Usage-Based Insurance Next Wave for Personal Auto | PropertyCasualty3 60
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`Usage-Based Insurance Next Wave for Personal
`Auto
`
`
`
`plugs directly
`‘ vehicle
`
`Personal auto insurance is already the most
`commoditized line of property & casualty
`insurance and is likely to becoming the most
`exact of the lines in terms of underwriting as
`insurers spread the movement known as usage
`-based insurance.
`
`The number of insurers is continuing to grow,
`according to Robin Harbage, director, 'l‘owers
`Watson, and co-author of a report on the
`subject, “The Brink of a Revolution.
`
`“We are seeing the US. market become almost
`a hotbed [for usage-based insurance],” he said.
`
`Progressive has been one of the early leaders
`and continues in that direction, having introduced its usage-based product in 37 states and the District of
`Columbia thus far, according to Harbage.
`
`Progressive is not alone, though. Harbage reports the list of insurers offering some type of UBI at this point
`is “kind of a who’s who of insurance.”
`
`Among the names bandied about are State Farm, Allstate, Nationwide, The Hartford, and Travelers, as well
`as many smaller insurers on the list.
`
`Towers Watson estimates that auto insurers representing 60 percent of the passenger auto market, have
`launched a product it in at least one state.
`
`“It’s not just an experiment anymore; it’s a mainstream product for some of these companies and they are
`pushing forward on a rapid basis,” says Harbage.
`
`At this point in time, all the major insurers are operating it as a voluntary program to consumers so they can
`take this or buy the normal process as their auto insurance segment, points out Harbage.
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`http://www.propertycasualty3 60.com/201 1/07/ 14/usage-based-insurance-next-wave—for-p...
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`12/2 0/20 1 2
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`Progressive Exhibit 2002
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`Liberty Mutual v. Progressive
`CBM2013-00009
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`Usage-Based Insurance Next Wave for Personal Auto | PropertyCasualty3 60
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`Harbage explains the devices used to track driving habits vary. Some new cars offer original equipment
`devices, such as OnStar for GM vehicles and Sync from Ford.
`
`“Those devices track the mileage and behavior of the drivers as they operate the vehicle,” he says. “That’s
`used to create discounts for the insureds on their better than average driving or less than average mileage.”
`
`There also is an after-market device the insurers can supply to the insured that is simply plugged in to the
`vehicle. All devices wirelessly transmit the information back to the insurer.
`
`The common standard, explains Harbage, is the device plugs into the onboard data port, which was
`mandated for all vehicles beginning in 1996 by the EPA. The port—which also is used for doing emission
`checks—is linked directly to the onboard computer so anything drivers can see on their dashboard—RPMS,
`mileage, speed as well as changes in speed—can be recorded.
`
`In addition, most of the devices are coming out with GPS units on them, according to Harbage.
`
`“They get quite a bit of information about the way the vehicle is operated,” he says.
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`The information received from the cars is both valuable and very predictive.
`
`“Most of what insurers rated on for years were things like a driver’s age, gender, marital status or something
`more intrusive like credit scores,” says Harbage.
`
`Insureds often wondered how that information related to driving habits, according to Harbage.
`
`“The newer information is not just related to your driving; it is your driving,” he says.
`
`“It’s a quantum leap forward in predicting behavior,” says Harbage. “It’s taking information, such as where
`you are taking the vehicle, how fast you are driving, rapid accelerations, decelerations, aggressive
`maneuvers, and things like that. Insurers are saying there is a certain population of drivers that want to
`prove they are safe drivers and they are getting substantial discounts. Most insurers are offering up to 30
`percent discounts just based on the information provided from the devices.”
`
`Towers Watson is a global professional services company and one of its strengths is risk management. It is
`helping insurers figure the best way to collect and use information such as what onboard computers are
`offering.
`
`“Most of the smaller insurers are saying [all the data] is a bit daunting,” says Harbage. “They don’t quite
`know what to do with it all. It’s not like any data they’ve ever seen before. Luckily, we employ a number of
`people who have worked with this kind of data before.”
`
`Harbage, for one, worked for Progressive and was involved in the launch of the first three states.
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`Insurers are unsure what the discounts should be and looking for a score of some kind.
`
`“Much like a credit score, there’s a score based on the operation of the vehicle: where it’s driven, when it’s
`driven, how it’s driven, how long it’s driven,” says Harbage. “They provide [the data] to us so we can map a
`discount that we can provide to the insurers.”
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`Usage-Based Insurance Next Wave for Personal Auto | PropertyCasualty360
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`Page 3 of 3
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`As programs expand among insurance carriers, Harbage believes the good drivers will want to step forward
`and volunteer to be a part of it.
`
`“What will happen is the other insureds will remain with the insurers not offering these programs and they
`will begin to see the rate creep up as drivers that don’t volunteer for these programs become the bulk of the
`residual pool,” he says.
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`http://wwwpropertycasualty3 60.com/201 l/07/ 14/usage-based-insurance-next-wave-for-p... 12/20/2012
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