Car insurance companies managed to keep customers satisfied with the
claims process during the last three months of 2011 despite a surge in
the number of claims being filed, according to J.D. Power and
Associates.
The announcement from the marketing information services company is based on auto insurance reviews from more than 3,500 people who had filed a physical damage claim within the past six months.
Respondents indicated that repair times took about 9 percent longer
than in the third quarter of 2011–going from 7.8 days to 8.5 days–yet
average customer satisfaction fell by only 1 point on a 1,000-point
scale.
The increase in repair times has been attributed to a higher volume
of repairs needed in the last months of 2011.
That damage dealt by a
handful of bad weather events that hit both coasts and some states in
the Midwest.
An official from J.D. Power said in the company’s announcement that
insurers succeeded in keeping customers informed during the claims
process, which helped manage their expectations and ultimately kept them
satisfied with the results.
“Customers tend to be significantly more satisfied when their
insurers let them know when they can expect their vehicle to be fixed
and then provide updates along the way than are customers whose
insurance company provides less communication,” said Jeremy Bowler, J.D.
Power’s senior director of insurance practice.
Overall Satisfaction Higher among Those Who Filed Claims with Agents
The survey responses indicated that, even though many companies are
directing policyholders to file claims through call centers rather than
with agents, policyholders who went through agents tended to have higher
customer satisfaction.
Claimants who filed through agents gave satisfaction ratings that
were on average 2.7 percent higher than those who filed through the
company directly.
“There still is a significant share of customers who prefer the
personal interaction they get with an agent because they value working
directly with a person they know,” said Bowler.
Still, the gap between satisfaction among those who used call centers
and those who used agents is shrinking. In the second quarter of 2011,
average ratings of those who used agents were 3.5 percent higher.
Wednesday, February 8, 2012
Car Insurance Community Rejects Consumer Group’s Conclusions
A new report released this week by the Consumer Federation of America
(CFA) says that premiums have become an undue economic burden on low-
and moderate-income (LMI) Americans and that state regulators should do
all they can to reduce costs for this group.
“What is undeniable is that high auto insurance costs for LMI households either impose a substantial financial burden or greatly limit economic opportunity, especially access to jobs,” said the report’s authors, who are a former Texas regulator and the executive director of insurance at the CFA.
The CFA report makes three major recommendations to help right the situation: move to slice state-mandated minimum liability limits, create special programs for low-income Americans to get cheaper coverage and eliminate elements of the pricing process that hurt LMI households.
But members of the auto insurance community have been lashing out in response to the report, saying that placing more regulation on insurers would decrease competition in the marketplace, which could in turn actually end driving costs up for consumers.
“The most effective way to lower the price of auto insurance is reduce the costs of underlying factors” like the cost of health care and abuse of the system, said Robert Hartwig, president of the Insurance Information Institute (III). “Changing rating factors that have been shown to accurately project future losses will only distort prices and result in good drivers subsidizing riskier ones.”
The Property Casualty Insurers Association of America (PCI) responded in an official statement with equal tenacity.
“The CFA has the flawed impression that overregulation will keep insurance rates down,” said Paul Blume, the senior vice president of state government relations for the PCI. “Ultimately, overly restrictive laws and regulations have been shown time and again to reduce consumer choice and inhibit market innovations.”
Reducing State Liability Minimums
Support of efforts to cut state liability minimums–the minimum amount of coverage that policies issued in a particular state must provide–is about the only thing that the CFA and PCI seem to have in common.
The CFA believes that keeping liability minimums at 25/50/25–which would provide $75,000 in total liability coverage–or below might help lower costs slightly and make them more affordable to LMI households.
The authors also posit that these lower limits might entice uninsured drivers to get coverage and end up bringing costs down for all drivers.
Industry groups like the III, however, have noted that many state-mandated minimums may be too low to protect all of a person’s assets in a serious accident. And those with low minimums who do cause a serious accident could have to pay for the remaining damages out of pocket and be driven into debt.
Expanding Low-Income Programs
The report’s authors laud states like California and New Jersey for coming up with programs to help residents get coverage for cheap if they meet certain eligibility requirements related to income levels and driving history.
