Tag Archives: motor vehicle report

How to Remove the Roadblock for UBI

Once upon a time, the auto insurance industry relied on motor vehicle reports, drivers’ records, business addresses, financial credit reports, claims histories, policyholder-stated VIN and mileage information, etc. to make an underwriting and rating decision. This scant information provided a fuzzy picture of risk, at best, so insurers built in a pricing cushion to protect against losses and figured it all out at the end of the year.

Fast forward to today, and insurers have volumes of real-world driving data at their fingertips to inform more precise underwriting and pricing. With the proliferation of telematics devices, whether after-market or factory-installed, and mobile tracking and recording apps, we now can know where, when and how an individual vehicle is driven. We can know area and hours of operation, driving behavior, route histories, vehicle performance characteristics and much, much more. We can even re-create collisions using the data.

With data-driven usage-based insurance (UBI), we now can formulate a clear picture of driving risk and remove the guesswork. In short, we have the potential to write for a group of one, based on observable, verifiable data.

Some numbers to consider:

  • Currently nearly 30% of all commercial vehicles have some form of telematics device installed. This figure is expected to reach 70% in 2017. (C.J. Driscoll & Associates)
  • Today’s telematics devices record nearly 300 billion miles of driving data annually.
  • 94% of all small businesses report using smartphones in their businesses. (2014 AT&T-SBE Council Small Business Technology Poll)
  • Approximately 30 auto manufacturers (original equipment manufacturers, or OEMs) are busily equipping vehicles with data devices today.
  • More than 70 telematics service provider (TSP) fleet management services companies in the U.S. are equipping trucks, cars and utility vehicles with telematics.
  • More than half of small fleet managers are likely to stay with their current insurance carriers if their insurer offers UBI (Lexis Nexis’ 2015 Commercial Usage-Based Insurance Study)
  • Global sales of insurance telematics products are projected to grow at a compound annual growth rate (CAGR) of 80% from 2013-2018, and the subscriber base is expected to reach 85.5 million in 2018. (Research & Markets).

We are quickly reaching a tipping point for UBI programs that rely on data collection and analysis as the basis for a “pay how you drive” approach to auto insurance.

However, insurers looking to take advantage of this driving data face some tough questions: Where does all this data come from? How is it collected? How can different data sets be normalized? How can insurers store, analyze and manage such a huge volume of data?

The solution for insurers large and small very likely will be a telematics data clearinghouse.

Multiple Data Sources: OEMs, TSPs, Mobile Apps and More

The first problem insurers face is negotiating with 70 different TSPs and 30 OEMs for their data, which adds complexity, time and expense to the process of acquiring the driving data needed for an effective UBI program. A clearinghouse solves the problem of accessing data on millions of vehicles by aggregating data from available sources. Rather than negotiate with dozens of data suppliers, an insurance carrier merely subscribes to the clearinghouse for access to all of that data, at a single price. 

Multiple Formats: Not All Data Is the Same

With so many data sources, each using different telematics devices and software, pulling data from different types of vehicles, the aggregated data is a jumble of formats, with no two data sets the same. A clearinghouse plays a critical part in scrubbing, authenticating and normalizing this data for handoff to underwriting.

Making Big Data Digestible… One Byte at a Time

UBI represents a monstrously big IT effort for an individual insurer. With nearly 300 billion miles of driving data available, we’re talking about petabytes of data to acquire and analyze. Even the largest insurers must weigh the benefits of devoting precious IT resources to developing and running a complete UBI data collection, storage and analysis effort. In contrast, a clearinghouse is built to manage big data in a big way, delivering a clean, authenticated data set to the insurer, integrated seamlessly into the underwriting process for easy access and use.

Evolution of a Safe-Driving Scoring Standard

With access to data from millions of vehicles, a clearinghouse is also able to provide comparative analytics and calculate a fleet’s safe-driving score, the driving equivalent of a FICO financial credit score and a much more accurate predictor of risk. A complement to current driver score cards offered by many TSPs (which measure individual driving behaviors such as speeding, harsh braking and hard cornering), a fleet score factors in all drivers, as well as the vehicles they drive and the environment in which they drive. The fleet score analyzes variables including weather, time of day, road surface and traffic dynamics. An overall fleet safety score compares fleets of similar SIC codes and territories to derive an indexed score and ranking – a meaningful risk assessment and underwriting tool more powerful than anything else in use today.

Data Privacy and Protection: Permission-Based

Yet another crucial role played by a clearinghouse is data protection and privacy. Clearly, the vehicle owner owns the data generated by that vehicle in the course of a driving trip. But once it is in the UBI transaction chain, how is that data protected? Who sees it, and what is done with it? The clearinghouse serves as gatekeeper. With the consent of the vehicle owner/policyholder, the clearinghouse facilitates the secure sharing of encrypted data with the insurer, allowing the data owner to control who sees the data and why. Such protection encourages voluntary participation by vehicle owners, helping fuel the growth of UBI. 

