Telematics Utilization in Commercial Automobile Insurance
Telematics usage is growing rapidly in the U.S. This is being driven by the positive results being achieved, implementation cost going down and the need for a solution to address the deteriorating commercial automobile results. It is important to understand some of the ways in which telematics will be used in commercial automobile for underwriting, pricing, loss control and claims.
UBI (Usage-Based Insurance) also known as pay-as-you-drive (PAYD) receives a great deal of attention with good reason. A May 2014 Center for Insurance Policy and Research (CIPR) survey of 47 U.S. state and territory insurance departments, showed all but five states having insurers currently offering telematics UBI policies. In 23 states, there were more than five insurance companies active in the telematics UBI market. SMA Research noted that approximately 70% of all automobile insurance carriers are expected to use telematics UBI by 2020. UBI costs are dependent upon the type of vehicle used, measured against time, distance, behavior, and place. At this point, however, the UBI insurance is concentrated in personal automobile insurance and is not receiving the same adoption in commercial automobile insurance.
Telematics is an effective tool in commercial automobile insurance in validating certain rating factors utilized by the Underwriter in pricing the account. Garaging location and radius of vehicle travel are two good examples. These can now be validated using telematics data and provide greater accuracy in pricing. In the absence of telematics, the insurance carriers have limited tools to validate these rating factors.
Telematics captures important usage data like hours driven per day, annual mileage and time of day driven that can be used in underwriting and pricing. Studies have shown that there is a strong correlation between claim and loss costs and mileage driven. One national carrier stated that time of day a vehicle is driven can be twice as predictive as traditional insurance rating variables. The number of hours per day the vehicle is driven can reflect if a vehicle is being driven multiple shifts per day, which increases the accident frequency and severity potential. There are supplemental software applications that many of the telematics providers use that provide road speed limits, road types, traffic density, and weather. This allows insurance companies to calculate miles over speed limit, miles driven off-road, types of roads being driven on and the number of hours driven during high traffic density periods.
Government highway studies have shown that crash patterns follow the general shape of traffic density patterns.
The Insurance Services Offices (ISO) has rating for telematics embedded in the Commercial Lines Manual under Rule 114 Vehicle Telematics Rating. The GeoMetric rating procedure provides a premium discount to certain vehicle types and coverages based on the percentage of time driven in a green zone. A green zone is a set of all locations with lower loss cost bands than the ones of the principle garaging territory. There is a Safety Scoring Rating Procedure in Rule 114 that provides a premium discount to certain vehicle types and coverage based on driving behavior. The safety score is a numbering system that represents the driving behavior risk using qualifying telematics.
Driving behavior identification is an important element of telematics that can provide great value in commercial automobile insurance. It can identify key driving behaviors that include hard braking, rapid acceleration, speeding and hard cornering. These driving behaviors can be used in scoring models to determine risk selection and pricing along with proactive loss control. Pinpointing real-time or near real-time positive and negative driver behaviors lends itself to a more proactive approach in seeking immediate cures to prevent accidents. In fact, there is telematics’ technology available today that will immediately notify the driver of unacceptable driving behaviors. The Insurance Research Council conducted a survey that revealed that more than half of the drivers made changes to how they drive since installing a telematics’ device provided by their insurance company, of those, 36% said they made small changes in their driving and 18% said they have made significant changes. Monitoring driver behavior alone won’t make any changes, but coaching and feedback have shown to make measurable improvements. Some companies are using gamification with telematics to help change driving behaviors. Gamification typically involves drivers competing either head-to-head or in teams against other driver colleagues to see who demonstrates the best driving behaviors.
FMCSA evaluation of the effectiveness of onboard telematics resulted in 37% reduction in the rate of speeding violations per 1,000 miles. From their Large Truck Crash Causation Study, 87% of all crashes where the commercial vehicle was at fault were due to driver errors, with 38% due to driver decision errors (e.g. speeding)
Telematics can also have an important role in the effective handling of auto related claims. In the first notice of loss process, it can provide driving events and driver behaviors immediately after an accident. These include acceleration, hard breaking and steering, direction of travel, date and time, weather details, location of accident, speed and air bag deployment. Immediate proactive communication by the insurance company to the insured can be instrumental in immediately deploying resources to the accident scene if necessary and addressing the insured’s needs. This can mitigate the cost of unnecessary emergency response equipment and high towing and storage charges which ultimately add to the overall cost of a claim. The immediate telematics’ data is quickly moving to more predictive analytics solutions that will provide assistance in identifying potential injury and produce quicker repairs.
Scoring models are commonly used with telematics data but they are wide ranging. They vary from basic models counting events and weighting them to very complex models that combine telematics data with various other data to develop their scoring. Most of the models use some element of the driving behaviors and usage in their modeling. The majority of the scoring models are proprietary and the exact calculations are difficult to determine.
The telematics industry is growing rapidly. What and how telematics data is being used varies by company and is ever changing as the industry grows. Results have shown that telematics can improve risk selection and claim handling, provide proactive loss control and improve overall book results, both in the short term and in the long term.
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