“When such plans exist,” the authors argue, “it is easier to morally justify rigorous enforcement of mandatory liability laws.”
But they go on to say that access to these programs are limited and need to be expanded.
“California’s program provides only liability protection and has even fewer [than 20,000] participants even though millions of drivers are uninsured,” they write.
The III’s Hartwig responded to the issue by noting the low enrollment in the California program and saying it indicates that the private market is already meeting consumers’ needs.
Tightening Regulation
While the CFA report acknowledges the fact that state regulatory departments do not allow insurers to take income level into account when setting rates, the authors say that factors like occupation, geographic location, education level and credit history are serving as proxies for income.
But industry groups say that these factors help indicate a policyholder’s level of risk, not income, and that they simply help insurers price risks more accurately.
The CFA also says regulators need to investigate whether rating factors discriminate against certain groups–even though a handful of state regulatory departments and the Federal Trade Commission have already done this for credit scoring–investigate claim settlements to see if they favor higher-income drivers and look into insurers’ charging more money for less coverage.
“Only state regulators can take the lead in mitigating these problems,” the authors conclude.
“What is undeniable is that high auto insurance costs for LMI households either impose a substantial financial burden or greatly limit economic opportunity, especially access to jobs,” said the report’s authors, who are a former Texas regulator and the executive director of insurance at the CFA.
The CFA report makes three major recommendations to help right the situation: move to slice state-mandated minimum liability limits, create special programs for low-income Americans to get cheaper coverage and eliminate elements of the pricing process that hurt LMI households.
But members of the auto insurance community have been lashing out in response to the report, saying that placing more regulation on insurers would decrease competition in the marketplace, which could in turn actually end driving costs up for consumers.
“The most effective way to lower the price of auto insurance is reduce the costs of underlying factors” like the cost of health care and abuse of the system, said Robert Hartwig, president of the Insurance Information Institute (III). “Changing rating factors that have been shown to accurately project future losses will only distort prices and result in good drivers subsidizing riskier ones.”
The Property Casualty Insurers Association of America (PCI) responded in an official statement with equal tenacity.
“The CFA has the flawed impression that overregulation will keep insurance rates down,” said Paul Blume, the senior vice president of state government relations for the PCI. “Ultimately, overly restrictive laws and regulations have been shown time and again to reduce consumer choice and inhibit market innovations.”
Reducing State Liability Minimums
Support of efforts to cut state liability minimums–the minimum amount of coverage that policies issued in a particular state must provide–is about the only thing that the CFA and PCI seem to have in common.
The CFA believes that keeping liability minimums at 25/50/25–which would provide $75,000 in total liability coverage–or below might help lower costs slightly and make them more affordable to LMI households.
The authors also posit that these lower limits might entice uninsured drivers to get coverage and end up bringing costs down for all drivers.
Industry groups like the III, however, have noted that many state-mandated minimums may be too low to protect all of a person’s assets in a serious accident. And those with low minimums who do cause a serious accident could have to pay for the remaining damages out of pocket and be driven into debt.
Expanding Low-Income Programs
The report’s authors laud states like California and New Jersey for coming up with programs to help residents get coverage for cheap if they meet certain eligibility requirements related to income levels and driving history.
“When such plans exist,” the authors argue, “it is easier to morally justify rigorous enforcement of mandatory liability laws.”
But they go on to say that access to these programs are limited and need to be expanded.
“California’s program provides only liability protection and has even fewer [than 20,000] participants even though millions of drivers are uninsured,” they write.
The III’s Hartwig responded to the issue by noting the low enrollment in the California program and saying it indicates that the private market is already meeting consumers’ needs.
Tightening Regulation
While the CFA report acknowledges the fact that state regulatory departments do not allow insurers to take income level into account when setting rates, the authors say that factors like occupation, geographic location, education level and credit history are serving as proxies for income.
But industry groups say that these factors help indicate a policyholder’s level of risk, not income, and that they simply help insurers price risks more accurately.
The CFA also says regulators need to investigate whether rating factors discriminate against certain groups–even though a handful of state regulatory departments and the Federal Trade Commission have already done this for credit scoring–investigate claim settlements to see if they favor higher-income drivers and look into insurers’ charging more money for less coverage.