Data Transparency and Portability: You CAN Take It with You

Data transparency and portability go hand-in-hand with data ownership. As a consent-based data sharing service, the clearinghouse offers complete transparency to the data owner. The vehicle owner knows what data is being requested and has the option of permitting or denying access. The clearinghouse allows the data owner to share his data and driving safety score with multiple insurers.

Data Clearinghouse or Data Exchange: What’s the Difference?

Aggregated driving data services are taking different forms. While all share the purpose of providing a “one-stop” storehouse of driving and vehicle data, they do not all operate in the same manner or provide the same services.

The primary distinction can be explained as an open marketplace vs. a closed system.

As an open market, a clearinghouse merely facilitates the transfer of data from vehicle owner or TSP to insurer. The insurer then underwrites a policy based on this data (and other factors the insurer deems important) and determines a policy premium. In this open system, there are no regulatory filings required; data is used in the insurer’s existing underwriting process, and the insurer retains complete control over pricing, applying credits as warranted. Furthermore, the marketplace determines the value of the data: How much is an insurer willing to pay for detailed trip histories, for example?

In contrast, an exchange uses driving and vehicle data to compute a rating and pricing recommendation for the insurer. Because the exchange is determining price, this rating system must be filed with state regulators. In this closed system, the exchange assumes the role of underwriter and pricing specialist, leaving the insurer with little room for proprietary pricing, segmentation or differentiation. The exchange controls the data and the insurance product.

Data-Driven, UBI: A Return to Profitable Auto Underwriting

UBI offers auto insurance carriers an unprecedented view of vehicle use and driving behavior. Insurers that embrace UBI and develop a data-driven underwriting and ratings process will benefit from more consistent underwriting, improved segmentation and better selection. Those that do not will likely suffer from adverse selection and an underperforming book of business.

The key to successful UBI adoption will be access to, normalization of and correct interpretation of all this data. Undoubtedly, auto insurance carriers will be hearing more about the clearinghouse concept and the pivotal role it plays in UBI.

Want To Know Where You Could Be Losing Profits?

This is the second article in a five-part series on risk management. Additional articles in this series can be found here: Part 1, Part 3, Part 4, and Part 5.

Has your company had to deal with an employee lawsuit in the past few years?

If you have, you know they are frustrating and costly, and are a major loss of profits when they occur. Lawsuits can come from many issues. For this series, we'll reference lawsuits coming from Equal Employment Opportunity Commission issues or Workers' Compensation claims.

You first need to understand an underlying principle that reducing your business risk as a company is critical to your company's bottom line. If you reduce your risk, you will in turn help to increase your profitability as a company. Business risk can take on many forms such as:

  1. Financial Risk: Asset price volatility (currency, interest rates, material & labor costs)
  2. Operational Risk: Efficiency / productivity
  3. Hazard Risk: Lawsuits, Insurance Claims (Work Comp, General liability, Fire)

In the last 10 years, the settlement costs of lawsuits have risen to over $310,000. If you were sued by one of your employees, and the settlement was a mere $15,000, how much do you think that would cost your company? Would you be surprised to learn a claim like that would cost your company over $50,000? If your profit margins in this example were 4%, it would take you $1,250,000 in additional sales to make up for that loss.

To better understand how risk impacts your bottom line, you need to know about the study of Total Cost of Risk (TCOR) which we will discuss later in this series.

In our previous article, we referenced a system for increasing your profitability called the “4P” plan. The first section of this plan is called the “Pre-Hire” process. It begins with an assessment of your hiring practices. What does your hiring process look like these days? Do you feel like you have a good water tight system in place for the hiring of new employees, or have you gotten rusty since you’ve not been doing a lot of hiring in the past several years? Do you feel like you’re using good employment applications and asking appropriate questions?

What successful companies have come to realize is how effective you are in your hiring process can be a great indicator for your profitability in the future. It always pays to hire “good” people. Studies have shown that hiring the “wrong” person can be very costly in the loss of productivity from having to find someone new to take their place and can be fertile ground for higher Workers’ Compensation claims when they occur.

In the Pre-Hire process, it is always wise to request a Motor Vehicle Report (MVR) on your potential candidates from a vendor who specializes in that service. A couple good sources for this are the Insurance Information Exchange or LexisNexis Employment Screening.

You may also want to consider having a Personality Profile processed for your potential candidates to help ensure you’re hiring the “right” person for the job. Predictive Results and Zero Risk HR are two companies that specialize in this area and report a 96% success rate in helping you make sure you’re hiring the best person for the position. Many people have hired the proverbial “dog that can point that can’t hunt”. I trust you know who those people are: they tell you exactly what you want to hear, but are just not a good fit for your company.

Background checks have become a routine part of the pre-hire process these days. You can reach out to First Advantage, Edge Information Management or National Crime Search as options for this important process.

In our next article in this series, we’ll look at the second part of the “4P” plan — The Post–Offer process and it’s importance to your profitability.