Octo is excited to announce that together with our partner AITE we will be presenting the interactive webinar: The Future of Dynamic Risk Analysis and Rating Is Here: Insurers Must Be Ready to Move or Be Left Behind When: Wednesday, May 8th Time: 10am ET, 3pm BST, 4pm CET Speakers:
Geoff Werner VP DriveAbility and Consulting Americas’ Country Manager Octo Telematics
Greg Donaldson Senior Analyst, Insurance Aite Group
Historically, insurance companies have used static data to evaluate overall risk exposure and develop rates. Many of these traditional underwriting and pricing factors are proxies for how, how much, where, and when a vehicle is operated. But dynamic data sources are now available that directly measure the true risk in real time and improve risk segmentation. Companies that effectively incorporate emerging internet-of-things data with advanced analytics will have a competitive advantage, and those who do not will be subject to adverse selection.
Traditionally, insurers have used proxy data to identify the risk of loss for an asset. The internet of things (IoT) gives insurers access to real-time, individual, and observable data on an asset’s (or person’s) risk of loss. This data is directly actionable for risk pricing and mitigation. By identifying actions or behavior that are causative of risk and leveraging IoT sensors that monitor these behaviors, insurers can create algorithms that tie observed behavior directly to pricing models. Insurers can similarly leverage this data for risk mitigation by providing timely and specific feedback to insureds rewarding safe behavior and warning of risky behavior.
In addition to risk assessment and pricing, IoT can drive improvements through:
Improved customer segmentation: IoT data gives new insights into customer behaviors that can be leveraged for upselling and cross selling opportunities across business lines. IoT data allows insurers to ask – and answer – new and more complex questions about their customers and prospects than ever before.
Personalized insurance offerings: Deeper understanding of policyholder behavior and individualized risk data allow insurers to personalize insurance offers to their customers’ needs.
Behavior-based feedback and engagement: With IoT-based monitoring individual behaviors can be detected and acted upon in near real time. This enables insurers to provide feedback in the most critical moments to either positively reinforce safe behaviors or educate about risky behaviors. Additionally, if a loss event is detected, insurers can provide immediate support to mitigate losses, protect policyholder safety, and reduce the time it takes to settle.
Workers’ compensation risk management
Worksite risk mitigation
Safety videos, training programs, and on-site safety services today focus on mitigation of common risks in common situations. Trainings are often sporadic and general or after-the-fact and specific. It is difficult to monitor the results of trainings and tie incentives to individual behavior.
Wearable sensors provide employers with the opportunity to detect risky worksite behavior (such as poor lifting behavior), provide on-the-spot feedback to avoid that behavior, and enable employers to monitor improvements in that behavior over time. Crane Logistics and Caterpillar, for example, have leveraged wearables to reduce the number of high-risk lifts performed by workers in a pilot program by 80%. Other examples include the use of smart helmets to detect and respond to heat stroke and chemical exposure tracking via sensors. With improvements in safety management and risk mitigation, employers can see major decreases in claims.
As in other lines of business, IoT allows insurers to get deep insights into individual behaviors, identify risky behaviors, and underwrite that risk accordingly. Employers are incentivized to reduce risky behaviors, with the benefits of risk reduction accruing to both the employer and the insurer. IoT-driven behavior change can reduce workers’ compensation costs by more than 20%.
Lifestyle risk mitigation
The growth of workplace wellness programs globally is indicative of the business value of improving employee health. Improving employee health can be on the most effective way employers can reduce health-related employee costs in the long-run. Insurers often participate in employee wellness improvement programs by incentivizing healthy behaviors through gym cost reimbursements or healthy living discounts.
Wearables provide insurers and employers with the insight they need to monitor health and wellness program adherence. Insurers can tie gym reimbursements to workout frequency and severity. Employers can monitor physical rehabilitation via IoT sensors to ensure injured workers are completing the programs their doctors prescribed. Smartphone-based IoT programs can similarly monitor drug rehabilitation program participation and help mitigate recidivism.
