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Telematics, Big Data in Car Policies

Once upon a time, an insurance COO was walking along a beach, deep in thought. His CEO had just asked him to increase the motor business. The COO was in a sweat, knowing that he could quickly increase sales by dropping premium rates and excesses, but that claims would also follow. The loss ratio was already 103 – a marketing push like that would certainly throw them further over the edge! On he walked.

As he strolled, deep in thought, he came across a strange glowing bottle, rolling back and forth in the surf as waves gently lapped on the beach. He picked up the bottle and marveled at its exquisite beauty, yet simple design. Wondering what on earth could be inside such a work of art, he pulled off the cap. Suddenly, purple smoke erupted from the opening, which gradually took the form of a smiling genie.

“Who the heck are you?” the stunned COO asked.

“I am the career genie. I grant three wishes that help people along with their jobs,” the genie replied.

“OK,” the COO thought, “let’s test this guy out.” He said, “Genie, for my first wish, I would like safe drivers to buy my motor insurance product.”

The genie crossed his arms and blinked. “It’s done,” he said with a smile. “Safe drivers will actively choose your insurance product over those of your competitors.”

“Amazing!” the COO thought. “OK, genie, for my next wish, I want to find a way to charge more premium for dangerous drivers before they have an accident.”

Again, the genie crossed his arms and blinked. “Your wish is my command. Poor drivers will automatically get smaller discounts. You will know how well your policy holders drive as they drive. In fact, you will be able to coach them to be better drivers as they go. Bad drivers won’t like the net premium you charge and will move to your competitors.”

“Awesome!!” the COO thought. “OK, genie, for my last wish, I want you to reduce claims and fraud — make my motor line of business really profitable.” Once again, the genie crossed his arms and blinked. “Your wish is granted. Claims will drop by at least 20%, and fraudsters will find my magic accident reconstruction technology difficult to overcome and will move to easier pickings with your competitors.”

The insurance COO was dumbfounded. He stammered: “Oh great career genie, what is your name?” The genie replied, “Some know me as UBI the Amazing; others know me as Telematics the Fantastic. I am a magical creature who simply likes to help mortals such as you to find better ways to do business. I hope your wishes work out for you.”

In a flash, the genie disappeared, and the COO was left alone, with his loss ratio sitting at 80, his customer renewal rate at 96% and his customer satisfaction going through the roof. Happily, he headed back to the office, ready to recommend a brisk beach walk to all the other senior executives.

Yes, this story is a fiction, but the results are very real.

Usage-based insurance (UBI) is fast becoming a mainstream game-changing offering for general insurers in the U.S., Europe and elsewhere directly because of the outstanding results it delivers for insurers and customers.

The first truly successful UBI program was Progressive in the U.S. with its patented Snapshot technology that was introduced in 2010. As of the end of 2013, the program has achieved more than US$1.5 billion in annual premiums, with nearly 35% of motor customers having signed up.

Customers are given discounts of as much as 30% by opting into the program. Snapshot works through a device linked to the vehicle’s On Board Diagnostic Interface (OBDI), which captures the distance driven, braking force and the time of journey and transmits the journey data back to the insurer, enabling the calculation of premium discount. Progressive continues to enhance Snapshot and is currently planning to add GPS location data.

A number of other large U.S. P&C insurers have become fast followers, most notably Allstate with Drivewise, State Farm with Drive Safe and Save, plus another 10 carriers with similar programs.

In Europe, some legislation has stepped in to help drive UBI adoption. In the past, some premium rating factors discriminated based on gender, with young males paying more premium than young females.

This practice is now banned under EU regulations and has spurred one UBI program called “Drive like a girl,” which combines a clever social media pitch to promote safe driving habits in young drivers while premium discounts are calculated in a gender-neutral fashion, based purely on how the insured drives.

A recent study shows UBI programs in the UK, Ireland, France, Germany, Spain, Italy, Belgium, Netherlands, Denmark, Finland and Sweden involving considerably more than 50 insurers. It also estimates the global policy count to be more than 5 million as of mid-2013.

Here in Asia, I am aware of established UBI programs in Japan, China and Australia.

