2008-07-21 17:54:09 -
embamerica.com - EMB America Louisa Harbage, +1 858-793-1425 louisa.harbage@embamerica.com or LEWIS PR Dan Gaffney, +1 617-226-8840 embus@lewispr.com Usage-based insurance will become the industry standard in the next five years according to EMB, a global actuarial consulting firm. This method measures actual driving behavior and allows auto insurers to develop more reliable rates.
Current price modeling utilizes variables, including gender,
age, credit history and marital status, which are predictive but not definitive. Usage-based insurance uses driving data that allows insurers to determine more accurate rates, while also empowering customers to control these rates. Specifically, if a customer drives less, travels at reasonable speeds, brakes and accelerates gradually, and generally practices safe driving behavior, he or she can help to ensure lower rates. Ultimately, these advantages lead to improved customer loyalty and increased retention - a much sought after goal in the competitive insurance market.
Usage-based insurance does face obstacles to becoming the industry standard. Insurers must develop a method of obtaining data, either through driver self-reporting, existing tools such as OnStar, or new tools such as proprietary hardware that plugs into the on-board diagnostic port (OBD) and uses the car's internal computer to track driving behavior. Then, challenges arise around how to retrieve and store the information, which data matters, and how to develop predictive models that meet customer acceptance and regulatory scrutiny, all while considering the privacy of the customer. Privacy is also an issue when considering who 'owns' the collected data - the consumer, the insurer, or the government.
Finally, as usage-based rating is currently offered as an optional program, insurers must address the terms and conditions of opting-in and opting-out of this program. According to EMB, however, these hurdles will be overcome over the course of the next five years as appropriate legislation is created, fair consumer guidelines are established, and companies begin to gather and analyze the data.
"There are significant challenges to creating a usage-based product, but the rapid development of technology and knowledge at this time make the shift in the auto insurance market a trend to which successful insurers will need to respond. Immediate action and preparation are required in order to remain competitive when the spike in demand occurs," says Robin Harbage, senior consultant of EMB in America. "Insurers who do not acknowledge this trend will lose their 'good driver' customers who will seek out usage-based insurance and the associated discounts."
Due to the importance of this topic, EMB is offering a free Webinar on usage-based insurance on July 22, 2008 at 11:00am ET. Please find additional details at the following Website:
embamerica.com/events/agenda.php.
About EMB in North America
EMB is the world's leading business and actuarial consultancy firm specializing in property and casualty (P&C) insurance. We provide award-winning, innovative software and consulting services designed to help our clients optimize their business performance, providing sustainable improvement through knowledge transfer.
At EMB, we support both large and small insurers and reinsurers. EMB in North America works with 19 of the top 25 U.S. P&C companies, while the global organization supports 23 of the world's top 25 P&C companies. With offices across the U.S. and around the globe, we support firms both locally and globally.
Consultants Urge Shift in Gears in Auto Insurance Price Modeling
to Account for Actual Driving Abilities When Producing Rates
