The right approach to telematics and usage-based auto insurance continues to be debated in the personal lines realm, but the value proposition—and the business opportunity—is clear for commercial fleet insurance. By combining telematics, behavioral metrics, driver risk scoring, contextual data and video systems, insurers can build the next generation of insurance solutions for commercial fleets.
Fleet Insurers have been collecting the same old data, a five-year claims history and reported miles, to determine risk and renewal strategies. There is a strong desire to elevate the renewal process with more accurate means of underwriting risk assessment. Forward-looking Fleet Insurers need to assess their current business models in light of a more sophisticated risk-model emerging through the use of analytics applied to telematics-generated data.
Building a Case for UBI in Commercial Lines
Telematics based services are rapidly expanding beyond standard operational services to also cover more behavioral aspects. This enables fleets and insurance companies to gain a deeper insight into both very tangible and less tangible areas that have a significant price tag associated.
With a strong correlating driver risk identification system in place, fleets and insurance companies can gain valuable insight that will assist in accurate policy pricing, targeted coaching of poor driving behaviors and identification of employee behaviors that have a negative impact.
A Complete Picture of the Fleet Performance
The driver risk score should ideally be combined with other contextual data related to native vehicle risk, typical vehicle routes, weather and other environmental conditions. With all of those parameters known, the insurance company will have a complete picture of the fleet performance enabling a very accurate policy pricing that goes well beyond traditional 5-year loss history as the main indicator.
The contextual data elements are very difficult to modify by the fleet. They can buy modern and safer vehicles, and they can optimize the routes to minimize high risk locations, but those come at an operational cost. However, once the fleet gains insight into the individual drivers detailed behavior, they have an opportunity to instigate targeted coaching for drivers that have the highest risk. Because the monitoring systems are so accurate, the efficacy of the coaching can easily be monitored and appropriate HR actions taken if negative behavior is persistent. Since the at-fault accidents are occurring within a small group of drivers, and those drivers can be identified, the fleet can actively drive towards a better overall fleet score and hence lower insurance premiums.
New indicators also suggest that drivers identified with erratic driving behavior will have a tendency to carry that erratic behavior into other work related behaviors, so effectively the fleet management will have an additional tool for employee performance which leads to improved customer satisfaction and more efficient business operations.
A New Era for UBI
The driver behavior data is collected from standard telematics devices that are already installed or are installed specifically for this purpose. The additional cost to collect the driver behavior data and GPS for contextual data is a small increment over standard GPS tracking solutions; however, the potential gain is significant. Currently, there is some disparity in how data is collected; however, there are industry-wide efforts ongoing that will standardize the raw data collection used for scoring. Once uniform data collection is enabled, most existing telematics devices can be easily upgraded to provide scoreable data. One could argue that this enablement will kick-start the migration to commercial UBI. The barrier to entry is lower for commercial lines than personal lines, and the ongoing operational costs will be lower due to the data sharing with traditional telematics systems.
The combined driver behavior data and contextual data effectively bring a new era to UBI. Traditional UBI is predominately about how many miles a vehicle drives and very little about how those miles are driven. With better risk insight the program can appropriately be called Risk Based Insurance—RBI. We will know how many miles were driven and we know which risk each of those miles carried. Hence the underwriting accuracy vastly improves.
(Related: Does Smart Phone-Based UBI Adequately Assess Driver Risk?)
When fleets are equipped with coaching tools that can accurately address driver deficiencies, they are able to further influence the inherent risk of operating a fleet of vehicles.
The early adopters among the insurance companies stand to gain a significant underwriting advantage and it is entirely possibly that we will see new programs closer aligned with personal lines pay-as-you-drive programs, but specifically targeted for fleets where the price elasticity would be driven more by actual present risk, rather than by miles. There is a strong demand for more granular knowledge prior to the underwriting phase. If fleets had a tool to improve driver behavior, and could document it through a reliable real-time score, insurance companies would reward that.
Fleets carrying passengers have traditionally been leaning towards video based systems because they are very efficient in accident reconstruction and claims settlement. Those video systems have also been used for driver behavior monitoring. In general they work quite well, but are by nature event-based systems and really only target the top 10 percent of poor drivers. The rest of the drivers ‘fly under the radar.’ A more elegant system would be one that combines the best of the two worlds: accurate driver scoring of the entire population and continuous video recording for liability purposes. In recent years, advanced vehicle motion analytics effortlessly pinpoint the most critical clips without ever looking at a single video clip. There are a plethora of low-cost continuous video recorders brought to the market. Combine those with a telematics solution and you have a low cost solution with all the benefits.
With new analytics solutions, more commercial lines insurance companies can take advantage of installed and future telematics devices to collect a comprehensive data set driving towards a full risk-supported UBI program with minimum incremental cost.