By leveraging IoT, employers can also take a more proactive approach to health and safety. Through IoT data, employers can identify potential risk scenarios such as a driver who is too tired to perform their duties. Fatigued workers are more likely to be injured on the job with people who sleep less than five hours per day, for example, have 3.5 times higher injury incidence rates than those who sleep between seven and eight hours per day. A study from Liberty Mutual ranked overexertion as the leading cause of workplace injuries, directly costing companies $13.8 billion each year. Wearable IoT devices can help employers monitor health indicators such as lack of sleep, workplace stress, and overexertion and proactively address these risky behaviors.
Risk mitigation in life and health insurance
The costs of care for hypertension, diabetes, asthma and other chronic conditions amount to 86% of the United States’ $3 trillion annual healthcare spend. As employers bear the majority of the burden of this cost, anything that can help employers prevent chronic conditions is critical to their bottom line. IoT devices can be used to detect health characteristics such as blood glucose levels, temperature, and heart rate and identify healthy behaviors such as sleep, exercise, and stress. This data can be analyzed to provide automated feedback that encourages healthy habits.
John Hancock recently announced that it would only sell interactive life insurance policies that incentivize health behaviors through the optional use of a wearable device for policyholders of their life insurance Vitality product. The program is designed to incentivize policyholders to stay fit via rewards and discounts. The announcement came after a successful pilot in which participants:
Lived 13-21 years longer than the rest of the insured population
Generated 30 percent lower hospitalization costs than the rest of the insured population
Took nearly twice as many steps as the average American
Logged more than three million healthy activities including walking, swimming, and biking
Engaged with the program approximately 576 times per year – compared to customers with traditional insurance, who engage with their life insurance company one or two times per year on average
UnitedHealthcare’s Motion health insurance program, launched in 2017, is similarly focused on incentivizing healthy behaviors. Participants’ fitness habits are monitored via an IoT sensor and incentives are deposited in HRA / HSA accounts based on meeting frequency, intensity, and tenacity of fitness goals. Participants can earn up to $1100 per year. Motion’s results to date have been similarly impressive:
12,000 steps daily
60% of participants sustain engagement over 6 months
45-65% of those eligible to participate in Motion registered for the program
Compliance is another area where IoT could have a potentially significant impact on health and life insurance outcomes. Innovations such as smart pills contain ingestible sensors that can report when the pill has actually been taken by the patient. Patients who comply with their drug regimen may be at lower risk for adverse healthcare outcomes and those who don’t may achieve better outcomes through automated follow up and feedback to improve adherence.
Risk mitigation for homeowner’s insurance
Water damage avoidance
Over one-third of homeowners’ insurance claims are related to water damage. Non-weather-related water damage (such as a burst pipe), makes up almost 20% of total claims. Estimates put the average water-damage claim at almost $9000.
Thanks to water flow sensors, this type of damage is now easily monitored and prevented. Smart water flow monitors can detect leaks in a home’s plumbing, alert the homeowner, and in many cases shut off water flow to affected pipes. Non-emergency alerts, such as a faucet being left on can also be triggered by some sensors. This type of targeted feedback can be critical for behavior-based risk reduction. IoT moisture sensors can also be valuable for detecting and alerting homeowners to both weather-related and non-weather-related flooding. One study by the ACE Group predicts that more than 90% of water damage claims could be avoided through the use of automated leak detection and mitigation systems.
Neos is an innovative connected home insurance company in the UK that offers IoT sensors as part of its insurance offering. They are successfully using leak sensors for water-related claims mitigation, along with other IoT sensors to combat all major home-related risks.
Fire risk mitigation
Fire-related claims are the most expensive homeowners’ insurance claims, responsible for nearly one quarter of total claims costs. Three of every five home fire-related deaths resulted from fires in homes with no smoke alarms (38%) or no working smoke alarms (21%). Dead batteries caused one-quarter of smoke alarm failures.
