Usage-based insurance enables carriers to provide bespoke products priced appropriately for drivers based on multiple factors unique to that driver. This conversation examines the differences between usage-based insurance, as well as pay-as-you-go vs. embedded insurance. We'll discuss the types of technologies insurers use, how information is collected and weigh some of the pros and cons to this type of insurance.
Transcription:
Patti Harman (00:07):
Good morning and welcome to our transformation forum, understanding Usage-based insurance and beyond. I'm Patti Harman, editor in chief of Digital Insurance, and I'll be your host for today. I've been fortunate to cover the insurance industry for the last two decades, and I have a fairly broad understanding of the various aspects of the industry. Joining me today is an industry expert I've had the opportunity to work with many times over the years. Bill Brower is the vice president of industry relations at Solera, a leader in providing vehicle and fleet management software as a service, as well as data and other services to customers around the globe. Bill, do you want to share a little bit more about yourself with our audience?
Bill Brower (00:54):
Absolutely, Patti. Thank you. It's wonderful to be with you again and great to join your audience today. So yes, my name is Bill Brower, and as Patti mentioned, I lead industry relations at Solera working across North America, but also globally as we are operating in over a hundred countries. And so I spent a lot of time helping to tell the Solera's story and to also spend time on strategy, bringing our unique solutions around the world together to create even more opportunity for automation. Just quickly about my background, I've been in the industry for more than 30 years now. Had the great fortune of being able to work for two top insurance companies for a majority of my career, Nationwide Insurance and Liberty Mutual Insurance. And then about seven years ago, eight years ago perhaps I had the opportunity to move from the insurance carrier side to the supplier side where I spent six years with LexisNexis Risk Solutions, managing claims data for that company, and then joined Solera about 17 months ago in this particular role. So again, wonderful to be with you today.
Patti Harman (02:06):
Well, thank you so much. So today we're going to be talking about usage-based insurance, which enables carriers to provide what we would call bespoke products that are priced appropriately for the drivers based on several factors that are unique to that driver. So today we're going to take a look at the differences between usage-based insurance, as well as pay as you go versus embedded insurance. We're also going to discuss some of the different types of technologies that insurers are using and how information is collected and maybe even weigh some of the pros and cons surrounding the usage-based insurance. So let's just start, Bill, with a general overview of what usage-based insurance actually is.
Bill Brower (02:51):
So yes, very good question. And let me just begin by saying, because I do a lot also in the claim space we are really at a tipping point when it comes to how technology and data is used in the insurance space. Traditionally, like I said, I've been in the industry a long time. So growing up many years ago getting insurance early on it was about going to an insurance agent's office and it was a lot of paperwork and questioning me about my driving behavior and that sort of thing. And obviously consumers today, we are more data-driven. We are expecting the Amazon-like experience in everything we do. So usage-based insurance is really just what it sounds like, which is installing a device either. In fact, many of the new automobiles produced today have the telematics capability built into those vehicles. So it's activating that or adding a device into the car or perhaps even adding a device onto the phone, which has also become very popular.
(03:55)
But any one of those methods of bringing technology into the car allows the driver to earn a lower premium. So with Houston's base insurance, it's really about how does bill drive? Is he hard braking, is he speeding or is he driving? Are the metrics suggesting that he's really a safe driver, a good driver? Then he's going to get a lower rate. And it's really rather than going and pulling lots of reports and doing a lot of questioning, it's really just real time house build driving. And so that's usage based insurance. It's become more popular in recent years.
Patti Harman (04:36):
Yes. So can you tell us a little bit, how does it differ from pay as you go insurance then?
Bill Brower (04:44):
Yes, so pay as you go. And I have a lot of contacts that I work with who are really close to this space. So I just want to, full disclosure, my role is I'm familiar with some of these technology. I'm not as close to it as some, but I have worked closely with people who are very much experts in the space and learned a lot over the years with this. But pay as you go is more of a, how many miles are you driving? Not Bill driving, how many miles is he driving? So really where pay as you go became very popular, much more popular was during the covid years. Remember in what 2020 we started with Covid and we people began to work remotely or not leave their home. And then if you recall, there was a lot of pressure on insurance companies we're paying you premiums, but we're not driving.
