The Telematics Revolution – What Is in It for Auto Insurers?

As auto insurance enters the center stage, insurance product actuaries are fixing premiums based on usage. There was a time when actuaries worked overtime for an attractive pricing strategy for burgeoning vehicle owners. To bring something revolutionary, it is important that host of factors work together linking diverse stakeholders leading to the development of a product or an idea. In the case of telematics what happened was exactly the same.

Technology is often a two-edged sword where one edge works towards disruption and the other working towards simplification. Both are happening simultaneously in the fast changing world. If this is the case questions like ‘what was disrupted?’ and ‘what was simplified?’ need to be addressed and resolved before going into more details on telematics.

From Disruption to Simplification

Before digital media was popular agents were the go-between for businesses in the auto insurance space. The methodology they used was relying on earlier customer claims, past driving records, and other parameters that were in existence to fix premium for coverage. Today more and more insurance players are targeting the same customer base. Insurers can manage the expected loss, but competition has the potential to create an unexpected loss. If competitors reduce the premium with attractive offers, that can result in an unexpected loss. So, technology gave birth to insurance telematics. Insurance telematics on mobile apps disrupted traditional insurance business model. Usage-based insurance is a product of insurance telematics. Auto insurers widely used UBI to reduce insurance premium. The traditional model that depended on earlier claims, past driving records is being disrupted by UBI. In short, the traditional model for fixing premium was disrupted and the process of auto insurance is getting simplified thanks to UBI.

What telematics is for auto insurers? UBI is here to stay owing to factors like large mobile population, ease of handling claim by insurers where data is available on the cloud. Thirdly, the driving community does not have any other option as the fleet managers and businesses who are concerned about workforce productivity have already automated their processes in these lines. So the situation is favoring for massive UBI adoption by all stakeholders. Is there any other pull factor? Let us explore that also.

Transfer of Risks is the Way to Profitability

Fraudulent claims eat the profits of insurers. In insurance telematics, data is used to determine the location of car, speed of driving, accelerating, and driver scorecard to process a claim. Insurance is all about managing and handling risks. Economists in the insurance domain states, ‘Insurance is the transfer of risk, gambling the creation of risk’ etc. Look at the risk. The risk is the threat of fraudulent claims that erodes the insurance profitability. The success of insurance business lies is in transferring the risks. What helps in transferring the risks? Guess what saves insurance from making a loss. Isn’t it the telematics data that helps insurance investigators in disproving fraudulent claims?

So, identifying fraudulent claims is one way to improve the profitability. Is there any other way to grow bottom line profits? Yes, the only way is in attracting more customers with the offer of discounts. If discounts are offered simply to survive in competition, it will again lead to the annihilation of profits which insurers don’t want to happen. It is at this stage insurers should pitch for telematics. UBI adoption is highly favorable due to customer mobility, workforce mobility, and executive mobility. Executives, as well as internal stakeholders in the insurance industry, will anyway pitch for UBI. Among the drivers, the majority will embrace UBI as it reduces the premium burden which means almost all stakeholders are benefited by UBI a feature of insurance telematics. According to Insurance Agency America Agency Equity report, 72% prefer UBI over traditional auto insurance thereby enabling 30% cost advantage on premiums.

The future of the insurance industry lies is in adopting telematics. Insurers who are slow in embracing disrupting technology can think on repositioning strategy with insurance telematics as its fulcrum.

Reference: http://www.ibamag.com/news/more-americans-reject-telematics-over-privacy-concerns-27554.aspx

The Parlous State Of Public Health Insurance In Australia – An Opinion

With the introduction of the original Medicare scheme by Gough Whitlam in the early seventies, it was the general hope that Australia would be ushered into a new era of public health insurance for all, met by a levy on all tax payers, this, it was hoped, would ensure that no-one in Australia would experience sub standard access to necessary health care. With the defeat of the original Labor government, successive liberal and labor governments have meddled with the original scheme, so that today we now find ourselves with a two tier scheme consisting of a minimal health insurance scheme for the uninsured public, and a private health insurance scheme targeting that proportion of the population that can afford it, which by and large is run as a profit making enterprise by various companies. At the time undoubtedly vigorous lobbying by companies in the industry set the tone of how the system would be run to ensure that it would operate to the benefit of the industry first and foremost, while paying lip service to the needs of the Australian public. What began as a noble and just cause by Whitlam was soon dismantled and degraded by the self interest of the free enterprise cowboys.

Today, we are faced with a two tier system of private health insurance cover which is supposed to guarantee that a person has access to the best possible medical facilities and a long line of people who are just as much in need of those facilities, but who simply do not have the financial power to access them, and are therefore, faced with long public health queues. Scaremongering continues to drive more working Australians into the arms of private health insurers and any attempt to reign in the excesses of companies in the sector was abandoned long ago when the Government privatised its insurer, Medibank. The current state of affairs is tantamount to a cynical exploitation by private enterprise, to bleed as many members of the Australian public as possible whilst offering as little as possible, in return.