“Only state regulators can take the lead in mitigating these problems,” the authors conclude.
Number of Michigan Auto Thefts Down 50 Percent since 2000
Car thefts in Michigan declined by more than 9 percent between 2009 and 2010, according to data recently released by the Michigan Auto Theft Prevention Authority (ATPA).
The total number of cars stolen in the state dropped from about 29,650 to 26,875 during that period.
While the 9 percent year-to-year drop is impressive, the data also show that thefts actually dropped a whopping 50 percent between 2000 and 2010.
The state saw double or near double-digit decreases every year since 2007.
The ATPA attributed the decline to the 110 workers in the state who are funded with anti-theft grants from the ATPA, which was first established in 1986. At that time, Michigan was the state with the highest volume of car thefts in the country, with more than 72,000 vehicles stolen that year.
In 2010, the state had the 6th-highest volume and the 10th-highest theft rate.
Since then, there have been huge advances in antitheft technology–like automatic disabling devices and GPS tracking–that have significantly reduced the theft rate.
According to the ATPA, 6 of the 10 most-stolen vehicles in Michigan in 2010 were Dodge Ram pickups that were manufactured between 1997 and 2003.
The other vehicles on the top-10 list were Ford and Chevrolet pickups.
The largest share of thefts took place in Detroit, which accounted for 47 percent of the statewide total.
The ATPA is funded by a $1-per-vehicle assessment that’s paid by insurance companies and the returns on investments of those funds. Those funds then go to produce grants that help law enforcement agencies combat the theft problem. The Authority reported that it issued more than $6 million in grants between October 2010 and September 2011.
The ATPA says those grants resulted in $27.5 million worth of vehicles and equipment being recovered and more than 2,280 arrests being made.
In addition to law enforcement agencies, grants are issued to county prosecutors as well as nonprofits that provide VIN-etching services to residents. According to the ATPA’s latest report, etched vehicles are 29 percent less likely to be stolen when compared with non-etched cars.
Possible Insurance Implications of Lower Theft Rates
While Michiganders aren’t likely to see an immediate price cut while searching for the cheapest auto insurance in Michigan following the latest ATPA report, significant long-term drops in theft could help drivers get cheaper comprehensive coverage, which is the only type that provides protection after a car’s stolen.
When insurers have to pay fewer claims on a certain type of coverage, they generally lower the price.
However, insurers usually look at the local level, not statewide, and at the types of cars that are being stolen.
If there are drops in thefts in a policyholder’s area, or if they get a new car that has a better history with thefts or is equipped with effective antitheft devices, they could expect a drop in rates. But theft reductions at the statewide level likely won’t have any immediate effect on prices.
The total number of cars stolen in the state dropped from about 29,650 to 26,875 during that period.
While the 9 percent year-to-year drop is impressive, the data also show that thefts actually dropped a whopping 50 percent between 2000 and 2010.
The state saw double or near double-digit decreases every year since 2007.
The ATPA attributed the decline to the 110 workers in the state who are funded with anti-theft grants from the ATPA, which was first established in 1986. At that time, Michigan was the state with the highest volume of car thefts in the country, with more than 72,000 vehicles stolen that year.
In 2010, the state had the 6th-highest volume and the 10th-highest theft rate.
Since then, there have been huge advances in antitheft technology–like automatic disabling devices and GPS tracking–that have significantly reduced the theft rate.
According to the ATPA, 6 of the 10 most-stolen vehicles in Michigan in 2010 were Dodge Ram pickups that were manufactured between 1997 and 2003.
The other vehicles on the top-10 list were Ford and Chevrolet pickups.
The largest share of thefts took place in Detroit, which accounted for 47 percent of the statewide total.
The ATPA is funded by a $1-per-vehicle assessment that’s paid by insurance companies and the returns on investments of those funds. Those funds then go to produce grants that help law enforcement agencies combat the theft problem. The Authority reported that it issued more than $6 million in grants between October 2010 and September 2011.
The ATPA says those grants resulted in $27.5 million worth of vehicles and equipment being recovered and more than 2,280 arrests being made.
