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UBI’s Primary Value Proposition: Data

Embracing the use of data to solve business problems isn’t a new theory for insurers. Cleansing, integrating, and applying analytics to data to identify and solve business problems has been going on for years. However, for auto insurers, the amount and variety of data now available is almost overwhelming.

Take claims. As a cost center, claims performance is at the core of an insurer’s business objectives: to improve loss costs insurers draw from ISO and third-party sources, mobile devices and the vehicle itself. But now these same disparate data sources can impact and inform other functional business areas or books of business, such as usage based insurance (UBI).

In order to justify the business case for UBI, carriers need to go beyond an ROI calculation and prove that the data can solve problems around operational efficiency, customer engagement, new sales channels and value-added services.

How does that work?  By combining data the auto insurer already has at its disposal like policyholder records (payments, claims, etc.) with monitoring data from smartphone apps (like that of TrueMotion) that can accurately identify the driver of the vehicle, and determine precisely how a mobile phone is being used (hand-held calls, hands-free calls, typing/swiping etc.) during the drive.  Once compiled, the data can be normalized to provide accurate risk profiles using driving behavior insights.

Of course, these insights are an actuary’s dream, because it enables them to build models that leverage driving behavior to improve risk calculations and pricing in a transparent, engaging and personalized manner.

But what about operational efficiency?  Well, for one, creating accurate risk models from behavior short-circuits the often laborious underwriting process. Secondly, using data to better understand how to write the risks that are the best match for the insurer’s appetite means fewer workflow issues around claims, collections, etc., further reducing operating costs.

The effect is an insurance model that puts customer needs first.  By having a true handle on risk assessment and pricing, the insurer can offer policyholders competitive discounts as well as offer continuous and real-time feedback to improve their driving. By sharing their knowledge of risks, insurers establish themselves as partners (rather than simply receiving premiums and being the payer in an auto claim).

Transforming the auto-insurance business to price risk more effectively, stress preventative measures and personalize the experience, data is helping build trust and loyalty among their customers. And let’s face it: in our increasingly competitive marketplace, that’s a real asset come renewal time.

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Categories: Usage Based Insurance