The reason for this is two-fold. People are encouraged to take out health insurance at an age when they become members of the workforce and by and large in good health, a time when they, have, statistically, very little need for the insurance the companies provide. However, once these people retire just at a time when their access to the health services will start to increase, they are no longer able to afford the premiums, and are, therefore, denied the insurance they have paid for so many years. This leads to the interesting situation of someone who may have worked thirty plus years, during which time they made relatively little use of the insurance scheme, then find themselves debarred from accessing it because of their inability to afford the premiums in retirement.

Of course, the insurance companies will tell you that their mission in life is to ensure the best possible health coverage for their members, but they normally gloss over the fact that once you are no longer able to pay your premiums, you are automatically no longer a member either, and therefore, their concern for your health and wellbeing, evaporates. Undoubtedly, these companies who have enriched themselves in this system are also influencing governments to increasingly raise premiums because it is in their own economic interest to do so, and as we have seen in recent rises, they are able to do so beyond the increase in the CPI, which in itself hints at a cynical exploitation of their members. Furthermore, even those of us fortunate enough to be able to afford the highest premiums, and would therefore expect to be fully covered, will find that a percentage of the costs associated with any medical treatment will still be sheeted home to themselves, as the insurance companies seldom, if at all, cover one hundred percent of all medical expenses incurred.

One needs to ask the question, when increases in health insurance premiums are announced, to what extent companies in the industry influence the determination of these premiums? Can they be traced back to the profit making organisations in the health insurance industry, in other words, are the government bureaucrats who determine that the permissible rise in health premiums unduly influenced by the commercial interests of the profit making health insurance companies?

Whether this is occurring or not, is more difficult to find out than one could imagine. Try Googling who sets health insurance premiums in Australia and your search query will come back with zero results. Try any combination of these or try to look through the Health Insurance Act, to determine how actual details of how insurance premiums are set, (supposedly in the interest of all Australians); it is simply not readily available. It begs the question, whether we ought to look at the post Public Service careers of some of our health bureaucrats?

Similarly, not all companies offering health insurance are run for a profit, there are some middle funds etc., which purport to be non profit, and are run for their members. This is all well and good; however, when we look at premium movements, even these organisations tend to follow fairly closely the premium rises put forward by the profit based health insurance companies. They may well argue that by doing so, they can better support their members, but again, one needs to bear in mind that one can only be a member of these funds, as long as you have the capacity to pay. Once that finishes, you revert back to the public health system, whether you have been a lifelong diligent member of the fund, or not.

For any person starting out in the Australian workforce, I would urge you to set up a savings account and into that account pay the premium you would normally pay to your insurance company religiously. You will find that by doing this, not only will you accumulate quite a large amount, it will earn you interest, and once you have a reasonable sum in there, accessing the short term deposit market will ensure that you earn even higher interest, and then at the end of your working life, start drawing on this nest egg, to provide for the medical necessities you will face towards the end of your life. Meanwhile, during your years in the workforce, access the public health system as much as possible, and only touch your nest egg at those times where you have no alternative. I would argue that by and large, you will be better off following this course of action than to throw your money at an insurance company which will simply disown you the moment you are unable to maintain your premiums.

The Importance of Having Life Insurance

Most people don’t want to think about life insurance. It’s one of those subjects we’d prefer to avoid – like making a Will. It means having to face one’s mortality squarely and dispassionately. Some even believe it’s tempting fate. And unlike car or house insurance, organising life insurance bears a strong emotional dimension that is difficult to confront.

But life insurance is one of life’s fundamentals. It is essential to prepare for the unthinkable. As difficult as it is to address, we must consider what our financial situation would be if the breadwinner of the family did not come home from work or became so seriously injured or ill as to be unable to earn a living.

How would the mortgage be paid? Would there be sufficient savings to clothe and feed the children? Their education, through school and university is a huge cost that must be catered for. Would the hitherto non- or second earner be in a position to return to the workforce or increase earnings to cover the gap? Funeral and estate costs must also be paid. And all of this at a time of great turmoil and grief.

Aside from the emotional hindrances we face, the practicalities are a further disincentive to many. It feels like an intricate maze. Trusting your judgment as to which way to turn can be unnerving. Life insurance is a difficult financial product to understand.

There are fundamental differences between life and other insurance products. For example, when purchasing house or car insurance, the term is set in annual increments. But what does ‘term’ refer to for life insurance cover? How do you calculate an appropriate level of cover? At what stage should premiums be decreased? Is medical cover included and are there any tax incentives?

Small and medium sized businesses contributed to nearly 50% of Australia’s Gross Domestic Product and employed around 42% of Australia’s total workforce in 2007. This is significant. But a recent study by Swiss Re found that Australians were chronically underinsured. Running your own company carries substantial risks. However, these can be leveraged through life insurance cover. It will not only safeguard your family’s future but the knowledge that you are covered will alleviate much of the stress faced in the day-to-day running of your business.

Obtaining sound financial advice is a critical factor towards ensuring that the product you purchase matches your needs.

A good financial advisor understands that the life insurance product you buy is very personal. Tailoring that cover to suit your circumstances and your budget is a critical part of their undertaking to you. Your advisor’s specific knowledge of this industry will help you avoid mistakes such as being underinsured or having overlapping cover through your mortgage, for example. In addition, you will receive advice on tax effectiveness, combining cover with a family member and on the benefits and extras available to you.

So, when should you consider taking out a life insurance policy? If you’ve read this article to the end, you should probably do it now.