Episode #8 – Why a connected car insurance policy is advantageous to a Reinsurer?

Background

By way of an introduction, a summary of the current market conditions …

The reinsurance market has been hardening over the last few years, because of the discount rate, inflation and the cost of care for large losses.

Insurers generally purchase reinsurance, because of the catastrophic loss element that can occur due to poor driving. Large losses will include the cost of care inflation. Care packages inflation has seen the most dramatic increase +55% over the last three years; the hourly rate for nurses has increased by 27%.

Several Lead reinsurers believe that inflation will be even higher over the next few years, especially with the national living wage rises, care inflation and the motor large loss inflation still rising.

In addition, some reinsurers are looking for rate adequacy per layer rather than an overall pricing due to the fact they require larger rates at the bottom end of the slip, so as a result they dropped their line size on those layers.

Based on the above factors, many insurers have decided to increase their net retention from ￡1m to ￡2m to bring down the reinsurance rate to a realistic price.

I believe the connected car insurance proposition can help insurers obtain better reinsurance terms.

It started with a quote …

Mike Brockman, my fellow founder of Insure The Box and now, the founder and CEO of ThingCo, has a wonderful insight – ‘If you know how, when and where someone drives, surely you must be better able to predict than if you don’t’.?

In previous episodes I have described the advantages of the Viaduct AI enabled connected car insurance solution powered by the devices from ThingCo.?The importance of Mike’s point is how much better informed an insurer is if they are armed with the latest connected car data.?

The power of this additional data available to the insurer to price risk is also available to the reinsurer.?This means you can start to analyse data differently and gain fresh risk insights.?

I explained in episode 6 how you can rate risk based on the actual customer driving behaviour rather than use a set of proxy factors.?This is at the heart of Mike’s comment.?

With the Viaduct connected car insurance solution, we have more data about how the customer drives and how they respond to the feedback delivered through their app and the tips on how they can drive safely.?Added to this is the safe driving reward feedback and reward incentives; these are consistent and powerful messages to promote safe driving.?

Ultimately, Viaduct are better equipped to rate risk and forecast underwriting performance than the rest of the market, because of our connected car proposition. In turn, this means the reinsurer knows we have superior data to provide them with smarter portfolio insights.

We are already reviewing the driving data differently and exploring fresh data patterns to identify the riskier drivers. ?These are the drivers’ which insurers need to devote more effort to educate to drive safely and if they do not improve, they need to cancel their cover, subject to the policy conditions.?These additional insights will also help the reinsurer gain a more sophisticated view of a portfolio.

In episode 2, I described that if we detect a customer has been driving for 2+ hours, without a break, we can issue an audible message through the on-board device and encourage the customer to take a break at the nearest coffee shop.?We will then send a voucher for a discounted drink to their mobile phone to enjoy whilst taking a break.?I am conscious that so many of the catastrophic claims I have seen in my career were caused by tiredness and this innovation could reduce large loss claims dramatically.

There are 3 benefits from this approach:

1.??????A pro-active measure to manage the risk of tiredness (and in turn, serious injuries) and help keep the driver alert and fresh.?This benefits the customer, the insurer and the reinsurer

2.??????Generate advertising revenue from your retail partner – a benefit to the insurer as it is eases the pressure on the insurer margin

3.??????Superior customer experiences

In episode 4, I described how we can ‘save lives’, through dynamic accident management.?This also means we can help reduce vehicle related injuries, not just fatalities, through our approach to encourage safe driving and provide real time support to the customer at their time of greatest need; again, a benefit to all parties, including the reinsurer

A summary of how our AI enabled connected car proposition can deliver fresh benefits to a reinsurer and reduce the risk of catastrophic losses:

1.??????Education – we provide the customer with ongoing feedback on their driving behaviour.?We explain how they can improve each element of their driving behaviour and encourage safe driving which will earn them rewards.?We want to help them drive safely within the speed limits – speed is the biggest cause of serious road accidents

2.??????Remove persistent ‘unsafe’ drivers – our dynamic programme of driving education is backed up by cancelling the policies of unsafe drivers who persistently fail to follow safe driving behaviour and do not respond to our pro-active education programme.?This is done in line with the policy conditions

3.??????Dynamic feedback - to the customer to take a break on long trips, we can counter the risk of tiredness which is a major cause of serious road accidents

4.??????Smarter insights – better portfolio analysis and understanding of driving patterns, so we can work together with our partners on further pro-active measures

Insurers and reinsurers can achieve ?tremendous benefits from a Connected Car Insurance solution.

Which leads nicely to the next episode ….

Episode #9 – Why do insurers think connected car insurance is so difficult?????????