In addition to law enforcement agencies, grants are issued to county prosecutors as well as nonprofits that provide VIN-etching services to residents. According to the ATPA’s latest report, etched vehicles are 29 percent less likely to be stolen when compared with non-etched cars.
Possible Insurance Implications of Lower Theft Rates
While Michiganders aren’t likely to see an immediate price cut while searching for the cheapest auto insurance in Michigan following the latest ATPA report, significant long-term drops in theft could help drivers get cheaper comprehensive coverage, which is the only type that provides protection after a car’s stolen.
When insurers have to pay fewer claims on a certain type of coverage, they generally lower the price.
However, insurers usually look at the local level, not statewide, and at the types of cars that are being stolen.
If there are drops in thefts in a policyholder’s area, or if they get a new car that has a better history with thefts or is equipped with effective antitheft devices, they could expect a drop in rates. But theft reductions at the statewide level likely won’t have any immediate effect on prices.
Court: Car Insurance Doesn’t Cover Van Fire that Burned Down House
A federal appeals court has ruled the damages
from a van fire that burned down a house under construction should not
be covered by a Virginia auto insurance policy covering the van because
the van was not being used “as a vehicle” when the fire erupted.
According to court documents, the case originally began in 2008, when John Robins was performing construction work on Steven and Cathy Ivey’s house in Virginia.
Robins had been working on the house for several weeks and was using his Ford Econoline van basically as a storage shed for tools and equipment, powering his equipment with a battery charger and electric splitter that he kept in the van.
He had his van parked there for about a month, driving to and from the house in a separate vehicle.
Robins left the work site for the weekend on Friday, August 15. On Sunday, a fire started in the van that spread to the house and caused nearly $293,000 in damages.
A handful of fire investigators all concluded that the fire had started as the result of “malfunction of equipment kept in the rear of the van, most likely an electrical problem with an extension cord or battery charger,” according to court documents.
After the fire, the company insuring the house paid the Iveys for the fire damage and sought reimbursement from Robins, saying that the incident was a result of his negligence.
Robins then sought coverage from State Farm, the provider of his Virginia car insurance policy, and Nationwide, the provider of his commercial general liability policy.
Each of the companies said the other should cover the damages.
Nationwide said that it should not have to pay the claim because it excluded coverage that was the result of Robins’s use of a vehicle. And State Farm said that it should not have to pay the claim because Robins was not technically using the vehicle at the time of the accident.
The 4th U.S. Court of Appeals found in favor of State Farm. The court noted that Virginia law says for a car insurer to cover the damages caused by a vehicle in an accident, it must be used “as a vehicle.”
The court wrote in its opinion that Robins was using the vehicle as a storage shed, not as a vehicle, and therefore fell out of the jurisdiction of an auto insurance policy.
The court reversed the district court’s ruling that State Farm pay for the damages, and the case was sent back to the district court for further proceedings.
According to court documents, the case originally began in 2008, when John Robins was performing construction work on Steven and Cathy Ivey’s house in Virginia.
Robins had been working on the house for several weeks and was using his Ford Econoline van basically as a storage shed for tools and equipment, powering his equipment with a battery charger and electric splitter that he kept in the van.
He had his van parked there for about a month, driving to and from the house in a separate vehicle.
Robins left the work site for the weekend on Friday, August 15. On Sunday, a fire started in the van that spread to the house and caused nearly $293,000 in damages.
A handful of fire investigators all concluded that the fire had started as the result of “malfunction of equipment kept in the rear of the van, most likely an electrical problem with an extension cord or battery charger,” according to court documents.
After the fire, the company insuring the house paid the Iveys for the fire damage and sought reimbursement from Robins, saying that the incident was a result of his negligence.
Robins then sought coverage from State Farm, the provider of his Virginia car insurance policy, and Nationwide, the provider of his commercial general liability policy.
Each of the companies said the other should cover the damages.
Nationwide said that it should not have to pay the claim because it excluded coverage that was the result of Robins’s use of a vehicle. And State Farm said that it should not have to pay the claim because Robins was not technically using the vehicle at the time of the accident.
