Usage-Based Auto Insurance as a
Competitive Differentiator
Podcast Transcript
Speaker: an executive
partner at Accenture,
Drazen Nikolic
Announcer: Hello and welcome to the
Accenture Insurance Podcast Series.
Accenture recently held its Software for
Insurance Forum in Miami. Among the
speakers at this event was Drazen Nikolic,
an executive partner at Accenture. Drazen
spoke about a new system and service
developed by Accenture to monitor the
driving patterns of especially young,
accident prone drivers. The aim is to
provide real time coaching to these
drivers and to enable insurers to offer
discounts to careful customers. Here is
an edited version of his presentation.
obviously, a lot of insurance is running a
negative business in that space. Yeah?
Drazen Nikolic: You may ask yourself
why, how we started this and where we
started. This is a classical example for
open innovation. We work very closely
with one insurance in Germany and we
have shared the ideas around this and
came with this coaching approach. Why
we started with this? Obviously, there is
a problem with gross premiums going
down and gross expenses going up. And
when we've done the analysis around
this through different insurances, now
this is particularly for US market and is
probably the available information,
Going further with this analysis, we have
found out that actually the biggest part
of casualties is caused by young drivers.
Yeah. And, you know, this is changing
and is varying by country and by region
slight. In Germany is about 50 percent of
the casualties are coming from young
drivers so a little bit less. And if you
project this potentially in US, you have a
market of 27 million drivers, yeah, or
owners of the license. So it's actually a
huge market, yeah. And addressing this,
we can significantly improve a combined
ratio for the insurance.
So the other one as a statistic is real
interesting. This one that you see that the
key point is failure to keep in lane,
alcohol drives, and speeding is only the
third one. In Germany, the speeding is the
first one. And we have talked now to a
few organizations to find out what's the
reason for this. They say it depends what
the police is filling as the formula. Yeah. I
mean what is the first question? What is
the last question?
But the feeling is that speeding is really
one of the key points for this one. The
other one, which you certainly all know
and we were all young and know this,
this is Saturday and Sunday, it's the
Friday and Sunday or Saturday accidents.
That means going out, having some
drinks, very high level of testosterone in
blood, you know, and the people feel very
brave and then drive quite fast. Obviously,
this statistic is from Germany, but I think
you can apply this to any country in the
world. Or there are some safe days, you
know, Wednesday around noon is quite a
safe time to be on the street. Friday night
is bad, yeah?
get their cars. In Germany also some old
guys are getting quite crazy. Yeah. That's
when grandparents are driving, you
know, and given the cars. The key
problem with all of these statistics is
that all of these cars are being shared.
Yeah.
And now is a question also for insurer
how to deal with this. Yeah. I mean there
are different approaches. You know, are
you (inaudible) a family insurance or per
car and so on. I think there are three or
four models that we can work around
this which we can discuss in detail. But,
you know, just to show you some of the
examples.
And then we have been conducting a
study in Germany if this type of coaching
would be acceptable by parents and by
young drivers. And honestly, very
honestly, I was not expecting so good
results. And it has been done by
independent company. Forza is a very
prominent organization to do this. I
mean it was really surprising that 77
percent of the parents will take this and
put this in the car. It's okay, yeah,
So what does it mean? Obviously, you see because everyone wants to get his kid
that the insurance has a reaction to this. going (inaudible). But that 66 percent of
Let's say in Germany, I'm bringing
young drivers will accept this, this was
Germany as an example because that's
really a surprise for me. And the sample
where we have a client, but I have talked was about 1,000 people, you know, so
now to about 50 different insurance
it's representative for Germany as a
across the world, and it's pretty much the nation.
same, at least this range. Average
insurance about €600 which would be
The other one is obviously that 62
probably $800, and it's 75 percent more
percent of the cars are being paid by
for young drivers, and it is still not
parents, yeah, or grandparents, whoever
covering all the claims. Yeah. I mean
is paying for this so that's will be driving
claims are 150 percent of this premium,
also the decision if they're going to get
at least in Germany in average. In US,
this in the car or not. Yeah. And 92
based on the statistics that we got is
percent of the parents think this is very
about $1,600. In average, that's -- and
important. Yeah. Also, ecological aspects
for the young drivers, it's $2,300.
are important and financial
compensation. When we are talking
The other one which is also interesting is about financial compensation, everyone
to see how the premiums are changing
is talking it must be cheap, cheap, cheap.
over the time. This is a UK example.
I mean Germans are very careful about
Again, one real interesting example in
money. I can say this even that I'm not
Germany or here is that obviously female German, but they are still ready to pay
drivers are much safer, but in Germany
for this. It's not that you have to put a
there is a jump here in this space.
(inaudible) into the price and hide it and
Suddenly, female drivers start to drive
so on. They are ready -- 36, a third of
very crazy about 45, and that's because
them are ready to pay 100 Euros. That
the kids are growing old, yeah, and they
means $130.00, $140.00, up to €200
they are ready to pay, again, a third, and
even more, €300 are ready to pay, 15
percent. Yeah. And I think this is really a
killer message for everyone here in the
room is that 53 percent, that means half
of the parents would be willing to
change the insurance for this type of
service. Yeah.
