InsurTech the game changer for motor insurance

Telematics – The game changer

for Motor Insurance

Matteo CarbonePrincipal, Bain

Founder and responsible of the Connencted Insurance Observatory

I founded a think thank on telematics, connected insurance and innovation

Matteo Carbone, 28 April 2016

Black-box

More than 4 Millions of insurance black boxes

fitted in the cars +4

Penetration

Telematics represent 16% of the auto insurance contracts sold and renewed at Q4 '15

16%

Best practice

One of the main Italian insurance Groups reached a

penetration greater than 40% on his auto insurance

portfolio

>40%

Source: Bain estimations based on "Observatory on telematics, connected insurance & innovation" data

Insurers

26 Insurers are offering a motor third part liability cover telematics based on the Italian market

26

Car insurance telematics is mainstream in Italy

65%NOW!

65% of the Insurers at the Connected Insurance Observatory have already seen a material impact of telematics on the Italian auto insurance market


0

5

10

15

20%

Dec 13 Mar 14 Jun 14 Sep 14 Dec 14 Mar 15 Jun 15 Sep 15 Dec 15

Telematics penetration on Motor third party liability contracts renewed and sold in the period

Source: Bain elaboration on "Clausole sulla Black-Box: trend temporali e canali di selezione/controllo dei rischi", Marco Cosconati. Observatory on telematics connected insurance & innovation

Insurance telematics is growing

Note: Cars personal line (not included motorcycles, boats, trucks and commercial lines), representing 70% of the MTPL contracts


6 players with

a penetration

>10%

10 players with

a penetration

>10%


Telematics penetration is correlated to the level of MTPL premiums


Telematics penetration by district – Q4 2015

Average district MTPL premiums

Telematics

penetration


<€400 51%

€400-€500 21%

€500-€600 13%

€600-€900 13%

>€900 3%

Total 100%

Telematics is not only for the highest premiums



Market breakdown by MTPL premium levelTelematics

penetration

16%

26%

22%

18%

16%

13%


The client perspectiveILLUSTRATIVE

Source: Observatory on telematics, connected insurance & innovation

MTPL +theft (discounted) + black box MTPL (discounted) + black box

When the increase of value is positive and material, there is an effective use case for the client and a selling speech for the distributor


Why motor insurance telematics?“I am the Career Genie. I grant 3 wishes that help people along with their jobs.”

“For my first wish, I would like safe drivers to buy my Motor insurance product”

Source: From an Andrew Dart's article originally appeared in the Asia Insurance Review, September 2014 editionImage: Courtesy from cliparts.co

"Genie, I'm an Insurance CEO"

“It’s done, now you have the black box”


Average

Traditional Black box

Risky clusters

Traditional

Black box

The insurer perspective: benefits on the insurance bottom line

Source: Bain Experiences

Claims frequency




“OK Genie, for my next wish, I want you to reduce claims costs and fraud – make my motor line of business really profitable”




“Your wish is granted, your claims handlers will receives the telematics data real time”


The insurer perspective: benefits on the insurance bottom line



Saving acheivedcontroling the

claims value chain>10%

Claim costreduction full

potential>25%



“OK Genie, for my next wish, I want you to reduce claims costs and fraud – make my motor line of business really profitable”

“OK Genie, for my last wish, I want to find a way charge more premium for dangerous drivers before they have an accident”


Leave-in telematics: a better way to manage the insurance business



“Your wish is granted, your claims handlers will receives the telematics data real time”

“Your wish is my command, you have a behavioral-based tariff”


OUTSOURCING

POSITIVE

IMPACT OF

TELEMATICS

ON BOTTOM

LINE

• Ability of box to auto-select risks and influence behaviors

• Efficiency of information usage in the claims handling process

• Usage of TSPs allowed to:- achieve relevant quick wins with

limited investments and limited impact on the system

- have direct access to innovation

• Effectiveness of the commercial act which is maximized by:- Visual effect of the reach of the RCA

discount

- Explicit cost paid by the client (mix of rate, services and assistance premiums)

• Remuneration to the intermediaries

The best practices build the business case on the value sharing both with the clients andthe intermediaries

