Telematics - Casualty Actuarial Society

Marty Epstein, FCAS, MFE
Global Auto Actuary, AIG
Casualty Actuaries of Greater New York (CAGNY)
December 6th, 2012
Broadest definition: the technology of
collecting, sending, receiving and/or storing
information via telecommunication devices
The three most popular Telematics products
in use: in vehicle navigation systems, stolen
vehicle recovery systems and fleet
management systems
A distant 4th most popular product is what
current discussion focuses on most: Pay How
You Drive, Pay As You Drive, or User Based
Telematics products are most common in
countries with high rates of theft (Italy, Brazil,
South Africa) or in expensive, sophisticated
markets (UK, Western Europe, United States)
Penetration of Telematics products is globally
very low but expected to grow gradually until
product is commonplace (10-20 year
Too expensive for most markets
 Hardware is pricy, though becoming cheaper
 Data plans must be purchased for each device
Too complicated
 Operationally complex
 Data volumes can be massive, challenging to interpret
 Pricing implementation is a challenge
Intellectual property/patent claims on existing
technologies act as a barrier to entry
 Most insurers are taking a wait and see approach or
investing smaller amounts in pilot projects to test
program viability
Smartphone’s are now being piloted to enhance or replace dedicated
boxes for the collection and transmission of driving data
 Mobile only solution is a fraction of current operational costs with the
advantage of piggybacking on the customers own mobile plan
 Also, the user experience can be dramatically enhanced as context relevant
information can be displayed immediately after completing a trip and a
variety of additional services can be made available
 Mobile phone solutions have their own drawbacks, such as estimating the risk
of the phone owner which may not be the same as the vehicle risk
Some countries have plans for mandating Telematics
 Singapore plans to mandate use Telematics devices to determine fees for
driving on public roads
 Brazil seeks to reduce theft through mandatory Stolen Vehicle Recovery
Risk models that use Telematics data will soon consider the context
of driving events, advancing sophistication
 Current models adopted in the US market that determine price credits from
mileage, braking, accelerating and speed data may be considered crude relative to
their potential accuracy
 Some examples of driving context:
▪ How do you evaluate a drivers risk if she exceeds the speed limit but travels at the average speed of
other drivers on a particular road segment at a particular time? What if she is driving in inclement
▪ Is a driver more risky if you learn that he often brakes midway through a turn rather than before
the turn?
▪ What is the risk difference between a driver who rarely texts while driving and one who frequently
texts while driving? What if the “texter” only does so while the vehicle is not in motion?
Psychological profiles are being mapped to driving data as a way to
understand and explain driving behavior but also to predict
behavior of customers in situations outside of driving
Most common incentive for enrolling in Telematics in the US is the
potential for premium reduction:
 Progressive: “you could save up to 30% extra for your good driving”
 Allstate: “rewards safe drivers with the big savings they truly deserve”
 State Farm: “you have control of how much you save, with the opportunity for
discounts up to 50%”
Additional services are offered by some programs, for example, State
Farm’s In-Drive program (monthly fee based):
 Get help locating your vehicle if stolen
 Vehicle diagnostic reports
 Emergency response notification
 Monitor high-risk drivers in household, such as teen or elderly drivers
Pay as you drive offers a way for low income and uninsured drivers to
acquire insurance
Context specific driver education
Praise for things you did right, guidance for things you could improve
Eco driving (feedback on your CO2 footprint and how to improve)
 eCall (in vehicle emergency service call button)
Planned for the EU in 2015
Claim submission and accident reconstruction
First notice of loss (identify location and time of crash, allow user to attach photos of damage)
Verify facts such as speed prior to impact, location of impact(s), estimate likelihood of
property damage and soft tissue damage; reduces fraud risk
Gameification / social networking
Prizes for “safest driver”
User portals with detailed information on driver behavior
 Targeted driver safety training and alerts for families with inexperienced or
elderly drivers
Insurers will have an opportunity to dramatically
change the interactive experience with their
 What can be learned about your driving behavior will
be used to help predict your behavior in other
situations (subject to user agreements)
 Insurers will have an opportunity to understand their
customers behavior in ways only dreamed of until now
 Human behaviors to be measured such as:
aggression/calmness, focus, consistency, thrill seeking,
avoidance, pacing
Pandora’s box of nearly unlimited, intimate data is
open, whether we like it or not
 Insurers have been loathe to use the stream of data
out of fear of being called “big brother” or seen as
taking advantage of privacy standards
 Technology focused companies are jumping in to
driver safety space with new ideas that have the
power to transform the insurance business
 How will customers make a value judgment as to
whether they should share their data?
 Worst-case scenarios have mostly been speculative so far
Will the addition of Telematics data to loss cost
analysis result in a significant or only marginal lift in
predictive power?
Does the use of Telematics data bring us too close to
individual risk rating? What might be the unintended
Telematics models indicate that many drivers ought
to receive a surcharge rather than a credit for their
riskier than expected driving – US insurers currently
only provide price discounts (no discount for riskier
drivers) -- is this sustainable long-term?

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