Risk Assessment & Determine Policy Premiums using Telematics
The Insurance laws — governing the practice of underwriting and claims under the insurance sector
1) Utmost good faith — Uberrimae Fidei
2) Law of Indemnity and its corollaries — Subrogation and Contribution
3) Insurable interest
4) Proximate causes
The above laws are best in nature to control fraudulent claims and willful misrepresentation. Even though such laws are existing there are a number of fraudulent cases reported by this sector and it is increasing day by day. Prevailing these fraudulent cases, ineffective and incompetent methods lead to the insolvency of an insurance company.
For better accuracy –Insurance companies can adopt any or all of the following:
1) Underwriters should be capable enough to anticipate the risk and associate perils and thereby prudent methods to be involved for premium calculations
2) Can use Geocode for immovable properties like building and sensors like equipment to the carriers especially in terms of marine cargo line of Business
3) 360-degree view of the risk
4) Geospatial analytics simplification / visualization
5) Fit-for-purpose processing capabilities
6) Future-proofing emerging data sets
Summarizing above pro-activeness and reactiveness: Pro-activeness includes technologies and best practices to access the risk and to avoid the bad claims, Reactiveness is a sort of analytics and post mortem of the data keyed in
Telematics — a proactive measure to access the risk and applying appropriate Bonus/Maluses:-
According to the World Insurance Report 2018 –Property & Casualty insurers are using telematics and smart home devices to improve customer retention. Globally, P&C insurance firms are piloting (73.3%) or deploying (50%) telematics and smart home ecosystem devices, according to the World Insurance Report 2018.
It is very imperative to keep in mind that insurer /policyholder is not willing to spend a penny more than what they used — Insured is very keen to have a scheme /insurance product constructed in a way that they can pay usage-based insurance charges. We can have a simple illustration below.
Scenario:-Based on the past claim history or law of average on a particular line of business -rate was derived to calculate the premium, such premium will be calculated upfront for a year, but the subject matter for insurance is not exposed to perils or any kind of that for around 5 months (not in a single laid off period, an accumulated period of rest throughout a year) -for example, Motor or Yacht.
Case 1- Premium calculated even for the Subject matter of insurance for the unexposed to risk
Case 2 — Premium calculated only for the period in which the subject matter of insurance exposed to the risk
No wonder Case 2 will attract quite a lot of insurance buyers, as it is not wasting the insured’s money, but there are some practical challenges in terms of how to understand and accept that the insured is right in his statement?
Telematics to a greater extent will resolve these challenges. The insurance industry needs a practice of implementing telematics, nowadays many car manufacturers are equipped with a GPRS system to track the devices, vehicle tracking details, and other specific details like consumption, driving speed, etc could be the kind of data possible to capture. Telematics usages in the motor LOB enable the insured to pay the insurance amount as you drive or pay the insurance amount how you drive. An array of data captured can be stored for any instant analytics and decision making algorithm to derive the best rate or more accuracy in terms of accessing the risk for vehicle insurance. Telematics not only used to access and rate the risk, but it is also used to track the stolen vehicle –which will drastically reduce the claim settlement ration in this line of business
Today, telematics is used in a wide range of cargo operators to find the efficiency of the voyages or trips, consumption of the fuel, virtual diagnosis of the vehicle with immediate assistance to ensure the reduction in terms of consequential losses
Telematics into health insurance now improves a lot on helping the data with external peripherals also nation based centralized system to have an accurate premium amount without undergoing massive scrutinization and checkups –which in turn save time and cost in line with
Other examples like,
Fire alarm system, CCTV footages, and Burglar alarm system — Data from these streams will also help insurance underwriters to come up with a more accurate rate and effective decision to accept or reject the claim arising out from an event insured under the policy contract.
1.Black box solutions:- Devices installed in vehicles, this is considered as costly solution as it requires professional for installation and troubleshooting, Insure the Box is an example –which is popular in the UK
2.Onboard diagnostics dongles (OBD):- OBD is a self-installation and it is very easy to use and lightweight as well –these technologies can be used in a personal line of business, there are high likely chances that customer/user can operate themselves to off while on riding
3.Original Equipment Manufacturers (OEM)- Devices will be installed in the car by the manufacturer itself, this option provides the least chances of fraud or manipulation. Thus this is a most reliable option, Car manufactured by Toyota is having this option inbuilt
4.Smartphones:- App /link providing connectivity to data streamed from the vehicle directly. More advantageous still this area is under more research and development considering the security of the data and other network breaches
Advantages of using Telematics in the Insurance industry
• Improved product pricing
• Increased customer retention
• Proactive customer support
• Reduction in claim settlements
• Helps to reduce Frauds
Few Rating factors generated by telematics in the field of Motor specific, data derived from the factors can be used to score the driver’s driving score and the same can be used for pricing as well
- Lane driving
- Road usage
- Time of driving
- Day of week
- Hard breaking
The insurance industry should always be data-centric. The introduction of Telematics and usage of this technological advancement in this industry will predict the accuracy and stop the fraudulent claims in an efficient manner.
Author: Shiju Viswanthampi