(05:36)
And so pay as you go became an option. So that Bill could say, you know what, I used to drive 300 miles a week, now I drive 50 miles a week, I can pay based on the mileage and that's pay as you go. The people that I know in the industry that are close to this tell me that pay as you go has really not been growing. Now that we're sort of back to normal times, if you will, in terms of driving behavior. So user-based insurance is the one that tends to be growing faster and that's really just how's Bill driving because he's probably back to driving his normal mileage. So that's kind of the difference. And I think as I look at where I see us going in the future, my thought is usage-based insurance will continue to grow, pay as you go, will probably always have a place but not be a large percent of this space.
Patti Harman (06:28):
You also talk a little bit about embedded insurance and how that differs from the other two types of insurance.
Bill Brower (06:35):
So embedded insurance, I think you're speaking of more of when you buy an automobile and you can purchase auto insurance at the same time.
Patti Harman (06:40):
Yes, you can get these and they tell you your auto insurance rate.
Bill Brower (06:42):
Right? Yes, more and more of OEMs and at Solera we support OEMs and we work closely with OEMs across the globe and more and more OEMs are offering OEM insurance. So you get a vehicle from a certain manufacturer, you can actually buy the insurance from that manufacturer as well. And so if it's built in, then it's something that it's sold at the point of sale of the vehicle, you're buying a new vehicle, would you like to go ahead and bring the insurance into this package so that you have insurance with the car? So that is an option. I don't have a lot of stats in terms of how much that is growing, but that is an option that some of the OEMs have been promoting usually with the finance people at the time that the paperwork's being done on the new car that says, would you like to roll that into the package of buying the car?
Patti Harman (07:43):
Great, thank you. I just wanted to make sure that our audience understood there's several different kinds because there's so much more beyond just traditional insurance. So you've been a proponent of touchless claims and automating the insurance process for years. What are some of the benefits then to usage-based insurance and is there even a downside?
Bill Brower (08:04):
Yes. So usage-based insurance certainly fits nicely with what I talk about often of touchless claims or claims automation. Let me first just sort of level set on what is, because I'm sure the audience might be saying, well Bill, what's a touchless claim? So let me sort of explain that and then I'll get into your question. So with the technology available today, a touchless claim is a claim where if Bill has an accident either the car and that's where the telematics comes in, the car could report the claim. Today that capability exists, the car simply sees the airbags deployed, it triggers a message to the insurance company, maybe even to emergency services. That is possible. When I talk about touchless claims, I'm usually talking about what I think will be the next step, which is builds in an accident. And the phone that he has, we all carry the phones with.
(08:54)
So the phone can identify that, hey, it looks like Bill's been in an accident. And then there'll be a message that says, Bill, have you been in an accident? Are you okay? And then with just simply touching a few screens, no typing, and obviously once they're safe, not driving, but they can touch the screen to say yes, I was in an accident. And one of the things that I do for insurance companies happy to do this for insurers watching today is I do a presentation in the market on how a claim could be touchless for the purpose of the insurance company and the customer. Now the body shop obviously is going to be touching the car, repairing the car, but for the insurance company and the customer, and just in a nutshell what it is is the customer is able to have more like an amazon-like experience where they click a few buttons, data is collected automatically, they don't have to answer a lot of questions.
(09:45)
Data's provided to the insurance company, data's provided to the tow truck if needed for a tow truck. And then the claim is set up and they have had no conversation with anyone but the claim set up, they can even schedule their repair if it's repairable. And again, I have a whole presentation on that, so UBI, how does that tie in? Well, if you do have user-based insurance, then that means your car's connected. That means that your car's already connected. That means that the insurance company already has the ability to get a data feed from you and your car. And again, that could have been, it could be loaded on a mobile device, it could be built in the car. And so you think about how touchless claims and UBI fit together, it just fits like a hand in glove because if the car's connected and bill's had that accident in the car, on the screen, on the car, it says, Hey, are you okay?
(10:42)
Rather than having to look for your phone, click a button and this claim is reported. And maybe if you have an OnStar type of device, perhaps someone comes on the phone directly with you to see if you need emergency assistance. So user-based insurance, where I see this working really well is not only, not only does it help the customer be rated according to how they drive, it also gives 'em peace of mind that if I have a breakdown, if I have an accident, I'm going to be able to get support very quickly. And I think that's the future where we're going.
Patti Harman (11:24):
Makes insurance far more proactive for the policy holders then?
