“Exposure Data Tracking” is Redefining Personal Lines Insurance

“Exposure Data Tracking” is Redefining Personal Lines Insurance

by Precise Leads

May 19, 2017

With the Internet of Things revolutionizing our everyday lives, will data take over personal lines insurance?

Thanks to technology and the Internet of Things (IoT), auto and home insurers now have an entirely new way to assess risk and set premiums. When data tracking devices placed in homes and cars gather real-time information on an individual’s driving habits and probable property threats, insurance underwriters gain an authentic picture of whether a policyholder presents a good risk profile or carries potentially costly liabilities down the road.

At a recent Ratemaking and Product Management Workshop sponsored by the Casualty Actuarial Society (CAS), experts discussed the advantages — and drawbacks — of using “exposure data tracking” in personal lines insurance. The message to insurers was clear: to thrive, throw out traditional underwriting criteria and embrace exposure data tracking metrics.

Connected Homes and Cars

Exposure data tracking has been most impactful in auto and home insurance where IoT gadgets audit driving behavior and ascertain future perils to properties. Telematics devices attached to cars, for example, permit insurers to not only decipher a driver’s speed, turning, and braking patterns, but the traffic and weather conditions the person actually motors through as well, explained Sheri Scott, Principal and Consulting Actuary with Milliman, in an Insurance Journal report on the CAS workshop. Rather than relying on traditional underwriting information like an individual’s age or a person’s own word for his or her driving habits, auto insurers compile a risk profile based on concrete data about a driver’s true road performance, Scott noted.

Meanwhile, sensors distributed throughout homes can detect the presence of hidden dangers such as CO2 emissions or control everything from room temperatures and lighting, Thomas Smith, President and Founder of smart-home consulting firm Senteri, told the CAS workshop audience. Yet he said only 10% of U.S. homes currently operate with “smart” thermostats and door locks, or contain smoke and CO2 detectors, security monitors, or water and heat-use gauges.

Smith predicted, however, that the percentage will rise as builders routinely outfit newly constructed homes with those devices. Therefore, he said insurers must conceive new policies based on the data those gadgets collect in order to attract new business, reduce losses, and more accurately establish rates. Several major carriers, including American Family, Liberty Mutual, and State Farm, now offer service packages for automated home monitoring, Smith said. “This indicates to the rest of the industry what’s possible,” he said. “You can almost have any sensor to detect any peril. It’s coming to be within the grasp of ordinary people.”

Future Innovations, Future Risks

As technology and the IoT advances, personal line insurers will confront new underwriting challenges. The next logical progression, Scott detailed, are self-driving vehicles that represent a looming change in how auto insurers estimate risk. Driver data tracked through telematics devices still enable insurers to base rates on human behavior; but with autonomous vehicles, underwriting benchmarks shift to the loss experience of the manufacturer — or manufacturers — of the car’s numerous high-tech systems and the auto line’s accident history, Scott said. Another thorny issue insurers must solve is how to pinpoint fault in an accident due to a mechanical breakdown instead of human error.

Early research indicates autonomous cars may still be safer. A test of self-driving cars by Google found that the vehicles were involved in 0.7 accidents per million miles versus an average of 2.0 per million miles for human-controlled cars. Yet, Smith said these autos may be vulnerable to accidents if the technology malfunctions and drivers must quickly take the wheel. “If some kind of communication goes down, there could be a very serious occurrence,” she said.

The takeaway from the CAS session is that personal line insurers must quickly incorporate exposure data tracking and other technologiesto flourish in the future. At the same time, insurers should keep an eye out for new technologies — like driverless cars — and rewrite policies to reflect those innovations.

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