DATA WILL BE DRIVING COMMERCIAL AUTO CLAIMS.
Usage-based insurance (UBI) receives a great deal of attention, and with good reason. Within three years, roughly 70% of all auto insurers are expected to use telematics usage-based insurance—also known as pay as you drive (PAYD)—according to SMA Research.
A May 2014 Center for Insurance Policy and Research survey of 47 state regulators showed all but five with insurers offering telematics UBI policies and 23 with more than five carriers offering UBI.
UBI costs are dependent upon the vehicle and are measured against time, distance, behavior and place. While UBI is now concentrated in personal automobile insurance and is not yet receiving the same adoption in the commercial auto market, its possibilities there are numerous.
Telematics is an effective tool in validating certain rating factors used by underwriters in pricing commercial auto insurance. It captures important usage data like hours driven per day, annual mileage, time of day driven, radius of vehicle travel and garaging location.
Today most carriers depend solely on the vehicle garaging and radius that is provided to them on the accord application. Telematics data can tell you that along with secondary garaging locations and a more granular breakdown of radius to provide an even better insight into the risk.
Studies show there is a strong correlation between claim and loss costs and mileage driven. One national carrier said time of day a vehicle is driven can be twice as predictive as traditional insurance rating variables. The number of hours per day the vehicle is driven can reflect if it is being driven multiple shifts per day, which increases the accident frequency and severity potential.
Many telematics providers use supplemental software applications that provide road speed limits, road types, traffic density and weather. This allows insurers to calculate speeding, miles driven off road, types of roads being traversed and number of hours driven during high traffic density periods—which have been shown to be a predictor of crash patterns.
The Insurance Services Offices (ISO) has rating for telematics embedded in the Commercial Lines Manual under Rule 114 Vehicle Telematics Rating. The GeoMetric rating procedure provides a premium discount to certain vehicle types and coverages based on the percentage of time driven in a green zone. A green zone is a set of all locations with lower loss cost bands than the ones of the principle garaging territory. There is a Safety Scoring Rating Procedure in the rule that provides a premium discount to certain vehicle types and coverage based on driving behavior. The safety score is a numbering system that represents the driving behavior risk using qualifying telematics.
Behavior identification can provide great value to commercial auto insurance. It can identify key driving behaviors that include hard braking, rapid acceleration, speeding and hard cornering. These behaviors can be used in scoring models to determine risk selection and pricing along with proactive loss control. Pinpointing real-time or near real-time driver behaviors lends itself to a more proactive approach in seeking immediate cures to prevent accidents. In fact, there is telematics technology available today that will immediately notify the driver of unacceptable driving behaviors.
A survey by the Insurance Research Council revealed more than half of drivers changed their driving habits after owners installed a telematics device provided by their insurer. A total of 36% said they made small changes and 18% said they made significant changes. A Federal Motor Carrier Safety Administration evaluation of onboard telematics effectiveness found a 37% reduction in speeding violations per 1,000 miles.
Monitoring driver behavior alone does not solve the problem, but coaching and feedback have shown to make measurable improvements. Some companies are using gamification with telematics to help change driving behaviors. This typically involves drivers competing either head-to-head or in teams against other driver colleagues to see who demonstrates the best driving behaviors.
Telematics can also have an important role in claims handling. It can provide driving events and driver behaviors immediately after an accident. These include acceleration, hard breaking and steering, direction of travel, date and time, weather details, location of accident, speed and air bag deployment.
The insurer can immediately deploy resources to an accident scene to address the client’s needs. This can mitigate costs of unnecessary emergency response equipment and high towing and storage charges, which adds to the cost of the claim. Telematics data in claims is quickly moving to more predictive analytics solutions. Point of impact and severity of crash information derived from accelerometer data can be an early predictor of trauma and the probability of injury.
Scoring models are commonly used with telematics. They analyze the usage and driving behavior telematics data and provide a numerical score to reflect the risk level. This score is typically used in the risk selection and pricing process. The models vary from basic event counting and weighting to very complex models that perform analytics on telematics data along with various contextual data. The majority of the scoring models are proprietary and the exact calculations are difficult to determine.
The telematics industry is growing rapidly. What and how data are being used varies by company and is ever-changing as the industry grows. Results have shown telematics can improve risk selection and claim handling, provide proactive loss control, and improve overall book results, both in the short and long term.
Kevin Seth is president of E-Technology Services. email@example.com