Bill Brower (11:29):
Yes, it does. And something else is that these are interesting times. I really get excited about talking about what's happening these days because like I said, we're at the tipping point. So much is happening. I mean there's unfortunate things happening too. We're seeing more and more insurers scaling back on the people because they've got the losses that have been rising quickly, inflation's been driving that, supply chain issues have been slowing the process of getting a car repaired, a home repaired. And so the insurance industry is saying, wow, I've got to find a way to be more automated. And on top of some of the organizational changes, we're in this time period where there's a lot of baby boomers that are retiring. And so just finding talent is really hard. So you've got that happening and then you've got customers who are saying, I've been accustomed to ordering things, having it delivered to my home, not leaving to go to the shopping mall anymore.
(12:31)
Why can't my insurance be more like that? So I call it the perfect storm because when you bring those factors together, this is a time like none other in my career that not only are the insurance companies motivated to change, the customers are motivated to change. And I also work closely with body shops around the globe. Body shops are looking to change because their process too is multiple steps, multiple touches, and they're trying to find a way to provide better service, faster service, not require every customer to come in for a pre-estimate, but to do more electronically. So to me, user based insurance claims automation and customer expectations all sort of point us in the same direction for automation.
Patti Harman (13:21):
Are you seeing more insurers utilizing this type of insurance then? And do you find that the programs vary maybe from company to company?
Bill Brower (13:31):
Yes, yes. I do see, just like everyone else watching the advertisements, I see more messaging around telematics type applications for consumers. And I think one of the reasons for that is the premiums have been going up pretty rapidly over the last year and a half, two years, and still insurance companies are losing money. And so those rate increases are going to continue. So I think what I'm seeing is that insurance companies are making it available. I think based on the experts that I talk with on a regular basis that are on the front line in this space, I'm told that the insurance companies that have more of a direct line sales process, the direct writers, they're seeing higher use of UBI because it is part of the script and it's being discussed. The insurance companies that are more heavily captive, agent-based, maybe not still, it's still increasing, but not as much.
(14:40)
I think the agents probably feel they would want to be more involved in the claims process or the customer process for rating and so forth. But overall, there seems to be a tendency to make this available. I don't really know of many insurance companies that don't offer it today regarding the differences between insurance companies. Everyone has a little different approach I guess, but at the end of the day, it's very, very similar. It is things, the common things that are being evaluated are speed, braking, time of day perhaps that people are driving. If you're driving in the wee hours of the morning, you're probably more likely to maybe fall asleep or have a problem. So those are the factors that everybody looks at. They may slice it a little differently.
Patti Harman (15:32):
I just want to remind our audience that they can post any questions that you might have for Bill in the box on your screen, and we will try to answer them at the end of our conversation. So what kinds of technology are insurers using as part of the usage-based program? You were talking about using your cell phone, and I guess my question is how could they tell if you're talking or texting while you're driving or is there some way that they can monitor for other behaviors? And when you were talking about speeding, I was like, Hmm, okay, yeah, I can see that would be an issue.
Bill Brower (16:10):
Well, there's a lot of different offerings there. For example, I'll give you a couple examples. At Solera we have a very large solution suite, which we call e driving. Now today, it's used primarily in the commercial side, like a commercial fleet. I may have a fleet of vehicles, delivery vehicles that are on the road all the time. And this type of device, the thing that's a little bit different is you don't have to use the actual location in the telematics. And so people who are driving service vehicles, sometimes they don't want the boss to know where they are all the time. So we have that kind of capability where it is more user-friendly for the drivers, and it does provide you with things like their driving behavior and some of the factors that are really important to see if in a fleet, who are the drivers that tend to be driving best, who are the ones that are driving more risky.
(17:08)
And then it's really designed around building training so that the people may be in the bottom third that seem to be more risky drivers e-learning training is available and there's lots of training that really help bring them up. There's other solutions, one that is probably well known by your audience, CMT, the Cambridge Mobile Telematics Group, not affiliated with Solera, but I know many of the folks there, I know they have a solution that's more catered to the private passenger vehicle and it's an app for the phone so it doesn't have to be tied into the car. And one of the things, Corn Young, their senior VP of products spoke recently at an industry event that I'm on board for. And he made the comment that they're able to tell, which I find very amazing, but they're able to tell which side of the car the person entered.
(18:01)
So if they entered from the driver's side, and I guess that could be different whether you're here in the US or you're in London, for example. But if they got into the car on the driver's side, then they know that that is the driver. And so therefore if they're picking up and using, if that phone is being used while the car's in motion, they're assuming it is Bill driving. Now it could be my son in the passenger seat. I'm not sure they could tell about that, but that's some of the capabilities. And then of course with telematics in the car or these devices, if it is simply on my phone and then I start using my phone to text or to make phone calls, then it's easy for the telematics company to see that that's happening. So those are some of the things, but I just found it very interesting, the process of knowing which side of the car someone entered to know if they're the driver or the passenger. To me that was very innovative.