Smoke detectors are required by most, if not all, insurance carriers. Smart smoke and carbon monoxide detectors have been developed to address the two greatest challenges with traditional alarms: off-premises notification and alarm status verification. Through a mobile app, smart smoke detectors can notify homeowners of an event no matter where they are. This is critical for claim mitigation as the homeowner (or their insurer) can notify emergency services immediately upon notification and potentially reduce the severity of property loss. If the insurer is
integrated directly with the sensor or service provider, they can also get insight into the status of fire alarms on an insureds’ property. For example, Liberty Mutual’s smart home insurance product offers a discount on home, condo, or renters’ insurance and a free Nest Protect smart fire alarm if insureds share their Nest data with the insurer. For those who opt in, Nest shares only the devices battery level, status, and Wi-Fi connection strength with the insurer for verification purposes.
More than half of U.S. households with broadband internet find the idea of an IoT device that alerts them to smoke and fire highly appealing. BI Intelligence estimates a home equipped with a connected smoke detector that automatically alerts the fire department could potentially cut an insurance payout by an average of $35,000 USD. Similarly, most consumers would be willing to share smoke or carbon monoxide detector information with an insurance carrier for the right incentives.
Roost Telematics has partnered with leading North American insurers to successfully launch home telematics programs focused on fire and water damage claims mitigation. Roost has reported that their sensors and automated reporting lead to 5-15% reduction in claims for their insurance partners.
Burglary avoidance and mitigation
According to Safeguard the World, the chances of a home burglary rise by 300% when a home has no security system. The average cost of a property-theft related claim is around $2250. Most insurers already incentivize the installation of a security system through insurance discounts. Like fire alarms, insurers have little insight into security-related behaviors except one-time confirmation of enrollment in a security program.
IoT-enabled devices allow for the remote monitoring of the home and remote activation of home alarm systems, locks, indoor/outdoor lighting, smoke alarms, and even doorbells. In the event of a theft, fire, or flood, in-home video monitoring can be used as a catalog of property damaged or destroyed to help accelerate the claims process and combat fraud.
One example of a connected home insurance program is American Family’s partnership with Ring. American Family offers a $30 discount on Ring’s video doorbell products. If the homeowner installs the doorbell, they become eligible for AFI’s Proactive Home Discount. In the event of a burglary, Ring will reimburse the homeowner’s policy premium.
Auto insurance risk management
Improving risk assessment
Insurance telematics provides a step-change improvement in risk assessment over traditional factors that are largely proxies for how, how much, when, and where vehicles are operated. Insurers can combine granular telematics data with contextual, policy, and claims data to develop a score which is highly predictive of risk. Done correctly, insurers can create a score that provides double-digit lift, optimizes the lift above and beyond traditional factors, and identifies factors that cause vehicle accidents.
One 2018 study, when comparing a classical (non-telematics) risk model against telematics-based and hybrid (telematics and traditional factors) models by level of predictiveness showed the classic model ranked least predictive of all models. Progressive Insurance, the US leader in UBI has released findings stating that driving behavior predicts accidents more than two times over traditional risk factors. Milliman has similarly announced a telematics-based risk score that is up to six times more powerful than using traditional factors alone. Octo’s risk score, the DriveAbility Score has been proven to provide 10-12 times lift to score predictiveness.
Risk mitigation
A review of relevant studies on traffic accidents by Stanford Law School suggests that greater than 90% of all vehicle accidents are caused by human errors and deficiencies. Yet most drivers rate themselves as safer than average. Claims mitigation – critical for driving down an insurers’ combined ratio – requires timely and specific education and training to improve driver safety. Vehicle telematics gives unprecedented insight into driver behaviors and habits, allowing insurers to detect risky habits in near-real-time and provide feedback and education on the specific behaviors exhibited by the policyholder. In one study by the Insurance Research Council, 56% of participants said they had made changes in how they drive after installing a telematics device. Another study found that safe driving increased by as much as 30 percent with the use of a telematics app.
