As User-Based Insurance Takes Off, Towers Watson Steers It Globally

By | January 21, 2012

When Towers Watson expanded its user-based insurance (UBI) DriveAbility program beyond the United States in late fall, it wasn’t just based on a whim. Simply put, UBI is taking off.

For now, the interest is primarily in personal lines, but some commercial auto insurers have started paying more attention to it as well, leaving room for huge growth in this area over the next few years.

The popularity of UBI will also make it possible to collect and compare driver behavior data from multiple insurers and countries, according to the firm that consults insurers in the use of UBI technology and data, or telematics.

The UBI concept, which is based on tracking the way vehicles are used both to determine pricing on insurance and allow users to see ways to improve their driving, is becoming standard practice for transportation risks. Towers Watson is looking to help companies adapt to a completely different business model for car insurance.

It means a whole lot more than just saving money. It gives consumers for the first time some control over their rates. They can choose to park their car to reduce mileage or not drive late at night.

Every state except Hawaii has at least one UBI product, and Canada, Israel, Italy, Japan, South Africa and the U.K. all offer these kinds of products. DriveAbility seeks to pool data from multiple insurers to help develop concrete ideas that can save money for both insurers and insureds.

“It means a whole lot more than just saving money,” said Robin Harbage, a director in Towers Watson’s Risk and Financial Services business segment. “It gives consumers for the first time some control over their rates. They can choose to park their car to reduce mileage or not drive late at night.”

It also gives carriers a chance to offer coaching to drivers, which Towers Watson said it has seen lead to accident reductions of up to 30 percent. It can even be considered a green product, as telematics information can be used to help drivers learn how to conserve fuel.

This is something that has gained traction in the United States, but as it is something that benefits both insurers and their insureds, it made sense to work on expanding into new countries, according to the consulting firm.

To accomplish that goal, the company last month made several appointments to pursue the global spread of its UBI product. The international DriveAbility program is led by Geoff Werner, a Towers Watson director. Other Towers Watson UBI veterans leading the team are Robin Harbage, sales and marketing; Eric Shishko, operations and product; and Tony Lovick, analytics.

“Demand for this not just in the U.S.,” Harbage said. “Many of the Top-10 carriers have programs. Outside of the U.S., we’ve been talking to a number of carriers.”

Towers Watson said it has seen interest from insurers in the U.K., continental Europe, Canada, Thailand and Singapore to name a few. The company has yet to finalize any agreements, but said doing so is likely just a matter of time.

“It takes a while to convince them of the advantage,” Harbage said.

Once a few carriers get on board, pulling together usable date should be much easier. Harbage said that one of the interesting things they found is that the data does not vary much from country to country.

“We are quite comfortable that we can use data from other countries to provide lift,” Harbage said.

This has been the case in the United States, where it seems carriers are paying more attention to this new trend every day. For instance, at a recent investor conference, The Hartford said it will be piloting a telematics offering called TrueLane in the first half of 2012 in an effort to stay on top of pricing sophistication.

“The data is compelling,” said Andy Napoli, president of consumer products. “We feel strongly that carriers who do not adopt telematics will subject themselves to adverse selection as this capability has really defined the way we think about pricing.

As a professional services company instead of an insurer, Towers Watson is looking at this from a broader perspective. The company is now working with nine insurers in North America, including two of the top-10 insurers. The company has been able to collect data on thousands of vehicles, totaling tens of millions of miles driven, and this is just a start.

Right now UBI is primarily used for personal auto insurers, but Harbage said he expects usage to pick up among commercial auto insurers as technology advances.

At the moment, the problem is almost too much technology. Most companies using fleets employ some kind of telematics. However, many of their devices function using proprietary technology that isn’t easily translated or conveyed to a large data bank.

“What you find is telematics has been adopted by a lot of large fleets, but only for their own devices,” Harbage said. “That makes it hard to get consistency for modeling. I think those problems will be overcome and insurers will be able to find ways to get uniformity of data.”

Some carriers are already working with fleets on this. Liberty Mutual has a UBI fleet program, and The Hartford has experimented with it. Harbage said others are investigating.

“The enthusiasm from consumers and regulators,” Harbage said. “It is truly an innovation that seems to have wide acceptance across all parties.”

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