Patti Harman (18:59):
I would agree with that. But then I'm also wondering, are drivers actually comfortable with sharing that level of information with their insurers? And we have two generations now that have literally grown up with technology, so I'm wondering if there are certain groups that might be more comfortable with sharing this information than others?
Bill Brower (19:23):
So yes, I have done some research around, not so much about the telematics, but about the use of data in general and in the studies that I've done in the past, and they were more claims focused than user-based insurance. But I did find there was some difference in the demographics with younger my kids who are college kids, they would rather text someone than call someone. They'd rather be connected in that way. And they seem to be, at least from my experience working as a dad and also interacting with their friends is that generation seems to be much more comfortable with sharing data. Now, when I spoke with some of my friends who are in the telematics risk monitoring space, I'm not hearing that there's a big difference between the ages. So the folks who are actually selling the user base insurance are telling me that, Hey, there's not a huge difference.
(20:24)
I think the thing that is, there's two things that I think are driving this. One is because rates are going up so quickly, can you save me some significant money by me using user-based insurance? The issue of sharing data is going to be less of a concern with me. If I find I'm getting something for it, I'm actually going to save quite a bit of money. Now I want to know that it's a reputable company, that there's precautions being taken to make sure that data is encrypted. And I don't want to have a fraudulent activity happening because I'm sharing data. So there's always that personal concern that my data has been used as I want it to be used, and it's only those that need to see it, need to know, get it.
(21:14)
But I guess to answer your question, it seems that it's not so much age driven anymore. It's more convenience driven. And so that's one thing. It does seem that customers are more. In fact, at Solera, we did an impact study on, again, it was claims last year about how people feel about sharing data to get assistance at time of claim. And we found that, I don't have the exact percentage with me, but the percentage of customers willing to share that data has been increasing. Every time we do this study, more than half of customers are like, yeah, as long as it is reputable, you're protecting my data and I can get peace of mind out of this. I'm willing to share data with you. It's really about making sure that the company's got the great trust and reputation that the supplier at Solera, we spend millions and millions and millions on data protection. So it's making sure the supplier has all the protocols in place to keep that data secure because a breach will break that trust in a heartbeat. So I think that's the issue, but I do find that consumers are sort of feeling this is the future and there's less resistance to sharing personal data.
Patti Harman (22:36):
I'm glad you talked about information security. That leads into my next question, which was policy holders are, they're sharing a lot of data, and so then that does bring to mind some of the data privacy concerns. So what are some of the issues to be considered, and how are vendors and insurers protecting it, whether it's data encryption or strengthening their cyber security protocols, that sort of thing?
Bill Brower (23:06):
Yeah, definitely. Data encryption is key. Certainly we do that, that's key. And insurers should always make sure that they have a very robust data encryption process and those proper protocols in place for collecting and using that data as it is needed. Also, informed consent. It is just so important that we're not taking someone's data without their written consent that, Hey, yes, you can use my data. I understand the terms, how you're going to use my data. And then I think minimizing the data, it is not that like, wow, you can get a ton of data on Bill, but do you need a ton of data or do you need four or five things? There's four or five pieces of information you need. You don't need his social security number, you don't need his driver's license number. You probably need to know how he's performing. And maybe you tie that to more of a claim number or maybe a policy number that's not associated with something that someone could use inappropriately.
(24:13)
I think minimizing that data, not using the PI data where it's not needed, just making sure that you're really, really cautious there and anonymizing the data. So obviously the one thing that insurance companies will probably want to do is they're going to want to look at trends, so they see how bill's driving, how Patti's driving, how other people are driving. And so making sure that the data's anonymized for any type of internal use that might be out there to figure out how to make better products or how to make products better. It's making sure that they, I'm sorry, anonymize the data for use in that regard.
Patti Harman (24:58):
Yeah, that makes a lot of sense. I can understand that. I think you've addressed this next question, but do you really see this type of insurance expanding across the industry and becoming more popular with drivers? There are a variety of reasons why that could work well for them.