Telematics risk mitigation mechanisms
Short- and long-term behavioral feedback on policyholder behavior: Immediate alerts, daily reports, and driver scoring provide feedback to telematics users, allowing drivers to understand how their driving habits impact safety, and respond accordingly. Immediate feedback helps drivers change their behavior, while trend reports and driver scoring help reinforce behavior change and improve habits over the long-term.
Incentivizing safe driving: Insurance discounts offered for safe driving incentivize improved behavior, helping to reinforce gains made in safety. Gamification flips the focus of driver improvement from reactive feedback to proactive. By incentivizing drivers toward safer behavior – whether the incentive is a coupon, reward, or digital badge – telematics can help people drive safer immediately, without the need to wait for a critique of poor driving.
Reducing distracted driving: According to AT&T, 70 percent of drivers use their smartphones while driving. 64 percent of all road accidents in the United States involve cell phone use. Telematics-driven mobile apps can identify when someone is driving and restrict inbound texts, calls, or other cellphone behavior to reduce distracted driving. Telematics devices can also detect the symptoms of distracted driving, highlight these events to the driver, and provide awareness of the impact of this behavior.
Accident reduction efforts need to start with improving driver safety. Telematics-driven programs have been shown to improve driver safety which is critical to reducing claim frequency.
Distracted driving caused an estimated 40,000 fatalities in 2017 alone. Every one of those deaths was preventable. Octo is committed to helping insurers take the lead in eliminating distracted driving through telematics.
Our new infographic explores the causes, costs, and potential solutions of distracted driving.
Octo provides a full suite of insurance telematics solutions, all fully equipped to help you curb distracted driving among your policyholders.
The relationship between insurer and insured is evolving, and telematics is driving that change. The benefit of telematics for insurers is already very clear – but what about the policyholder? The infographic below explores just a few of the most compelling benefits:
Improving road safety starts first with improving drivers’ behavior. According to multiple studies, human error, in part or in whole, contributes to upward of 90 percent of all vehicle accidents. And yet, it has been notoriously difficult to sustainably improve driver behavior because, in general, drivers do not really know if they are good or poor drivers. According to the Association for Psychological Science, most people think they are above average, with drivers rating themselves a seven out of ten on driving ability. While vehicle design has improved, causing a downward trend in the percentage of crashes resulting in death, increases in risky driving behaviors such as texting, speeding, and impaired driving are on the rise.
There is no silver bullet for improving driver safety, but telematics can have a significant and long-term impact on driver behavior. In a study by the Insurance Research Council, 56 percent of participating drivers say they made changes in how they drive after installing a telematics device. Another study found that safe driving increased by as much as 30 percent with the use of a telematics app.
So exactly how can telematics improve driver behavior?
Provide short- and long-term feedback on driver behavior: Immediate alerts, daily reports, and driver scoring provide feedback to telematics users, allowing drivers to understand how their driving habits impact safety, and respond accordingly. Immediate feedback helps drivers change their behavior, while trend reports and driver scoring help reinforce behavior change and improve habits over the long term.
Incentivizing safe driving: Insurance discounts offered for safe driving incentivize improved behavior, helping to reinforce gains made in safety. Gamification flips the focus of driver improvement from reactive feedback to proactive. By incentivizing drivers toward safer behavior – whether the incentive is a coupon, reward, or digital badge – telematics can help people drive safer immediately, without the need to wait for a critique of poor driving.
Reducing distracted driving: According to AT&T, 70 percent of drivers use their smartphones while driving. In addition, 64 percent of all road accidents in the United States involve cell phone use. Telematics-driven mobile apps can identify when someone is driving and restrict inbound texts, calls, or other cellphone behavior to reduce distracted driving. Telematics devices can also detect the symptoms of distracted driving, highlight these events to the driver, and provide awareness of the impact of this behavior.