The 4th U.S. Court of Appeals found in favor of State Farm. The court noted that Virginia law says for a car insurer to cover the damages caused by a vehicle in an accident, it must be used “as a vehicle.”
The court wrote in its opinion that Robins was using the vehicle as a storage shed, not as a vehicle, and therefore fell out of the jurisdiction of an auto insurance policy.
The court reversed the district court’s ruling that State Farm pay for the damages, and the case was sent back to the district court for further proceedings.
Mercury Insurance Back in the Black for Fourth Quarter 2011
Mercury Insurance’s profits surged in the fourth quarter of 2011
after losing $3.78 million in the previous quarter, according to
financial statements released by the company.
The company’s fourth-quarter profits came in at about $79.5 million.
Yearly profits rose for Mercury between 2010 and 2011. Profits for 2010 came in at $152.2 million, while last year saw the company making $191.2 million. That represents a year-to-year increase of more than 25 percent.
The company fared well in the fourth quarter despite a small dip in investment income–which saw a 3.3 percent drop–and the presence of a handful of events that inflicted significant losses.
Windstorms and severe rainstorms in California led to an estimated $25 million in pre-tax losses, and homeowners sinkhole claims in Florida cost the company $19 million pre-tax.
Mercury saw a 0.8 percent increase in net premiums written between 2010 and 2011.
Mercury stock was down 4.5 percent for the day at approximately 2 p.m. EST.
With the latest financial report, Mercury becomes one of a growing group of homeowners and car insurance companies recovering from huge losses caused by summer weather events that destroyed tens of billions of dollars’ worth of property and gouged insurers’ bottom lines.
Allstate reported at the beginning of the month that its quarterly profits rose 340 percent between the third and fourth quarters of last year. And Progressive reported that it made $76.3 million in December 2011–which was down from the month before but still up 73 percent from August, when the insurer saw the lowest profits in two years.
An Insurance Information Institute survey indicated that the majority of executives at the major property-casualty insurers believe that the industry is on the road to recovery.
Mercury currently has the 13th largest share of the American private passenger coverage market, according to the latest data from the National Association of Insurance Commissioners. The company had $2.07 billion in premiums written at that time.
About a third of the company’s auto premiums were collected from California drivers.
The company’s fourth-quarter profits came in at about $79.5 million.
Yearly profits rose for Mercury between 2010 and 2011. Profits for 2010 came in at $152.2 million, while last year saw the company making $191.2 million. That represents a year-to-year increase of more than 25 percent.
The company fared well in the fourth quarter despite a small dip in investment income–which saw a 3.3 percent drop–and the presence of a handful of events that inflicted significant losses.
Windstorms and severe rainstorms in California led to an estimated $25 million in pre-tax losses, and homeowners sinkhole claims in Florida cost the company $19 million pre-tax.
Mercury saw a 0.8 percent increase in net premiums written between 2010 and 2011.
Mercury stock was down 4.5 percent for the day at approximately 2 p.m. EST.
With the latest financial report, Mercury becomes one of a growing group of homeowners and car insurance companies recovering from huge losses caused by summer weather events that destroyed tens of billions of dollars’ worth of property and gouged insurers’ bottom lines.
Allstate reported at the beginning of the month that its quarterly profits rose 340 percent between the third and fourth quarters of last year. And Progressive reported that it made $76.3 million in December 2011–which was down from the month before but still up 73 percent from August, when the insurer saw the lowest profits in two years.
An Insurance Information Institute survey indicated that the majority of executives at the major property-casualty insurers believe that the industry is on the road to recovery.
Mercury currently has the 13th largest share of the American private passenger coverage market, according to the latest data from the National Association of Insurance Commissioners. The company had $2.07 billion in premiums written at that time.
About a third of the company’s auto premiums were collected from California drivers.
Tuesday, February 7, 2012
Insurance Roundtable: Agents Need to Capitalize on Online Traffic
Auto insurance agents need to drop the Yellow
Pages and go online to keep pace with the growing number of consumers
checking out quotes or purchasing their policies over the Internet, a
new report based on a recent roundtable discussion involving West Coast
industry professionals states.
