Commercial auto insurers are just beginning to tap into the power of telematics data for pricing models. Until recently, commercial fleets leveraged telematics data for operational and maintenance prediction needs. Based on Penske’s 2022 Use and Trends Report, 76% of fleets share telematics data with at least one service provider. It can be reasonably assumed from additional insights in the report that a majority of that group is not sharing telematics data with insurers right now. This reveals a major opportunity for commercial insurers to take advantage of data that’s readily available from fleets. Fleets are primed and ready to benefit from telematics pricing models, but where to start?
Learning from the companies that have been using telematics data for pricing the longest is a good place to start. In this blog, we’ll highlight the top telematics lessons that commercial carriers can learn from personal lines carriers. Although the business models are different, many of the key elements of building a successful telematics program can be transferred to the commercial space.
Lesson #1: Experiment, Implement and Iterate
Personal auto insurance carriers started using telematics pricing models in 2008 when Progressive introduced Snapshot, its personal lines telematics solution. Since then, personal lines carriers have tinkered with different models, devices and consumer-facing programs to deliver the best telematics-based results for their companies. In a recent earnings call, Progressive touted its ability to retain the safest drivers and remove high–risk drivers faster using data gathered from Snapshot. The company took what it learned from the personal lines UBI programs that it’s had in place for nearly two decades, and in 2018, Progressive expanded it’s telematics offerings to the commercial space with Smart Haul for trucking customers.
Progressive then deepened its investment in 2020 with the introduction of a UBI and fleet management program for small business owners that offers a discount between 5 and 18%. Taking a page out of this playbook, commercial carriers can stress less about getting their telematics pricing model implementations 100% right from the outset and plan to iterate over time.
Lesson #2: Be Clear on How to Collect the Best Data for Your Commercial Auto Pricing Needs
When planning to implement telematics data into your pricing models, there’s one question that surfaces immediately – How do we collect clean, reliable data from disparate sources? Taking a critical look at the customer set under consideration is the best place to start. Having a solid understanding of the customers and different data sources will allow you to leverage the processes that are already in place as the foundation of the telematics pricing models.
Many personal lines insurers started their telematics programs using the OBD-II dongle to collect data. As time and technology advanced, those programs slowly started to shift to app-based programs that collect data from a driver’s cell phone. Now, we’re in a space where telematics data can come from multiple devices within one vehicle, ranging from cameras added to the vehicle to data directly from OEMs.
Commercial insurers that cover a wide range of fleet categories, from construction to transportation, will likely insure clients that use a number of sources and device types. According to Penske’s 2022 Telematics Use and Trends Report, 37% to 54% of fleets (ranging from small to large) use at least one telematics device, and many use multiple devices, including cameras and electronic logging devices (ELD) to manage their fleet operations. This data will need to be aggregated and normalized to be made useful.
Questions commercial auto carriers may want to consider as they prepare to implement telematics pricing models into their underwriting practice are: What is the desired reach for their telematics program? Can this be achieved with a single telematics provider or multiple providers? Do they have the bandwidth to ingest and normalize the data in-house within their target timeframe, or should they outsource to a third party?
Partnering with multiple providers will introduce varying degrees of event classification. Additional questions for commercial auto carriers to consider as they review their options are: What level of location accuracy do they need? What movement timeframes (time of day, second by second) really matter? The answers to these questions will make all the difference in determining how quickly a telematics program can be implemented, the dedicated resources that will be necessary to support the implementation and how it all works with other strategic initiatives.
Lesson #3: Don’t Be a Data Hog
Since we’re on the topic of data, let’s explore how carriers can do more with less, or better quality data. Early on, personal lines carriers focused heavily on how much data they could gather. Now, the focus has shifted to data accuracy and usability. Commercial carriers can skip the step of being data hungry, because it is now clear which aspects of data reveal the trends and behaviors that we’re seeking to track – harsh braking, speeding, sharp turning, hand placement, fast acceleration, etc. This streamlines the process of aggregation and normalization, resulting in information that can be used for modeling that much faster.
A bonus lesson that can be taken away here is that telematics data is good, but it’s best when coupled with other sources of data that can also be monitored on an ongoing basis, like motor vehicle record (MVR) violations and roadside inspections for regulated vehicles (CSA). Many fleets are already fairly well-practiced in the science of using and sharing telematics data for maintenance and operational purposes. This sort of telematics data can also be useful for commercial carriers as they shed light on not only the risk of the drivers on the road but also the vehicle itself. These data sources, when combined, paint a full picture of the risk that a fleet has on the road at any given moment and over time.
Lesson #4: Behavior-Based Training Is the Trick
A major benefit that personal lines insurers found in their app-based telematics programs was the real-time feedback and coaching that they were able to provide to drivers. Through a simple push notification, personal lines insurers can coach risky drivers into safer behaviors over time. Drivers can receive near real-time feedback on their driving and connect it to the insurance premiums they pay, through data visualizations or gamified feedback loops built by insurers. This real-time coaching has leds to significant and speedy improvements in drivers who engaged with the coaching content.
Behavior-based training is a prime area for commercial insurers to benefit from in the telematics space. Many fleets already require drivers to complete regular behind-the-wheel (BTW) and on-demand training to stay current on best practices for safety and machine handling. Connecting an individual driver’s risky behavior on the road to timely, relevant training can shift the direction of an entire business.
There are many entryways into using telematics data for training that don’t require as much investment as a full implementation. Commercial insurers can choose to leverage data from a fleet’s existing device and build out their own training notifications. Carriers can also partner with a company that offers telematics insights and customizable training content for a quick win. Not only is the training material more helpful and engaging for the driver, it minimizes risk factors across the business.
According to a study conducted by the Virginia Tech Transportation Institute in 2020, fleets using telematics have found that driver monitoring coupled with coaching delivers up to a 50 to 60% reduction in risky behaviors on the road, while monitoring alone has a much lower impact on behavior. Telematics data leveraged during new driver onboarding is even more impactful. Carriers using SambaSafety telematics insights and training have seen a 16% reduction in monthly crashes.
Although it may be tricky to prioritize implementing the systems, aligning the budget, gathering the resources and waiting to see the impact on the ever–important loss ratio and combined ratios, harnessing commercial clients’ telematics data for modeling is necessary to remain competitive. It takes time to establish a strong telematics foundation for your company, but the key is working with the right partners for your business. Building upon the experience of personal lines’ decades-long foundation and finding the right partner(s) can accelerate your return on investment. Including telematics data in pricing models for fleets will land your business ahead of the competition in all of the areas that matter most.
To discover more strategies for leveraging driver data to accurately price and mitigate risk, download our white paper, “Can Deeper Data Insights Save the Commercial Auto Insurance Industry?”