We have noted that the use of new technologies is creating huge pools of data that can, if analyzed using sophisticated predictive tools, assist in a number of disciplines including marketing, claims, and underwriting (see, e.g., our post on Managing Data for Profit and Growth). Much of this work is still in the lab and results are still somewhat theoretical in the insurance community, with one exception: Telematics.
At a recent Insurance Bureau of Canada Regulatory Affairs Symposium in Toronto, Darren Godfrey, senior vice president of personal lines at Intact Financial Corp., noted that the use of Predictive Analytics has the potential to allow insurance carriers to create competitive advantage. “To get ahead of the industry from a growth standpoint, you have to be looking at (predictive analytic) techniques,” he was quoted as saying in CITopBroker coverage of the event.
However, these have not been tested to any great degree, resulting in serious, but still theoretical concerns regarding transparency and availability. Godfrey noted, “If you take predictive modeling to the nth degree, you can end up in scenarios where you have availability issues because the price point gets pushed too far.”
Telematics, which is being used to support pay-as-you drive, or usage based insurance, is an example of how data can be used for predictive modelling of driving behaviour. A major difference is that Telematics has matured significantly in a number of jurisdictions and has been tested by regulatory bodies.
In July, we posted on the confluence of business and regulatory factors that are driving adoption of Telematics in a number of jurisdictions including the US and Europe. We noted further in August that Telematics are offering opportunities to meet consumers demands for lower costs through improved underwriting. Quoted in Canadian Underwriter, Brian Stoll, director at Towers Watson, who spoke at the IBC Symposium made a similar point, “You get price accuracy, reduced accident frequency and the reduced accident frequency comes from providing scores back to drivers, telling them when they drive well and when they drive poorly.”
Stoll also noted the maturity Telematics has in meeting regulatory concerns, “From a regulatory standpoint, telematics has been received very favourably in the United States to the extent that it really represents driving behaviour and driving experience. It replaces the proxy that is credit score and other tools that have historically been used to differentiate risks that relate less directly to the exposure of individual people driving their vehicles.”
It seems that Telematics might be the place where the Predictive Analytic rubber is first meeting the P&C insurance road.