The UBI genie is out of the bottle, and more and more markets are catching on. The value proposition is really game-changing:

• Safe drivers will tend to opt in to UBI programs as they believe they will get a better deal and be rewarded for their superior driving skills;
• Poor drivers will migrate away simply based on price, if they can get a cheaper base deal;
• Overall, the UBI approach appeals to people’s common sense – you drive less, you pay less; you drive more, you pay more – you pay for what you use;
• Driver behavior/style is monitored, and, where UBI provides feed-back, drivers tend to drive more safely;
• UBI programs are statistically proven to reduce claims, and in some instances have achieved 30% reductions – this has the biggest impact on insurers’ bottom lines where typically motor makes up 65% of the portfolio and claims make up 70% of expenses;
• Claims are much more difficult to stage, because the UBI device records much of the vehicle’s performance data and geo-location data. When UBI is coupled with dashcams, accidents are easy to reconstruct, thereby chasing away fraudsters to competitors;
• Because UBI provides rich data and customer engagement, claims can be settled faster, thereby improving customer satisfaction; and
• Because the pricing is dynamic based on how you drive, it becomes more difficult for customers to do an apples-to-apples comparison between different insurance providers policies when shopping around.

In the past, you bought your policy, tucked the schedule in the glove compartment and forgot about it until you had a claim, at which time your insurer became your adversary. With the UBI model, your insurer is right there in the vehicle with you on every journey, telling you when you brake too hard, alerting you when you accelerate too quickly, letting you know when you are swerving and swapping lanes too much. Your insurer is engaging with you – partnering with you to avoid accidents, and to be a better, more efficient driver.

This is a perfect platform for introducing value-added services. The UBI program is serving up a great data set from which the insurer can potentially craft personalized services with relevance to each individual driver.

Ideally, the value created will entice the insured to share even more data from which further services can be fashioned. With UBI customers focused on value, it becomes much more difficult for other insurers to compete simply on price. Policy retention rates and customer satisfaction will naturally increase.

It is clear that insurers in the region are starting to look at UBI. The rewards are immense for those that adopt this game-changing approach. Do not wait to stumble over your own genie on the beach. Do your career and your customers a big favor by checking out this new approach to motor insurance. After all, if you don’t, your competitors certainly will.

Video Alarms Go Mainstream

Video is now the most popular “option” on alarm systems, a fundamental change for the alarm business. Viewing cameras on a smartphone, known as “self-surveillance,” became a standard feature for all but the most basic burglar alarms.  Now, video is actually being delivered to the central station during an alarm event.  This is the next logical step in security, letting the central station operator verify the alarm and improve police response to deliver greater security.

Instead of just viewing a video of what actually caused the alarms, the central station operator can use the cameras to attempt to see why there was an alarm.  In 2004, when the industry standard was created, video verification was reserved for specialized applications.  Equipment was expensive and cumbersome to monitor.  Nearly a decade later, technology has changed, and video verification is moving mainstream.

IP cameras and specialized camera/sensor devices are now well under $100 and easy to install.  The last piece of the puzzle to fall into place was driving down central station monitoring costs.  Over the past couple of years, central stations have developed affordable video verification processes that fit the mainstream alarm business model.  These central station processes can be applied to a broad range of hardware, from IP cameras equipped with analytics to specialized sensor/cameras designed specifically for video verification.  Third party central stations are offering dealers video verification for as little as $5 over what they charge to monitor a traditional alarm.

Benefits

Contrary to common perception, video verification’s value is not primarily to reduce false alarms. From the property owner’s perspective, false-alarm reduction is more a side effect that “reduces a negative” rather than creating value with additional security.  Consumers looking to purchase “security” want the best security they can afford, and they typically equate this with fast police response.  Video verification delivers faster police response.  Because of historical issues, traditional alarms typically receive a “Priority 3” response from law enforcement.  In contrast, video verified alarms typically receive a “Priority 1” response and are treated as “in progress” calls by responding officers.  The difference in response times between a 1 and 3 is significant.   In Fairfax County, the affluent area around Washington, DC, a video-verified alarm receives response more than 12 minutes faster than a traditional alarm.  From a property owner’s perspective, a lot can happen in 12 minutes in a commercial burglary or home invasion.

