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Defining the New Standard… Risk per Mile Driven, Not How Many Miles Are Driven

Why is standardization important? Because when you adopt something universally for the purpose of comparison to others, there needs to be a defined baseline threshold to work from. In order to do that you need to have the same uniform standards across the entire pool. Imagine if FICO scores were calculated differently for different people, they wouldn’t have any true value. But because they are standardized and measure the same factors in the same fashion for all they make sense and provide significant value to institutions that rely on them. FICO thus represents advancement in both processes and technology.

Let’s Start With Consumer Auto Insurance

User Based Insurance, UBI, was adopted several years ago in order for the insurance company to basically get an accurate picture of how many miles drivers really drive. Some type of discount off of the insured’s premium is offered in order to get this data. Why you ask? Because miles driven has generally been the focal point that insurance companies have been able to use as a standard across the entire pool of drivers. Beyond that there are too many variables than can skew the picture and deform the concept of standards. So the premise, basically, is that more miles means more risk, to a great extent. They may also take into account time of day miles are driven as well as some rudimentary measure of driver behavior. For consumer insurance, these UBI programs are purely self-selective opt-in. To a great extent, this means the good drivers opt-in in order to get a policy discount, while the poor drivers have no interest in providing this level of detail. However, shifting the focus to true predictors of futures risk will yield great value to the insurer.

Now Let’s Consider Fleet Insurance

Similar calculation methodologies are used for fleets. However, drivers don’t have the luxury of opting in or out of any type of program the fleet and insurance company may create. The insurance company is mostly concerned with the risk of vehicle performance and overall safety of the fleet as a whole and not primarily with the individual driver. So it becomes incumbent on the company to address driver safety and training improvement programs in order to keep their fleet safe and their premiums lower. In addition to this, the better the driver, the lower the overall cost of operating the fleet is reduced as well. In the fleet world there exist GPS based fleet management systems designed to help fleets optimize their workloads, scheduling, routing, deliveries, and so much more. These systems use similar GPS devices to the ones used in consumer UBI programs. But each provider has their own scoring methodology (if at all). Thus there is no real ‘standard’ that can be applied universally across all pools of drivers across fleets. Therefore it becomes extremely difficult, if at all plausible, for insurance companies to leverage these systems for their purposes of underwriting and risk assessment as a meaningful standard.

Technology Evolution

With the advancement of technology it’s time to help the insurance industry evolve relative to data collection and specific types of data that benefits them and drivers alike. Being able to determine ‘how’ a driver behaves is even more vital that how many miles they drive. If you put it all together with the inclusion of contextual information, insurance can get a very accurate picture of potential risk associated with a particular driver or an overall fleet. Fleets can get much more accurate insights into which drivers drive well, and which ones expose them to the greatest amount of potential risk. Therefore, fleets can implement very specific driver improvement training programs and measure the trends accordingly. Software can help mine the specific and unique data related to driver behavior and risk and be applied to a predictive analytics model that can help define, shape, and improve potential future outcomes. Video systems are tremendous for capturing actual data at the time of an accident. They are the key to evidentiary proof as to what really happens, providing significant value in the area of claims settlement and accident exoneration. In most cases video solutions can help mitigate ‘claims’ reduction up to 40%. Simply put, that means reducing the payout because the video proved that the driver wasn’t at fault. However, driver behavior software can assess how drivers perform and hopefully mitigate the ‘accidents’ which are the cause of the related claims and costs. The challenge with video solutions has always been the extensive human involvement (and cost) required to review video clips and determine the identification of real risk and associated driver intervention strategies.) This is an expensive endeavor when you consider that only a very small portion of overall driving is actually evaluated. These solutions focus on the worst behaviors by the worst drivers, missing the opportunity for driving risk scoring across all drivers based on an evaluation of all driving behavior.

In Conclusion

Advanced driver behavior and risk assessment software provides many benefits not being realized today, by insurance companies, fleet management / telematics companies, and fleets alike –

  • Standardized and uniform report across fleet management systems
  • Accounts for actual driving performance and not just miles driven
  • Helps create the valuable data needed to create a true predictive analytics model
  • Adds value to implementing driver training and improvement programs
  • Perfect companion to video telematics solutions providing more efficient identification of risk
  • Fraction of the monthly cost compared to video managed service programs