Driving Actuarial Innovation with Telematics

Driving Actuarial Innovation with Telematics

Article written by Andy Goldby

Digital Disruption

This buzz phrase has been bandied around insurance industry circles a lot in recent years and let’s face it, it sounds kind of scary.

Disruption is a word that might strike fear into the heart of any self-respecting insurance professional because, after all, disruption is often associated with unpredictability and a lack of control which isn’t great when your business is about the prudent management of risk.

For me personally, the notion of digital disruption doesn’t need to be scary - it’s essential! In fact as we’ve seen in multiple industries from entertainment to travel, if brands aren’t willing to embrace change and innovation they stand the very real risk of growing less relevant to customers, and could even become obsolete. This is one of the reasons why I am focusing my professional contribution on helping to drive positive disruption and customer-focused innovation into the insurance industry via telematics.

Over the past six years at The Floow, I’ve been focusing on how the data and insights that can be derived from telematics can drive increased understanding of an insurer’s notion of risk for each insured individual. It’s not just about tracking and scoring a trip. It’s about having a continual focus on honing those scores, training and improving them over time against claims data to create a competitive advantage. It’s also about using those scores to identify new ways of engaging with insured drivers around their behavior and encouraging them to make positive changes with safety in mind. So how do we do all this at The Floow?

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Better Scores

Creating a set of highly predictive scores is not an easy task. We have been honing our scores over several years and continue to do so as we learn more about driver behavior and consider nuances that might improve their predictability further.

Our core set of behavioral and contextual FloowScores sit at the heart of all our products and are built upon literally billions of miles of trip data, gathered from working with partners across five continents and taking data derived from any device (smartphone, OBD, black box etc) to deliver a consistent experience.

We capture a variety of data. Firstly, sensor data from the user’s device which looks at GPS location, speed (including acceleration, braking and cornering) and, of course, how often a phone is used and secondly, contextual data which records the roads which are being driven, third party transient data, such as weather, and other external benchmarks. We translate this raw data into KPIs for every trip that can relate to the drivers chance of having an accident. For example, we know that though distraction can be caused by many factors, perhaps the most significant is using a mobile phone. We’ve found a clear relationship between having a high distraction score and your propensity to claim, and our scores relate to the time spent on a call as well as handling a phone whilst driving. Our data shows that a more distracted driver is twice as likely to have an accident than someone who does not use their phone whilst driving.

Similarly, in terms of contextual data, we have developed an understanding of the unique attributes of individual roads, analysing data in context of other external factors such as how other people are driving, road layouts and pedestrian crossings.

Through various machine learning techniques our data scientists then analyze and score against the six key components of our algorithm, which include speed, distraction, smoothness of driving, time of day, fatigue and the risk posed by the specific roads driven on.

By blending a set of behavioral scores as well as contextual scores, we’ve developed a scoring platform that is proven to challenge the traditional proxy-based model which assess risk for an insurance policy. Our data gathered via partner deployments over the past six years suggests that not only do telematics portfolios deliver a 25% improvement in burn cost but our scores deliver a predictive power creating up to a 10x difference in the likely claims frequency between drivers achieving a low score of <30 and a great score of over 80.

Using this telematics scoring system alongside traditional rating factors (customer factors, vehicle factors and policy factors) can add significant value to the combined model’s predictive power, in fact adding 5-10x the additional impact that adding credit score did.

Better Insights

A strongly predictive set of scores allow our partners to differentiate between the risk presented by their telematics and non telematics book. Whilst this is a demanding task, the data derived from telematics provides actuaries with powerful new capabilities to price their policies and inform their understanding of risk. Traditional factors associated with age, zip code, profession and claims history are no longer the only indicators. Telematics changes that, by introducing a new set of policy-holder scores based upon an understanding of the true picture of their driving behavior.

At The Floow, evidence suggests customers reporting 15% fewer claims on the telematics book than would be expected on the same mix of non-telematics policies with the average claims cost being 10% lower as well, 20%+ increased retention and up to 4x improved conversion as well as the ability to sell safely into otherwise riskier segments.