Reducing accidents needs to start with improving driver safety, and telematics-driven programs have been shown to do so.
Improving Vehicle Safety
Drivers have a responsibility for the safety and maintenance of their vehicle. While driver behavior is by far the most common cause of vehicle crashes, vehicle health and maintenance can also be a major contributing factor. For accidents in which a vehicle-related issue causes the crash, tire or wheel-related issues are the largest cause of accidents, followed by brake problems as well as steering, suspension, transmission, and engine-related issues. Annual inspections help drivers maintain their vehicles, but a lot can happen in between mandated professional inspections. A leave-in telematics model can be critical between inspections, as OBD-II devices can read and interpret diagnostic trouble codes, provide solutions to drivers, and ensure their vehicle is safe. In addition, using contextual driving data, telematics services can anticipate required maintenance and help ensure issues are addressed before they cause problems. Better-maintained vehicles lead to better drivers and safer roads.
Improving the Driving Environment
The condition of the environment in which someone is driving, particularly infrastructure, traffic flow, and road conditions, is as important to safety as is the condition of their vehicle. Local and state governments have the ability to improve infrastructure, but doing so requires the collection and analysis of vast amounts of data. According to Together for Safer Roads, a consortium of private companies dedicated to improve road safety, the infrastructure to do so at a global level is completely inadequate today. Data on road repair, traffic flow, and accidents exist, but often without context. Telematics provides this context, by overlaying it with driver behavior. Understanding how drivers respond to road and traffic conditions allows urban planners, civil engineers, and traffic planners to make improvements that take human factors into account. When it comes to prioritizing road repairs and new infrastructure, cities can draw insights from traffic and telematics data to choose projects with the greatest road safety impacts. Telematics data is useful broadly for the digitalization of city infrastructures, feeding systems that optimize traffic flow, optimize routes for emergency response vehicles, and better inform commuters about their drive.
Improving Driver Safety
No matter how safe the driver, accidents do occur. Vehicle design has done a lot to curb fatalities, but still more can be done to ensure drivers get the help they need during an event. Insurance companies are turning to telematics to help them become proactive partners during a crash.
Advanced telematics solutions analyze vehicle motion characteristics such as surge, sway, heave, yaw, pitch, and roll to determine if an accident has occurred and to identify the severity of the crash. If an accident has occurred, for example, Octo can notify the required parties in real time, allowing the insurer to follow up with the policyholder to determine if emergency services are required, and to immediately begin the claim process if needed. Time and location data can then be fed to emergency service providers, reducing urban emergency response time by up to 40 percent and rural response time by 50 percent. While the United States does not have a required emergency call system in place, or planned, insurers can take the place of this system through automated first notice of loss (FNOL) systems. Insurance companies need to evolve their customer value proposition. Safety and security is one of the top-rated telematics features in North America and the right crash services can put a caring human face on your insurance company.
Driver safety technology has seen significant growth in the last decade with the introduction of forward-crash prevention systems, lane-keep assist, adaptive cruise control, and electronic stability control. Most vehicles going to market today employ some level of driver safety system designed to intervene and protect drivers from an accident. OEMs have also been steadily adding telematics and crash notification services, but the high cost of these services to the consumer discourages vehicle owners from having a service that could save their lives. This is a major opportunity insurers can leverage to change the way they interact with policyholders.
Getting Insurers Involved
With embedded telematics becoming the norm, the amount of behavioral driving data available will grow exponentially over the next decade. At the smallest scale, this data can be used to improve driver behavior and vehicle health. At a massive scale, big data analytics will be able to optimize vehicle safety technology and design, improve road conditions and design, and ensure driver safety. Insurers are poised to take advantage of all this data to change the insurer-to-policyholder paradigm, and help to improve driver safety, while simultaneously improving their own business outcomes.
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