Traditionallifetimevalue

Benefits forinsurance

bottom line

Services & assistance

rate

Customerdiscount

TSP

Lifetimevalue

telematics

CompanyLTV

Telematics business case

1

12

3

5

2

3 5

4

4

ILLUSTRATIVE

IntermediaryINTERMEDIARY

COMMITMENT



Frequency of interaction

Source: Bain/Research Now Global Insurance Customer Centricity Survey 2013

2

ILLUSTRATIVE

Lifetimevalue

telematics


Benefits forinsurance

bottom line


rate

Customerdiscount

TSP

Lifetimevalue

telematics

CompanyLTV

Telematics business caseInteraction & NPS


Frequency of interactionMotor insurance services benchmarking

2

Weather alert

based on geo-

localization

5

Antitheft service if

the box registers a

different-than-

usual driving style

3

"Live" concierge

supporting

navigation

1

Alert if the vehicle exits a

"safe area" (or enters an

"unsafe area") of the city,

defined by the client (e.g.

parental control options)

4

Highway/ parking

area tolling

6

While driving

In case of crash

When parked

Road or

medical

assistance via

dedicated

button

7

Simplified claim

notification,

including

automatic form

fill-in based on

telematics data

8

Damages Photo

Claims feature

Claim

certification

at client's

disposal

Automatic

assistance to

the client on

the premises in

case of severe

accident9

10

11

Client assistance and

personalized case

management in case of crash

Parking

localization

Street

sweeping

alerts

Alert if the car

is hit when

parked

Antitheft service if

the box is removed/

uninstalled

Alert in case the

vehicle is moved when

the engine is off (e.g.

tow-away)

14

15

16

1312

Stolen

vehicle

recovery

17


Alert in case

speed limits are

exceeded

2


Basic black-box PAYD PHYD0

20

40

60

80

100%10

Premium adjustment

17 9

At renewalAt renewal

Premium adjustment

Tariff benchmarking – March '16 Number of products


Telematics is not (only) Usage Based Insurance

Market offer evolutionNumber of products

Flat

discount


Why risk-based pricing?

Premium adjustment based on the behaviors, with a mechanism understandable and communicable

Risk-based pricing to offer acompetitive renewal rate to the low risk client, in order to retain them and improve the technical profitability of the auto insurance telematics portfolio

To make clients

less risky

To make clients

less risky

To retain

low risk clients

To retain

low risk clients

• How to engage the client?

• Is a discount on the insurance rate at renewal enough?

• Other reward could be used?

• Which variables are really effective to identify the low risk clients?

• With the discount diffusion on the low risk clients, how to manage the technical equilibrium of the part of the portfolio without telematics?

Source: Observatory on telematics, connected insurance & innovationMatteo Carbone, 28 April 2016

To introduce new pay-

per-use proposition

To introduce new pay-

per-use proposition

• Is this what the consumer want?

• Who is the target client?

• Which is the correct distribution channel to distribute it?

New value propositions based on innovative (and fair) model with variable payments along the year based on the actual personal level of risk

The insurer can keep more value with use cases based on a broad suite of services and rewards

Economics telematics to be


Crossselling

Discounts/cash back to the client

Fee for ecosystemof partners

Fee for the intermediary

Lifetimevalue

telematics

LTV for the Company

Benefits on the

insurancebottom line


fees


The insurance usage of the telematics technology is far to the maturity


The lack of a clear strategy limit the achievement of the full potential of the telematics

Costs

Data management

complexity

Privacy

Lack of a clearstrategy

Barriers to the

telematics development

11%

34%

22%

34%



Telematics

strategy

Value

proposition

What strategic goal to achieve by introducing

connected insurance?

How to position the product within the current

product offer? What target client to reach?

Strategy first!

Hardware and

operating

model

•Which user experience at sales point?

•What pricing approach to introduce at underwriting and renewal?

•What services and loyalty systems to include in the product?

•How to leverage the communication channel with client?

• Which data and how structure the data gathering approach?

• What devices and which delivery user experience?

• How to evolve processes to strengthen the effectiveness of the impacted Company

functions? (e.g. claims, actuarial, UW…)

• How to capitalize on the cumulated experiences and activate a path of continuous

improvement?


Matteo [email protected]

+393346220378

@MCins_


InsurTech the game changer for motor insurance

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