According to the report, released this week by the WIAA Education & Research Foundation—a nonprofit group formed by the Western Insurance Agents Association—growing numbers of consumers are choosing to check out quotes and buy their auto insurance coverage online as opposed to dealing with an agent in a brick-and-mortar setting.
The availability of online methods for taking care of vehicle coverage needs has created a “growing distance between the consumer and (independent agents),” Michael Jans—president of Oregon-based Agency Revolution—told those in attendance.
Jans said there has been a major shift in the ways in which consumers shop for vehicle coverage, starting with an initial move toward online commerce that began in the mid-1990s and was made abundantly clear in a 2011 J.D. Power and Associates study that found that 54 percent of consumers buying vehicle coverage for the first time began by applying for online rate quotes.
Three companies that have led the way in direct-to-consumer, online policy sales—GEICO, Progressive and Esurance—supplied more than 70 percent of online quotes in 2010, according to Jans.
The report bolsters a growing body of research that shows that consumers are increasingly opting to bypass agents and shop for vehicle coverage on the Web.
Federal officials say that 70 percent of U.S. households now have access to high-speed Internet service. And a survey released earlier this year by marketing research company comScore found that about 20 percent of respondents had purchased a vehicle policy online—an increase of 5 percent compared to two years ago.
Meanwhile, the number of people who had used the services of an agent had slipped to just over 6 in 10, a 6 percent decrease from 2009.
According to the WIAA Foundation report, much of the switch to online sales is happening because of changes to the high-tech communications devices that consumers use. People who are shopping for vehicle coverage on their mobile devices get search results that are more focused on their geographic location and include fewer advertisement-driven results, Jans said.
They also tend to be more focused than those using the Internet from their personal computers on searching for something specific, rather than just surfing the Web, Jans said.
“Surfing is not something people do on their smart phones,” he told the other participants in the roundtable discussion. “They want it to be easy to use and they want results.”
According to the report, released this week by the WIAA Education & Research Foundation—a nonprofit group formed by the Western Insurance Agents Association—growing numbers of consumers are choosing to check out quotes and buy their auto insurance coverage online as opposed to dealing with an agent in a brick-and-mortar setting.
The availability of online methods for taking care of vehicle coverage needs has created a “growing distance between the consumer and (independent agents),” Michael Jans—president of Oregon-based Agency Revolution—told those in attendance.
Jans said there has been a major shift in the ways in which consumers shop for vehicle coverage, starting with an initial move toward online commerce that began in the mid-1990s and was made abundantly clear in a 2011 J.D. Power and Associates study that found that 54 percent of consumers buying vehicle coverage for the first time began by applying for online rate quotes.
Three companies that have led the way in direct-to-consumer, online policy sales—GEICO, Progressive and Esurance—supplied more than 70 percent of online quotes in 2010, according to Jans.
The report bolsters a growing body of research that shows that consumers are increasingly opting to bypass agents and shop for vehicle coverage on the Web.
Federal officials say that 70 percent of U.S. households now have access to high-speed Internet service. And a survey released earlier this year by marketing research company comScore found that about 20 percent of respondents had purchased a vehicle policy online—an increase of 5 percent compared to two years ago.
Meanwhile, the number of people who had used the services of an agent had slipped to just over 6 in 10, a 6 percent decrease from 2009.
According to the WIAA Foundation report, much of the switch to online sales is happening because of changes to the high-tech communications devices that consumers use. People who are shopping for vehicle coverage on their mobile devices get search results that are more focused on their geographic location and include fewer advertisement-driven results, Jans said.
They also tend to be more focused than those using the Internet from their personal computers on searching for something specific, rather than just surfing the Web, Jans said.
“Surfing is not something people do on their smart phones,” he told the other participants in the roundtable discussion. “They want it to be easy to use and they want results.”
Report: Insurers Could Get Hurt by Late Adoption of Telematics Tech
Auto insurers are increasingly offering programs
that use electronic devices installed in policyholder vehicles to track
driver behavior and mileage—a growing trend that coverage providers
cannot afford to miss out on, according to a new report.
At least half the top 20 property and casualty insurers in both the United States and United Kingdom either have a program or are developing one that uses telematics devices, according to the report from Celent, an information technology consulting firm.
