Fairmatic Bets On Driver-Driven Premium Adjustments to Score in Commercial Auto

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Managing general agent (MGA) Fairmatic has introduced a usage-based insurance model that features monthly commercial auto premium adjustments based on an insured’s driving behaviors.

Fairmatic’s “performance-priced commercial auto insurance” product is currently available to commercial fleets and on-demand delivery and driving companies. It works through an algorithm that “sits behind” the insured’s host mobile application and harnesses the phones sensors like GPS and phone use to evaluate driver behavior. The evaluation is based on five different factors – acceleration patterns, braking patterns, hard turns, speeding and distracted driving.

Rhea Harris, Fairmatic general manager, said Fairmatic’s product is an opportunity for insureds to take control of their insurance in a segment that keeps raising rates and is still struggling to be profitable. Commercial auto lost money again last year – the seventh consecutive year of losses. Despite rate increases in 23 of the past 25 quarters, the combined ratio for the segment topped 111 percent in 2017. An increase in distracted driving has been partly to blame.

“The product is fundamentally different from what’s in the commercial auto space today, which obviously has disastrous results,” he said. “It’s really essentially a product that is based on driver behavior and giving the insured and the risk manager the tools to be able to actively participate in lowering their insurance premiums.”

Fairmatic started back in May 2018 and did a soft launch, building up its book in the large commercial fleet space with firms like HopSkipDrive, a transportation network company that mostly shuttles children to school, and on-demand food delivery companies. Fairmatic also covers some emergency medical transportation firms and hopes to eventually expand into the trucking segment. As of now, Fairmatic doesn’t plan to enter the personal auto market.

Fairmatic describes its model as behavior-based insurance (BBI) and says it is different than traditional UBI models because it doesn’t rely on dash cam systems and thus is better able to measure what causes bad driving behavior, according to Drew Varady, leader of product marketing for Fairmatic.

“Because we’re on the mobile phone, we can capture distracted driving better than anyone else on the market,” he said.

Policyholders can view the scored data collected by Fairmatic on a real-time dashboard. Fairmatic uses an anonymized version of the data to calculate monthly premiums for its commercial auto coverage that is backed by Fair American Select Insurance Co. and TransRe Insurance. Fairmatic is available in all states through appointed agents and brokers, including Marsh, Aon, and Arthur J. Gallagher.

According to Harris, Fairmatic’s premium formula is more precise than most commercial auto pricing, which is typically derived from large statistical groups like driver age, driver garaging zip code or credit score.

“Everything that we do is based on actual exposure. We have the data set that comes through real time and then we price retrospectively…We’re looking backwards and saying ‘Okay, this was the number of miles that you drove, this is the location of those miles and this was the behavior of your driver,'” he said.

As for the coverage, Fairmatic offers up to $2 million in combined coverage limits with minimum premiums starting at $75,000 for an annual policy. Each policy is priced individually based on driver behaviors, number of miles driven and where those miles are driven, but Harris said driver behavior is the highest weighted value when it comes to price. Premiums will either go up or down each month based on the policyholder’s driver scores.

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Fairmatic would not disclose specific details on frequency of premium reductions for its policyholders or the average reduction in premium through its model, but said the typical percentage change in premium is in the low single digits since driving behavior tends to change slowly over time. One Fairmatic customer that renewed its policy in May 2019 saved $240,000 in the first year and almost $100,000 in the first three months of its new policy, the company said. That same customer experienced a 14% reduction in cost per mile (since policy inception) and a 27% premium reduction from what its previous insurer charged.

For customers concerned about monthly volatility, Fairmatic offers an optional rate change capping option. It works as a premium cap endorsement that the insured can buy as a “safety net” that provides a premium based on Fairmatic’s billions of miles of driving data.

To help insureds achieve a premium decrease, Harris said Fairmatic uses the monthly data it gathers to provide its insureds with a dashboard of their drivers’ information and their driving behaviors. Harris said the data on individual drivers is anonymized, but insureds are able to see corresponding driver data and address issues with individual drivers that may be impacting their score.

Fairmatic also offers an automatic coaching program that includes specialized coaching and digital incentives to help drivers improve their driving behavior.

“More of it than anything is just an awareness – I don’t think people want to be poor drivers, I think they just need an awareness factor applied, and that’s what we do,” Harris said.

For new customers without prior driving behavior available, Fairmatic integrates two weeks in advance and uses a sample set of data. The policy is priced retrospectively going forward. In the event it isn’t able to integrate ahead of time, Fairmatic utilizes its analyzed recorded data.

Harris, who previously worked for insurers Mapfre and Greenpath Insurance Co., says the insurance market has been very supportive of the new Fairmatic model.

“They understand that this is how insurance should be rated. They understand it should be based on performance … on actual exposure. And they understand the need for an ability to be able to lower rates on a monthly basis and for the insured to influence their insurance premium. In today’s market, they have no ability to influence their insurance premium,” he said.