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If these benefits weren’t enough, telematics data enables the opportunity to do two things:

1. Create attractive retention pricing strategies for the best risk (after all, keeping a customer is far less costly than attracting a new one)

2. Develop new strategies to engage those whose driving behavior could use some improvement

We have a number of tried and tested approaches for engaging drivers to help them focus on driving improvements. Of course, sharing scores and tips within an app is one way we do this, but we’ve found that integrating rewards programs have a better long term impact. Our rewards and incentive schemes are proven to improve driver scores by as much as 54% over a 1000 mile period, and have a bigger behavioral impact than just offering an insurance discount at the end of the year – especially for low-scoring drivers. We work with insurance companies to understand exactly what behavioral outcomes they are looking to achieve before recommending a rewards solution that’s both tailored to their customer demographics and easy to redeem.

Where rewards alone are not enough to improve behavior we can assign the driver into our FloowCoach program, where we use social science techniques with the aim to help improve driver behavior. FloowCoach is pioneering in its approach, targeting drivers with the lowest scores and riskiest driving behavior and inviting them to participate in a 12-week program of phone-based conversations with highly trained behavioral coaches.

The Floow has now assisted more than 1300 drivers with FloowCoach. Through a series of phone conversations, we help drivers to focus on specific ways to improve their overall score and drive more safely. Our latest research shows that for every 100 people in the lowest-scoring decile who have completed the FloowCoach program, 13 accidents are avoided compared to standard feedback mechanisms. Based on the correlation between scores and claims frequency, we project an overall 18% reduction in claims compared with the control group. This means that for every 1,000 drivers participating in the program, we are preventing 31 accidents from taking place.

Better Partnerships

Long-term and highly invested relationships deliver our partners a better partnership. Our longest standing partner has been with us from the very beginning, benefiting, as our more recent partners do, from the opportunity to train their scores upon the solid baseline of our core scoring platform. The resulting scores become the unique IP of our partners - an approach that we consider to be unique in the market and critical to our partners’ development of true differentiation. When partner actuaries and underwriters work with us to further train the scores against their own claims data, they report a significant boost of up to three times the profitability per telematics customer versus their traditional policy types, and a set of scores that represent powerful and unique new IP.

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Better Outcomes

Outcomes relating to positive improvements in road safety and fewer accidents are beneficial to all, but for an insurer’s business there is of course a cost associated with developing telematics programs, which has to be worth the investment. We have developed a thorough set of cost benefit analyses to demonstrate how our propositions can deliver long-term partner value.

For example, our UK cost benefit analysis shows that the profit per policy of a telematics policy can be 3x more than a standard insurance book, even after taking into account the cost of building the program and technical costs. This is because of the selection benefit, fraud reduction and behavioral improvements (via coaching, rewards etc) that can be delivered with telematics policies. Additional benefits can be achieved with the introduction of accident identification and FNOL services, enabling very rapid assistance to be given to drivers involved in serious accidents.

In addition to these benefits, telematics offers the ability to tackle fraudulent claims, which cost the industry many billions every year. My view is that telematics offers some very useful indicators to help insurers identify dishonest drivers. As an industry we will never be able to completely prevent fraud but understanding potentially fraudulent behavior before it impacts the bottom line will help improve the likelihood of being able to prevent the damage it could cause.

We have created indices that help to detect how honestly drivers are using our telematics apps: the patterns of how they tag completed trips and a measure of the continuousness of the trips tagged as the policy-holder driving (they may appear to have missing trips or appear to be tagging their worst trips as if they were a passenger). Additionally, we can create indices relating to the integrity of their declarations relating to the mileage total completed in the insurance year, the ‘risk address’ where the vehicle is really kept and parked overnight, or the class of use of the vehicle (spotting commuters, taxis and couriers etc). With these we are able to identify discrepancies which help to identify dishonesty within the first week or two of the policy enabling the insurer to make an informed decision as to how to treat these customers before their “cooling-off” period is over.

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In Summary

I believe that telematics presents a positive disruption that introduces a new paradigm of fairness into motor insurance pricing. Many senior decision-makers in the industry agree. In a YouGov survey we recently conducted amongst decision makers from international insurance companies, the widespread adoption of telematics is now seen to be dominant in shaping the future of car insurance. When asked how the motor insurance industry would change over the next decade, all the top five factors mentioned relate directly to the application of telematics.

It’s our belief that telematics will be critical to the evolution of the mobility and insurance industries. Its applications are many, but what is clear is its insights will be a powerful contributor making mobility safer, and insurance fairer as well as more profitable.

If you’d like to find out more about The Floow’s approach to scoring, please contact me via info@thefloow.com