The pay-as-you-go and metering concepts are nothing new. We have seen it in our age old utilities usage and of course in the recent pervasive cloud computing in all layers as X-aaS. But when you apply this to insurance you get interesting breakthrough business model!

Usage-based insurance (UBI), also known as to as pay-how-you-drive or pay-as-you-drive or pay-as-you-go, is a type of auto insurance which allows insurance companies to set the premium based on how safe your driving habits are. UBI is supported by telematics technology which is either pre-installed in the car or by using plug-in device or through mobile applications which provides insurers a range of data like how drivers are braking and accelerating, what is their average speeds, where they are driving, and for how long they’re behind the wheel. The data collected helps insurance companies to closely monitor and assess the risk profile of the driver and to reward safer drivers with discounts on their insurance.

It is key to note while the idea may be a couple of decades old, the recent advancements in technology is making this possible to bring this to the market. Also insurance companies is able to forgo attaching separate telematics device and only require a mobile application to provide for UBI, which is a big booster due to smartphone adoption! By using GPS and other location-tracking features, the app will record and monitor the driving habits without the need to plug anything into your car.

Interesting Facts:

Some of the curated data from Research firms like Gartner, Statista, IHS, etc.

• The global vehicle telematics market has almost doubled between 2015 and 2019, and is estimated to be worth USD 103 billion by 2022
• By 2023, 142 million people worldwide will be subscribed to usage-based auto insurance, in comparison to the estimated 12 million that use it 2019
• According to a recent study, usage-based insurance market is estimated to grow over a staggering USD 200 billion by 2026
• Recent study shows that of the 20 million out of 875 million automotive insurance policies in existence are usage-based insurance and 20% of these insurance are leveraging mobile devices
• Finally – UBI often works out to be around 20-30% cheaper than traditional auto insurance – and it no surprise the adoption is on the rise in the real world!

Types of UBI Policies:

In UBI model, the premium is calculated based on the actual usage of one’s car driving pattern. The theory behind it is that if car is not driven, the chance of getting involved in an accident is also less. Broadly there are 2 types of usage-based insurance policies:

• Pay-per-mile or pay-as-you-drive: Here the premium rates are based solely on the distance you drive during the policy period. If you don’t drive often, the rates will be lower.
• Pay-how-you-drive or behavior-based: Here the premium rates are based on how safe of a driver you are. If driven safely, the rates will be lower than if driven at a high-risk.

Brief summary of UBI programs offered by major insurance companies:

Today, UBI model is gaining traction worldwide with many Insurance companies giving their customers the required control over their auto insurance, where they can earn discounts on their premiums based on their safe driving habits. Not to be left behind, car manufacturers are also wiring into this ecosystem by partnering with insurers and analytics companies to provide UBI solutions.

1. Nationwide SmartRide: This app measures distance driven, hard braking, acceleration, idle time and night-time driving.
2. QBE Insurance Box: This app uses telematics to generate a driver score. The safer an individual drives, the higher their score and the lower their premium.
3. Allstate Drivewise: This app tracks the speed, braking and the time of day you drive to determine the cash back. Drivers get discounts for keeping speed below 80 mph, limiting late night trips, and limiting hard braking.
4. Travelers IntelliDrive: This is a 90-day program that uses a mobile app to track the driving habits. If you drive safely, you could potentially receive a 20% discount, however if you have riskier driving habits this program could actually result in a higher premium.
5. CAA MyPace: This app relies on a telematics device to track the distance driven and then charges drivers per 1,000-kilometre increment.
6. Insurethebox: This app uses unique insights to reach out to consumers who frequently speed in its proactive anti-speeding communications program.
7. State Farm Drive Safe & Save: This app measures driver behaviors like acceleration, braking, cornering, speed and distracted driving. Safe drivers can earn up to 30% in savings.

Conclusion:

To summarize, Usage-based insurance benefits both customer and the insurance company, since it acts as an incentive to adopt safer driving practices. Also, in general, people who drive less and have safe driving habits tend to get into fewer accidents, resulting in fewer claims. The goal of usage-based coverage is to reward you for your good driving behavior with a reduced rate!

If you would like to know more about these solutions, please drop a line to sreeni@nousinfo.com

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In simple terms, Artificial Intelligence (AI) is a set of computerized tools which have been designed to achieve business objectives. AI can help automate labor intensive processes, leading to increased efficiency, lower costs. Companies are using AI to analyze the data they have on customers to predict their behavior, understand preferences and optimize price and product offerings. 

