Usage Based Insurance – What Systems Implications does a Carrier Face When Implementing a Program?

usage based insuranceUsage Based Insurance (UBI) (a.k.a. Telematics) is gaining traction in the U.S. Market.   At least 18 states have four or more Personal Auto programs implemented, and 49 states have at least 1 program.

As mid-sized and smaller carriers venture into this space, they need to consider the system implications that accompany a program implementation. While the specifics will vary depending on the type of program implemented, there are several areas that will be impacted.

First, Policy Quoting and Issuance: Assuming that the carrier utilizes some type of on-line portal to support the quoting process, the carrier must update the portal to accommodate enrollment into the UBI program on a per vehicle basis. Rules may be needed to limit those who are eligible for the program or to encourage certain individuals to join the program. If introductory premium discounts will be given just for joining the program, these discounts must be accommodated within the new-business rating algorithms. Additional data may need to be gathered about individuals joining a UBI program, such as email address, a field not commonly maintained in legacy systems. If the carrier makes rating available through a comparative rater, the carrier will need to decide if and how the comparative rating site will reflect the UBI program. Policy Declarations will also require alterations to reflect the new program. Finally, upon issuance of the policy, a new workflow will need to be triggered in order to issue a UBI device and installation instructions to the insured.

Second, Administration Systems: Once the policy is issued, various back-end systems and processes need to be altered to accommodate the UBI program as well. Policy Administration and Renewal Processes will need to incorporate the data gained from the UBI device, typically in the form of a driving score. Billing System changes may be needed if the carrier decides to charge drivers for lost or damaged UBI devices. Customer Service systems need to be updated so that service representatives know which customers are participating in the UBI program and can answer their questions related to the devices and driving discounts. The carrier may consider special telephone routing so that UBI program participants are handled by specialized customer service representatives. Claim System changes may also be needed if the carrier wants to ensure that Claims Adjusters are made aware that a vehicle is part of a UBI program.  For carriers who rely on independent agents, Agency Download should also be updated to reflect the new program. Finally, back-end data warehouse and management reporting systems will need to incorporate UBI related data and develop new analyses to support the program.

Third, Workflow and System Capabilities: First, the carrier must manage an inventory of UBI devices, tracking which have been issued and associating issued devices to specific vehicles. The carrier must also develop a number of communication protocols in partnership with their Telecommunications Services Provider. For example, if an issued UBI device stops communicating, the carrier will need to communicate with the insured. The timing and format of these communications requires some forethought. If a UBI device goes silent for a day or two, it could mean that the vehicle is temporarily out of range, perhaps in a remote vacation spot, or the device was removed while the vehicle is in the shop. On the other hand, the device could have been unplugged for routine service and accidentally left unplugged. If the carrier reacts too quickly, they could easily annoy the insured and appear like “Big Brother”; if they wait too long to react, they could lose valuable data. Changes are also needed to accommodate drivers who want to add, remove, or change vehicles within the UBI program during a policy period; this may require a separate management system altogether and could impact the scoring algorithms created. Thus, establishing the right communication protocols is critical to the program’s success.

Similarly, the carrier needs to determine how they will receive and model the driving data collected by the UBI device.  Will they gather the detailed data, transform it into meaningful information, and develop predictive models based on that data that can be applied within renewal rating algorithms. Or will they partner with an expert who can manage data collection and manipulation for them, providing them with some type of a score to apply within their rating algorithms. In either case, the carrier needs to understand the data that they will be receiving and establish systems for managing and utilizing that data.

Finally, the carrier must establish a means to provide feedback to the drivers participating in the program. Typically this is accomplished via a web-site where the driver can view his/her driving history, compare that history to some type of benchmark, and view tips to improve driving behaviors.  Again, the carrier may be able to partner with the Telecommunications Services Provider to deploy this functionality, but the carrier must work with the provider to define what data will be presented, and the carrier must be prepared to answer questions that their insureds will have about the data presented.

In closing, successfully implementing a UBI program has ripple effects across a wide swath of an insurance carrier’s infrastructure.  Before embarking on this journey, a carrier must give thought to both the initial launch and ongoing support of the program, making decisions about how to best integrate the program into its underlying systems and processes. Strong partners, both those with specific UBI expertise and those with more generic system, process, and project management expertise, can ease implementation and speed time to market.

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