The trend continues to be driven by ongoing reductions in the cost of manufacturing the devices, more favorable governmental regulations and a reduction in the privacy concerns of consumers, who some sources say are increasingly recognizing the benefits of taking part in such programs, the report states.
“The threat to late adopters is real: Better drivers will enroll in telematics programs, leaving behind a shrinking pool of poorer risks to the traditional insurers,” writes report author Catherine Stagg-Macey, a London-based Celent official.
The report is the latest to document an increase in the number of vehicle insurance providers offering voluntary programs through which policyholders can outfit their cars with high-tech gadgets that capture data on speed, distance, hard braking, and other information. That data is relayed directly to the insurer and can lead to discounts for drivers—if they’re shown to be safe behind the wheel.
Insurers have long set rates based on traditional criteria including factors including age, gender, vehicle type, driving history and location. And usage-based programs that predate telematics factored in the number of miles driven, with insurers relying largely on either driver estimates or odometer readings.
Usage-based programs that make use of the electronic feedback from telematics devices, however, automatically provide data that say much more about how motorists actually drive, giving insurers a clearer picture about the level of risk posed by a particular motorist.
That allows for greater accuracy in pricing by insurance companies, who are then able—at least in theory—to reward safe drivers who don’t go too far from home too often with potentially some of the lowest cost car insurance the companies have to offer.
But Stagg-Macey says some of the risks and benefits of programs that electronically track driver behavior are still emerging.
As greater numbers of drivers who are safe—and whose driving habits prove it—enroll in programs that feature the electronic gizmos, companies that have not taken that road “will find themselves insuring shrinking pools of poorer drivers, who will appear to be normal drivers if traditional rating factors are used,” according to the report.
Meanwhile, the mere knowledge that electronic devices are present in vehicles has been shown to result in some motorists’ reducing their speeds and braking more carefully, Stagg-Macy says, making them safer and providing a potential financial boost to policyholders and insurers alike.
In addition to any savings customers may earn for safety, the devices also can give them details about how their car is being driven by other family members, make it more clear to consumers how their premiums are priced and provide feedback on fuel consumption and carbon dioxide emissions.
The report notes the success enjoyed by Progressive Insurance, which led the way in usage-based discount offerings with its Snapshot program. A long list of other coverage providers has come out with telematics-based programs in recent years, including major companies such as Allstate and State Farm, and—more recently—smaller vehicle insurers like the Hartford and Travelers.
Celent points out a significant difference in the marketing of telematics programs between the U.K. and the U.S., where insurers have pitched the offerings as a chance to save by logging few miles and driving cautiously.
In the U.K., meanwhile, companies have focused mainly on marketing to teens and other groups who are considered above-average risks on the road. One British company, Aviva, launched a pilot telematics program in 2004, later pulling it off the market in part because of a lack of interest and problems handling the sheer volume of data delivered.
But interest is expected to increase in both nations in the coming years, due to a number of factors, including skyrocketing coverage costs in the U.K., where premiums increased by 38 percent in 2010, according to the report.
Stagg-Macey writes that insurers in the near future will probably pursue a “scaled-down approach” toward their telematics offerings in order to keep costs low. That can be done by installing the types of devices currently being used or by opting to employ the technology of smart phones—which share many features with telematics devices.
State Farm already offers a smart phone application—Driver Feedback—that monitors vehicle operation through the device’s accelerometer and GPS location to provide consumers with driving scores. One of the problems insurers could face by taking this approach is the need to make sure the smart phone has been switched on, the report points out.
There is also the possibility of greater use of equipment that is built into the vehicle, which is already employed as part of Ford’s Sync program and General Motors’ OnStar.
The report claims that BMW has announced plans to pre-install telematics software in cars for the European market starting in 2015.
Several issues will have to be carefully considered by insurers planning to introduce telematics programs, Stagg-Macy says. They include which client segments to target with the program, how to keep policyholders’ data safe—and assure them it is—adhering to legal and regulatory restrictions and integrating the use of data into existing claims-handling process.
