canada 2014
Toronto

Speakers at Insurance Telematics Canada 2014, held May 28 to 29 in Toronto, offered views on related issues ranging from privacy to commoditization of usage-based insurance, consumer demands and driver behaviour.

COMMODITIZATION OF UBI

The current regulatory environment is fuelling commoditization of usage-based insurance (UBI) offerings, something that could be at odds with how open consumers are to exploring different options, Colin Wright, principal of Corner 2 Consulting, told attendees during Insurance Telematics Canada 2014.

“Because of the constraints from the regulator and so on, I think we’re starting to see somewhat of a commoditization of UBI offerings,” Wright suggested. By way of example, he noted that in Ontario, the offerings are all very similar and all are targeting the same market niche.

“UBI will be used to price most or all of the auto insurance market – and, hopefully, sooner rather than later – because it is a more accurate, fairer and more equitable way to price auto insurance risk,” he predicted. That said, “regulation and market realities pose limitations on the strategic prospects that are available,” Wright noted, emphasizing that innovation in delivery and products “is the way forward.”

But that demands taking advantage of the technological innovations that are currently available and moving forward in step with what consumers say they want. Citing a Towers Watson survey released in the spring, he noted that 94% of respondents reported they would be receptive to purchasing UBI auto insurance policies if they were guaranteed their premiums would not rise.

That seems to dovetail with survey results from Aviva’s Autograph program, which he managed starting in 2008. “I think as important as the magnitude of the positive response was the fact that we learned the marketing was important.”

The appeal of the product crossed age, gender, socioeconomic status and geography boundaries, “which was a real eye-opener for us,” he said. “We discovered it had broad appeal and anybody would be interested.”

There are lessons to be learned from both the Towers Watson and Aviva survey findings, Wright suggested. “What this tells me is I think the public is well out in front of the industry, policymakers and regulators in terms of their willingness in terms of different products, and UBI in particular,” he told attendees.

Wright argued that Canadians have already accepted they are willing to make a trade-off with regard to privacy, by providing some personal information, “in exchange for material benefit” and regulators “need to catch up with the public.”

Although not an opinion shared by all, Wright argued that “auto is a commodity product and commodities sell on price. So your strategic option is pretty obvious; it’s cost leadership. You’ve got to drive costs down in order to eke out an advantage over your competitor.”

One downside with current efforts around UBI, though, is that Canadians seem quite comfortable with regulation, he said. “It’s a bit unfortunate because I think we should be really pushing our regulators to move forward on this a little more quickly.”

ALBERTA DECISION ON UBI COMING SOON

Privacy must be top of mind for insurers wanting to launch UBI programs in Alberta, a decision regarding which will likely be made by year’s end, an official with the Office of the Superintendent of Insurance said during Insurance Telematics Canada.

Alberta’s Personal Information Protection Act will apply to insurers and the third-party providers they work with for their telematics programs, Laurie Balfour, acting deputy superintendent of insurance in Alberta, emphasized.

Insurers will also be expected to work with the Office of the Information and Privacy Commissioner to ensure privacy legislation is respected, Balfour said. This will include submitting a privacy impact statement, as well as addressing any questions and concerns prior to implementing the UBI program.

Insurers also may be expected to have informed consent documentation reviewed and approved by the privacy commissioner before launching their telematics programs, she added.

Overall, the office is also continuing to look at UBI in Ontario, Quebec, the United States and Europe for best practices, Balfour said, noting that it expects to make a decision by the end of 2014.

The provincial regulator has received several applications for UBI programs and is in talks with insurers and other telematics stakeholders, Balfour said.

Officials are deciding which rating factors – such as speed, acceleration, braking, turning, time of day, location (GPS), distance driven and mileage – will be approved and which will be prohibited for UBI. “We don’t think of UBI as a rating factor. We think of it as a bundle of separate rating factors that will be pulled together to form the UBI program,” she told attendees.

The superintendent’s office will use Alberta’s auto insurance rating factors framework, published last year, when it carries out its analysis.

MARKETING TELEMATICS PROGRAMS TO PARENTS

Generally facing high auto insurance premiums, young drivers may be more open to UBI, but connecting with mom and dad will likely be key when marketing telematics programs, attendees heard during Insurance Telematics Canada.

“The parents do need the premium relief, too – they’re usually paying the bills,” Paul Mlodzik, vice president of marketing and communications for The Co-operators Group Limited, said during a panel discussion.

The Co-operators is looking at ways for parents to have a type of “unofficial contract” with their teens to view their driving habits and make improvements.

Nathan George, vice president of technology with the telematics services firm, Modus, said that when his firm launched a national UBI program with an insurer in the United States, most of the interest was coming from parents of teens. The strategy became about how the insurer could help parents help their children be safer drivers, George said.

More granular information could also prove useful for new drivers, he suggested. A teen driver might not listen when being told to slow down, George said, but might improve if given specific information about how to handle certain road scenarios.

And there is plenty of information available through online portals that gather their information from telematics devices, Mlodzik said. For example, The Co-operators’ portal can allow users to see the health of their vehicle and environmental impact, along with their driving behaviour information.

Young drivers also seem to like the immediacy of the information that telematics devices can offer, Mlodzik added.

CHANGING DRIVING BEHAVIOUR

Saskatchewan Government Insurance (SGI) has plans to continue its motorcycle telematics pilot, the ultimate goal of which is to change driving behaviour and reduce related loss.

“We’re going to continue this pilot for one more year. We want to get a little more data,” Don Thompson, SGI’s vice president of product management, said during Insurance Telematics Canada.

Data is needed to determine and build thresholds – thresholds that could, in turn, be used for variables for rating, Thompson explained.

Some see variables that are predictive of loss as including speeding, harsh acceleration and braking. “I don’t think we have enough data yet to say for sure what those (variables) are,” Thompson said, but added that as SGI obtains more data, “we will figure that out” and will “get more sophisticated at that over time.”

When SGI submitted its proposal to the Saskatchewan Rate Review Panel in February 2013, it included a cap on rate increases for all vehicles except motorcycles. With rates substantially lower than what is required to cover claims co
sts, the proposed increase for motorcycles was 73% (later a 15% cap was applied, effective August 31, 2013).

Though the motorcycle telematics pilot had several goals, Thompson said the “ultimate goal was to reduce the number of injuries and fatalities with motorcycles by whatever means we could. Motorcyclists didn’t want to pay out 73% more rate. If they don’t want to pay more premium, we have to bring the losses down.”

Thompson noted that if someone is in an accident with a motorcycle, there is generally very severe injuries, pointing out 72% of the premium breakdown for motorcycle is for injury compared to 23% for private passenger vehicle.

There are also a large percentage of accidents involving new riders, he said. “Forty-five percent of our accidents with motorcycles happen with less than three years of experience,” he told attendees, citing cornering as a concern. “We knew that that was something that caused accidents and was predictive of loss.”

SGI’s view is that telematics devices can be used to demonstrate driving behaviour and, in turn, illustrate the need for coaching or training to improve those behaviours. “Every study that we have seen says the reduction in claims is anywhere from 20% to 40%,” Thompson said. “Is that 40% reduction because of self-selection or are people changing their driving behaviour?” he asked.

Even small reductions in the number of injuries involving motorcycles can prove impactful, Thompson suggested. If the 20% to 40% reduction in claims being cited in studies and reported by insurers is correct, “even if half of that is from modified driving, then, yes, the economics makes sense,” he said in response to a question from the audience.

“We’re hopeful that this (pilot) is successful and then we would ultimately launch into a usage-based insurance program for motorcyclists,” he said.