AI has helped in transforming large companies and industries by identifying new avenues of growth and profitability. Being an old and highly regulated industry that insurance is, companies are moving away from the manual, paper based processes to adopting modern technologies. AI technology have made great inroads in different sectors of the insurance industry and are lowering costs while increasing efficiency and improving the customer experience. Slowly but surely, the industry is transforming.  

One of the key reason why AI will be crucial is the ever increasing “datafication” of business interactions, private life and public life. AI can be used to effectively understand drivers and trends in the insurance industry. According to Deloitte, AI is helping insurers by predicting risk with greater accuracy, customize products and use enhanced foresight to rapidly deploy new products thus reducing time to market to toe along with market/business agility.  

The European insurance sector is the second in the world, accounting for 31.6% of global insurance premiums, behind Asia-Pacific (32.4%) and ahead of North America (30.8%). France, Germany and the United Kingdom are the largest players on the European market. Consulting firm McKinsey estimates a potential annual revenue of $1.1 trillion, if artificial intelligence is fully applied to the insurance industry. 

According to a recent report by Bain & Company, the EU region is experiencing an insurance boom, as well as significant digital disruptions. Due to the stiff competition from emerging new players, insurance companies are implementing artificial intelligence (AI) powered tools to stay differentiated. Insurers are using advanced analytics, machine learning and other AI-driven tools to elevate the customer experience and also to compete with agile digital newbies. According to a study by PwC, more than 80 percent of insurance CEOs said AI was already a part of their business model or would be within the next three years. 

How are Insurers Adopting AI? 

Here are four major areas where insurers are implement AI to improve customer engagement, combat fraud and streamline business processes. 

• Fraud Detection: 

According to the Association of British Insurers, more than half a million insurance frauds, totaling £1.3 billion, were detected in the UK during 2017, while in the US FBI estimates insurance fraud robs the US insurance industry of a whopping $40 billion a year. Insurers are turning to AI driven predictive analysis and machine-learning tools to identify and flag unusual claims, anomalies, patterns thus potentially helping them to reduce the fraudulent claims to protect the bottomline.

• Customer Profiling & Segmentation: 

By automating and applying cognitive intelligence to their processes, insurance companies are leveraging the benefits of profiling. Insurers can unify and derive insights from their internal and external customer data, and develop a comprehensive picture of their customers, such as their insurance needs, interests and life stages, for more effective targeting. Insurers can segment their audience based on these attributes, and use deep learning to predict the conversion rates. With deeper insight, insurers can recommend the relevant products for each customer segment.    

• Product & Policy Design 

One of the key area insurance companies are using AI is improving their product and policy design. Personalization and providing flexibility in choosing these products is very key where AI powered chat-bots and social media listening play a crucial role in this. By analyzing the massive data collected from different sources, insurers can use machine learning to discover customer trends and interests in real time. These insights are then being used to develop and improve product and policy design. 

Additional innovations with AI/ML under the hood has helped Insurance companies to offer Usage-based insurance (UBI) model which gives customers significant cost benefits. To know more about UBI check out my earlier post – UBI, On-demand insurance is gaining momentum!

• Underwriting & Claims Assessment 

The process of underwriting is often considered as an art based on personal judgment, but AI technologies have entered into this area of insurance, making it a scientific process. Insurers are now using advanced analytics and machine learning, as well as additional sources such as satellites and the IoT devices, to get a more holistic view. Telematic devices, a wearable technology for auto insurance brings significant benefits by reducing the premium and risk exposure thus being a win-win formula for both Insured and Insurer.      

Insurance firms using image processing AI to analyze the extent of the damaged vehicle, which helps them to generate a list of repairable and replaceable parts that were damaged in the accident. Within a few minutes, the assessment and the cost are given to the customer, which they can either accept or reject. If the assessment gets accepted, the payment is made within couple of hours directly to the customer’s bank account. Which also means happy customers thus leading to stickiness which is essential in an industry where customer attrition is significant!

Conclusion: 

From fraud detection to underwriting, AI technologies are re-imagining every aspect of insurance industry. By reducing the risks and streamlining processes, it’s helping companies increase efficiency and deliver more personalized products and services. While some insurance companies have started implementing AI, there still remains many companies which are yet to find the right use cases for them. To leap from AI mystery to mastery, practitioners need to bridge the gap in understanding the technology’s inner workings and its business value proposition. 

#AI #ML #Insurance #Insurtech #DigitalDisruption #ImageProcessing #DeepLearning #UserExperience #FraudDetection #ConversationalAI #CustomerProfiling # #CognitiveIntelligence #NLP #RPA #ProductInnovation

#Strategy #Management #Consulting #Transformation #Technology #Outsourcing #CreativeDisruptions #EternalQuest #FindingTruth