Technology Drives Insurance Efficiencies/Policy Holders Allow Their Habits to be Tracked for Lower Insurance Rates

Like other financial services sectors, the insurance industry has undergone major changes due to the internet and advanced data networks. The internet and the development of e-commerce have delivered more expedient operations and cost efficiency to the insurance industry, while enabling customers to get pricing and to order policies online. Now, very fast cellphone networks, smartphones and tablets will be the biggest drivers of change in terms of interfacing with customers and with agents in the field. At the same time, the advent of “big data,” that is, vast databases of customer activity, claims data, environmental data and more, is enabling underwriters to better evaluate risks and thereby adjust pricing correctly on an individual customer basis.

State of the art software, often based on machine learning or artificial intelligence (AI), is also providing powerful risk modeling and management tools to insurance underwriters. Such software makes it easier and faster for underwriters to rate customers according to risk and thereby quickly determine the most appropriate (and profitable) price for a given policy. Adopting risk modeling technology can enable an underwriter to confidently enter new areas of risk and write new types of specialty insurance.

In California, Farmers Insurance now offers wildfire coverage through a partnership with startup Zesty.ai. The new firm offers high-resolution aerial imagery and other cutting-edge AI to analyze potential property risk due to wildfires.

Meanwhile, savvy underwriters are utilizing advanced communications systems and software to make their sales systems—both direct- and agency-based—more efficient. Their goals are faster response to the customer and higher productivity. The benefits of getting all agents onto an underwriter’s computer network are worth the expense. The internet makes it possible for an agent to log in, submit a request for an underwriting, a binder (a preliminary agreement to provide immediate coverage), or a firm quote, and then receive the fastest possible response. It wasn’t very long ago that such functions were handled by snail mail and printed forms. Advanced communications systems enable both underwriters and agents to achieve much greater productivity. As a result, profits can be improved, and savings can be passed along to the consumer.

One rapidly emerging technology is called the Internet of Things (“IoT”), a concept of communications between devices and central databases. This concept has been underway for decades in tracking the movement of specially equipped commercial trucks, and lately, automobiles. This usage is often referred to as telematics. Growing numbers of drivers are choosing to install data-logging devices into ports in their cars that transmit information about driving habits from car computers to insurance companies via cellphone networks. Sometimes called “user-based insurance,” the technology affords insurance companies the ability to offer drivers individualized pricing based on data collected. The IoT Insurance Observatory reported that the number of personal autos in the U.S. with telematic connections to an insurer rose from 2 million in 2013 to more than 8 million in 2020.

The Progressive Corporation offers a program called Snapshot (formerly called MyRate), which utilizes on-board telematics. Drivers receive periodic reports about their driving habits and those who drive cautiously and log fewer miles are offered discounts, depending on which state they are in. Progressive collects and analyzes data for a period of six months, after which the customer can remove the device. GMAC Insurance, a subsidiary of American Capital Acquisition Corporation, offers a similar program using the OnStar telematics system. Unlike Progressive’s Snapshot program, the GMAC version includes GPS data on a driver’s whereabouts.

Conversely, drivers who opt into telematic measurements of their driving habits can face surcharges for reckless driving (such as excessive miles, high speeds and hard braking) in some states. Using smartphones while driving is also leading to soaring insurance rates. Star Farm Mutual Auto Insurance Co. conducted a survey which found that 36% of those surveyed admitted to texting while driving and 29% access the internet. The percentages are even higher for Millennials, of which 64% reported that they text while driving and 54% use the internet.

At present, careful drivers are the customers who will be the most motivated to participate in monitoring programs. As the use of telematics grows by car insurance underwriters, all drivers may eventually be required to participate in programs like Snapshot in order to obtain insurance. This would essentially be forced, automatic, ever-present surveillance of driving habits.

SPOTLIGHT: Car Insurance by the Mile

San Francisco-based Metromile (www.metromile.com) offers pay-as-you drive auto insurance measured through an onboard sensor called Metronome that plugs into a vehicle’s data port. Drivers who log more miles pay higher rates than those who drive less. Policies are underwritten by National General Insurance Group.

Teenaged and young adult drivers are also eligible for special rate programs that utilize telematics. Although these age groups have traditionally been difficult and costly to insure, programs such as Safeco Corp.’s Teen Safety Rewards (formerly called Teensurance) and American Family Mutual Insurance Co.’s Teen Safe Driver Program use on-board surveillance technology to track driver locations and driving habits. Young drivers who consistently drive safely get a substantial break on their auto insurance premiums. Teen Safety Rewards, for example, is GPS-based and offers drivers up to age 25 as much as a 15% discount. Other companies such as Nationwide Mutual Insurance Co. and State Farm Mutual Automobile Insurance Co. offer discounts to young drivers who complete safety courses (some may be taken online). Also of note is Fireman’s Fund Insurance Co.’s offer to independent young adults up to age 27 who can qualify for their parents’ multiline, multicar and long-term customer discounts of between 35% and 50%.

SPOTLIGHT: Lytx

In an effort to monitor commercial vehicle drivers, Lytx (formerly DriveCam, Inc.), www.lytx.com is marketing a video camera with audio that records activity both inside and outside moving vehicles. Sudden movements trigger the DriveCam device to send digital feed to the company’s central monitoring station for analysis. Alerts are e-mailed to parents within 24 hours and weekly reports on driving skills are sent as well. The cost for the camera and a one-year monitoring contract is relatively expensive, but many insurance companies are willing to pay for in order to attract new business. The company also offers products that assist in truck fleet fuel management and tracking.

In a similar vein, life insurance premiums may be discounted for certain policy holders who agree to have their habits tracked by smartphone or wearable devices such as the Fitbit. John Hancock was the first U.S. insurer to institute such a policy, which it calls Vitality, in 2015. Under the policy, customers earn points for healthy habits such as not smoking, maintaining low cholesterol levels and regular exercise. There are three point levels: silver, gold and platinum. Gold level participants, for example, enjoy about a 9% discount on a 20-year, $500,000 term life insurance policy.

Another twist on habit-tracking is the use of algorithms to analyze a variety of data, including customer survey responses, data pulled from prescription pharmaceutical databases and motor vehicle records. Startup Haven Life (which is owned by Massachusetts Mutual Life Insurance Co.) offers some of the lowest rates available for life insurance to individuals who rate highly in healthy habits, spend less on prescription drugs and have clean driving records.

Meanwhile, technology is now on the market to assist corporate insurance buyers in managing the purchasing process and attempting to receive the best prices. For example, HighRoads, www.highroads.com, sells software that enables corporate health insurance purchasing managers to bypass brokers and send requests for bids directly to major companies. The insurance firms are able to submit their bids online. The software has been used by customers including Dell, Pfizer, IBM, Bristol-Myers Squibb and Verizon.

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