Bill Brower (25:15):
Yes, yes. I mean, I'm sure there is a portion of the population that would never be interested in user-based insurance, but I do believe that this is going to continue to grow. And when I say that, I think it, it's not just for the pricing going to be more, I think initially because we're in these times of rapid increase in premiums, price is a big factor. But I think what happens is customers begin to learn that there's peace of mind, there's some peace of mind, some security of knowing that if my car breaks down and I have to call and I'm on Interstate 85, which is close to me, I don't really know where I'm at. I know I'm on interstate 85, but I don't know how far I am from certain mile markers. So having that kind of peace of mind that you can get support very quickly, having the peace of mind that if I should have a crash and I need emergency assistance, they can pinpoint exactly where I am and send that to us.
(26:18)
In fact, in our household, like I said, we have two college kids and one's out of state. And so we use a very basic kind of telematics just so we know where everybody's at and everybody's safe. And not to be big brother, but to really just know that everybody's okay. And I think that more and more consumers are realizing that these types of tools used properly make your life easier. And so I see this continuing to grow. I think it fits really hand in hand with this concept, as I mentioned, of touchless claims or really automated claims because you're going to be able to leverage it to make sure that your premium is, you're not overpaying for premium, you're getting credits. If you're going to drive smart, you're going to get lower rates. And then at the same time, having that safety and security of knowing that, hey, when I need help, click a button and the help's there. Or I give a voice command and help's there.
Patti Harman (27:16):
As someone who's broken down in several states over the years, there's a lot to be said for safety and peace of mind. Absolutely. So I'm wondering, we've covered a lot in the last half hour. Is there anything else that you would like our viewers to know about usage-based insurance or anything we haven't discussed that you think is really important for them?
Bill Brower (27:37):
Well, I think there's a really great use case. As I mentioned, I have college kids. I think there's a really, really great use case for youthful drivers and new drivers because like I mentioned with our e driving solution at Solera is just an awesome coaching tool. And even though I mentioned the solution that I use personally with my family, I use it to coach my kids. I can see enough, I get enough information and I don't abuse it and every day say, Hey, I watched you today, but I do use it. Show me trends. I'll start to see trends and then it helps me to know how to better coach as a dad. My kids who've been driving a while now, but are still young drivers. But I think back to when both kids first got their driver's license and how it's kind of a scary time for them. They're trying to feel their way, learn how to do this thing called driving. In particularly, I live in an area Atlanta, Georgia, which is one of the worst markets around for kids to learn to drive.
(28:40)
I wish we had had the Youdriving solution on the kids' phones at that time because it would just have made it even better for me to help them in terms of coaching on how to drive better. So I think as we look at this in the future, there's so much upside with carriers putting in place solid protocols for data security and privacy. The risk are getting smaller and smaller every day. And so I do believe that coupling the user base insurance, touchless claims consumer interest in amazon-like experience, it all just fits together as a nice package for rapid growth as we move into years to come.
Patti Harman (29:23):
Wow, that's great. Thank you so much, Bill. We have one question from our audience, and that is, do you see the increased adoption of technology by policy holders making it easier for insurers to develop new and better products because they have a better understanding of their customer's needs?
Bill Brower (29:43):
Absolutely. Absolutely. Great. Great question. One of the advantages I have in my role at LexisNexis is that we have these solutions and like I mentioned, over a hundred countries around the world. And so what we're able to do is to see how they're being used not only from insurers but from customers, so that we continuously learn in terms of what's really working well. We do a photo-based estimate. And so we are able to see how often are people taking advantage of that, how accurate is that estimate? How do we make it better? How do we make it closer? So that is huge. That is how we are operating every day to make our AI solutions more powerful every day. And one thing I should probably mention a little outside your question, but anyone who's going to InsureTech Connect in Las Vegas, we are hosting an AI panel session.
(30:37)
It's on Halloween, easy to remember. It's on October 31st. We can share more information, but we are going to have Microsoft join us. We're going to actually go through how AI is a game-changer in claims, including things like taking a voice first notice of loss, and calling out what is needed to make that claim more automated. So I know we're talking user-based insurance, but to me, AI is whatever you can imagine to do. There's probably an AI application. I could see that working in the user-based insurance space as well. So it's an exciting time. And like I said, if you're going to be at the ITC event, please do register and join us. We'd love to have you. The information is on my LinkedIn page at Bill Brower, so thank you.
Patti Harman (31:29):
Well, thank you so much for joining us today for understanding Usage-based insurance and beyond. We hope we were able to give you a better understanding of what it encompasses. I'd like to thank our expert, Bill Brower of Solera for sharing his expertise. So thank you and enjoy the rest of your day.