Jurisdiction Video Verified Traditional Alarm Response Differential
Boston, MA 7:38 21:00 13:22
Charlotte, NC 5:10 13:30 8:20
Chula Vista, CA 5:05 19:18 14:13
Watertown, MA 4:00 23:00 19:00
Fairfax County, VA 6:00 18:02 12:02
Salinas, CA 2:54 39:25 36:29
Amarillo, TX 10:06 19:24 9:18
Barrie, ON 8:02 16:02 8:00

With reductions in municipal budgets affecting many jurisdictions across the US and Canada, law enforcement has downgraded response to non-verified alarms in an effort to save money.  Sometimes this means a “broadcast and file” policy, where the alarm is broadcast over the police radio and officers can respond if they have nothing more important to do.  Sometimes, police refuse to respond to non-verified alarms at all.  But these same financially stressed jurisdictions all continue to respond to video verified alarms.

The benefits of video verification extend beyond priority response.  A well-publicized court case recently sent shock waves through the alarm business when an industry icon was forced to pay a multimillion-dollar judgment to a woman who was assaulted after she entered her home.  The alarm system had worked.  The motion detector triggered at 10:00 AM, and the central station, after failing to reach the owner, dispatched the police. They found nothing amiss.   Throughout the day, the motion sensor sent in four additional alarms, but the central station was unable to reach the owner on these, as well.  After this rash of alarms, police told the central station that they would stop responding unless the keyholder met them at the home.  That evening, when the owner returned home after work, she was assaulted by an intruder who had been inside her home throughout the day.  This horrific incident simply would not have happened if the central station had been able to see the intruder who triggered the alarms.  Video verification means greater security because the central station operator becomes a remote eyewitness to the alarm event.

Monitoring

VideoWhen the industry standard for video verification was created in 2004, self-surveillance on smartphones was not even on the radar. Apple’s first iPhone did not even hit the market until 2007.  The early video verification process required the central station operator to manually access a camera/DVR when an alarm triggered and download the video for review.  This often required working with static IP addresses, firewalls and video management systems that were isolated from the central station automation software that ran the business.   All of this required specialized operators who were trained to manage video and operate multiple video systems remotely.  Technology changed all this.  Video verification is now done by the typical operator in the central station.  Central station automation like MAStermind, Bold, Dice, MicroKey, SIMS, and others have integrated video verification into their standard alarm processes.  In addition, there are third party solutions like I-View Now that enable any central station to do video verification without changing their automation software.  These central station solutions work with a wide variety of hardware, from IP cameras to specialized camera/sensors devices designed specifically for video verification.  Just as smartphones and mobile apps changed the lives of consumers, the central station solutions for video verification have made monitoring video alarms simple and inexpensive for the typical alarm dealer.

Market Penetration

Self-surveillance and home automation have created a paradigm shift in the alarm business affecting even the most basic alarm offering.  Declining video hardware and monitoring costs mean that video verification now fits the competitive business model of $99 down and a multi-year contract that finances the hardware/installation.  Commercial applications have been the first to embrace video verification.  The newest generations of hardware and monitoring services have finally reached the pricing level necessary to move into the competitive residential market.

Partners

Grand Prairie PoliceThe alarm business is built upon a partnership with insurance industry and law enforcement.  The insurers encourage their policy holders to install alarm systems to reduce claims and prevent loss.  The alarm industry depends upon law enforcement to respond to their alarms and protect their customers in the event of a burglary or intrusion.  Video verification is already strengthening this partnership. The insurance industry has taken notice of priority response and what it means to them in terms of reduced losses.  In January 2013, Pharmacists Mutual Insurance published the results of a five-year study that linked arrest rates and losses experienced to police response times.  Other major insurance companies like Hanover, CNA, Allstate, and State Farm are working on updating policies to encourage their policy holders to move to video verification.  While this is a slow process, the insurance industry has begun to turn the rudder, and the ship is in motion.

In the past decade, video technology has fundamentally changed law enforcement with cameras in patrol cars and on highways and even portable cameras worn by officers.  Law enforcement depends upon video, and video verified alarms are another step in this direction.  While law enforcement understands video verification means fewer false alarms, they also know that video verified alarms mean more arrests.   Officers have always been motivated to “catch the bad guys,” and video verification helps make this happen.

As Chief Steve Dye of Grand Prairie, TX, explained to the IACP committee on Community Policing in a recent presentation, “From our perspective, we see no difference between an eyewitness calling to report a crime and a central station operator calling to report a crime they have seen on video.  In fact, the fact that a video exists of the actual event could mean the central station call could even be considered stronger.”  Chief Dye is promoting priority response to encourage his citizens to install video verified alarms to help him in the battle against property crime.  It is making a difference. Currently, the response time for a video verified alarm in Grand Prairie, TX is less than two minutes.