At least half the top 20 property and casualty insurers in both the United States and United Kingdom either have a program or are developing one that uses telematics devices, according to the report from Celent, an information technology consulting firm.
The trend continues to be driven by ongoing reductions in the cost of manufacturing the devices, more favorable governmental regulations and a reduction in the privacy concerns of consumers, who some sources say are increasingly recognizing the benefits of taking part in such programs, the report states.
“The threat to late adopters is real: Better drivers will enroll in telematics programs, leaving behind a shrinking pool of poorer risks to the traditional insurers,” writes report author Catherine Stagg-Macey, a London-based Celent official.
The report is the latest to document an increase in the number of vehicle insurance providers offering voluntary programs through which policyholders can outfit their cars with high-tech gadgets that capture data on speed, distance, hard braking, and other information. That data is relayed directly to the insurer and can lead to discounts for drivers—if they’re shown to be safe behind the wheel.
Insurers have long set rates based on traditional criteria including factors including age, gender, vehicle type, driving history and location. And usage-based programs that predate telematics factored in the number of miles driven, with insurers relying largely on either driver estimates or odometer readings.
Usage-based programs that make use of the electronic feedback from telematics devices, however, automatically provide data that say much more about how motorists actually drive, giving insurers a clearer picture about the level of risk posed by a particular motorist.
That allows for greater accuracy in pricing by insurance companies, who are then able—at least in theory—to reward safe drivers who don’t go too far from home too often with potentially some of the lowest cost car insurance the companies have to offer.
But Stagg-Macey says some of the risks and benefits of programs that electronically track driver behavior are still emerging.
As greater numbers of drivers who are safe—and whose driving habits prove it—enroll in programs that feature the electronic gizmos, companies that have not taken that road “will find themselves insuring shrinking pools of poorer drivers, who will appear to be normal drivers if traditional rating factors are used,” according to the report.
Meanwhile, the mere knowledge that electronic devices are present in vehicles has been shown to result in some motorists’ reducing their speeds and braking more carefully, Stagg-Macy says, making them safer and providing a potential financial boost to policyholders and insurers alike.
In addition to any savings customers may earn for safety, the devices also can give them details about how their car is being driven by other family members, make it more clear to consumers how their premiums are priced and provide feedback on fuel consumption and carbon dioxide emissions.
The report notes the success enjoyed by Progressive Insurance, which led the way in usage-based discount offerings with its Snapshot program. A long list of other coverage providers has come out with telematics-based programs in recent years, including major companies such as Allstate and State Farm, and—more recently—smaller vehicle insurers like the Hartford and Travelers.
Celent points out a significant difference in the marketing of telematics programs between the U.K. and the U.S., where insurers have pitched the offerings as a chance to save by logging few miles and driving cautiously.
In the U.K., meanwhile, companies have focused mainly on marketing to teens and other groups who are considered above-average risks on the road. One British company, Aviva, launched a pilot telematics program in 2004, later pulling it off the market in part because of a lack of interest and problems handling the sheer volume of data delivered.
But interest is expected to increase in both nations in the coming years, due to a number of factors, including skyrocketing coverage costs in the U.K., where premiums increased by 38 percent in 2010, according to the report.
Stagg-Macey writes that insurers in the near future will probably pursue a “scaled-down approach” toward their telematics offerings in order to keep costs low. That can be done by installing the types of devices currently being used or by opting to employ the technology of smart phones—which share many features with telematics devices.
State Farm already offers a smart phone application—Driver Feedback—that monitors vehicle operation through the device’s accelerometer and GPS location to provide consumers with driving scores. One of the problems insurers could face by taking this approach is the need to make sure the smart phone has been switched on, the report points out.
There is also the possibility of greater use of equipment that is built into the vehicle, which is already employed as part of Ford’s Sync program and General Motors’ OnStar.
The report claims that BMW has announced plans to pre-install telematics software in cars for the European market starting in 2015.
Several issues will have to be carefully considered by insurers planning to introduce telematics programs, Stagg-Macy says. They include which client segments to target with the program, how to keep policyholders’ data safe—and assure them it is—adhering to legal and regulatory restrictions and integrating the use of data into existing claims-handling process.
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