The other one which is good in terms of
financial is that only 15 percent of the
people are expecting premium which will
be higher than 20 percent. Yeah. And this
20 percent you will see later on when we
are discussing, it's only in there as a
potential saving. Yeah. When we have
been doing this, we have also discussed
whether the other services, because once
when you have this type of device in the
car there are some other services it can
provide.
One is theft tracking. We cannot protect
that the car is not getting stolen, but we
can find the car. Breakdown service is
something what you have here in the US
with GM Onstar, you know, Concierge
Call and similar as with Mobile Accent
Service. It's a kind of mixture of both of
them. Yeah. We are planning to do
similar study for US market, but I do
expect it will be similar as results.
So what we have done. We have
developed, which is untypical for
Accenture. I mean we are really good in
software integrating many things and so
on, and we took a slightly different route.
We have actually purchased and
designed a piece of hardware, a black
box that is being installed in the car,
what you are seeing in the video. It's
Microsoft Windows based, and the key
point of this box is compared to the
(inaudible) II boxes that you can get in
US from, again, I've forgotten the name.
What's the insurance in US which is
selling this for young drivers, for all
drivers.
Male Speaker: (Inaudible).
Drazen Nikolic: I'm sorry? Yeah. This box
is slightly different because it has a lot of
memory and this is very strong processor
in there because what we are doing is
while you driving we are capturing your
position where you are, we're mapping
this on the map and finding out what is
allowed speed. And if your speed is above
allowed speed, we produce a quite ugly
noise. You know, something like if you
don't put the belt. Yeah. So after three
minutes, either you are deaf, you know, or
you change the speed. Yeah.
a kind of running average so that we can
track your performance. Yeah. Beside
this, we are offering this vehicle theft
protection or theft detection. We can add
a few other services like speed and geo
fencing. Speed fencing is very easy. If
your kid is taking the car independently
of the speed that is allowed on the
street, you agree that they will not drive
And the biggest difference to the system more than 60. If they drive more than 60,
that you're seeing right now on the
you will get an SMS message. Yeah. The
market is many of them are kind of post
other one is, you know, geo fencing is
processing, and after that you'll get
you will say okay, let's agree that you
information how you have been driving
will drive only 20 miles around Miami
which is to a certain extent okay, yeah.
and you will not go to either nowhere
But the learning effect is very low. I mean else, and if they cross the border, this
learning, the best learning is when you
virtual border, you will get a message
make a mistake you get a message
that they're going away. Driver log book
immediately, immediate feedback. And
is if you want to go into the business and
that's the reason why we've done this. So roadside assistance is working on the
what we are actually doing is real time
mobile phones. It's very easy. Just press a
driving assistance. And in the course of
button and you'll get them for help.
testing and preparing this device we have
found out that for testing it would be
So what is really important about this
very nice if, if we could somehow see
solution is that, and in particularly
visually how that looks.
because of data protection, what we are
not doing is we are not sending all the
And then as a pure testing we have
data that we are collecting to the back
developed an application on a Microsoft
end because if we will do this we will
mobile phone, and it's real interesting to breech all possible data protection laws.
say that there are huge cultural
Yeah. So what we are doing on the box,
differences. For example, in Europe,
we are doing whole processing of the
everyone is for this black box. Everyone
data and calculating the index, you
will have a black box in the car and, you
know, how you are driving. So we are not
know, hide it and don't touch it and so
capturing the position where you have
on. When I'm talking to US clients or, for made the mistake. Yeah. We are
example, Asia, (inaudible), everyone want calculating your index over the time. And
to have a mobile phone solution. Yeah. So speeding is very easy, yeah. You are
now, we have a mobile phone solution
driving fast or slow so it's going up or
which is basically having exactly the
down. Yeah. (Inaudible) is about
same functionality except it shows you
acceleration and deceleration, you know.
also on the screen how that works. Yeah. With GPS we can easily find this out, and
And it's not that we are not listening to
I mean we all know that you can drive
you as customers. In the meantime, we
crazy also up to the 50 miles per hours.
have developed this application or at
least the prototype of the application for, And the third one is risk index is the one
just a second, for iPhone. Yeah. So we'll
which is defining dangerous areas and
have it for iPhone and (inaudible) as soon dangerous times, Saturday night driving,
as we get the first client signed up for
Friday night driving. And the point is here
this. Yeah.
to let the people know that there are
sometimes when it's better not to drive.
So what is real important about this that We are planning for the spring of the
there is a quite complex algorithm behind next year to integrate also real time
this so we are tracking the speed and
weather data so if it's snowing, if it's
based on the speed that you have and the slippery out there and so on to increase
street where you are, we are calculating if the index. Yeah.
you are above or below, and we are doing
So how that works eventually for the
client, each month we are collecting the
data and calculating a possible discount,
whatever you as an insurer want to give
them as a discount. And if they're driving
very good, they will get a maximum
discount, if they are driving less good,
they will get less discount, and
calculating the average toward the end
of the year. And at the end of the year,
they can get some discount. Yeah.
So so far just as a quick summary of this,
what we're offering, I mean you probably
all know this pay to drive, so Progressive
is the company (inaudible) that is
offering this. So many companies are
offering these pay to drive solutions, and
what we are really offering here is a
slightly different one, is a coaching
because I think it's unfair to punish
someone who is driving more miles per
year than someone who is driving less
just by paying more. Because
statistically, it says that I think 60
percent of all accidents are happening in
the area of 16, oh, I'm sorry, whatever,
10 miles around the home. Yeah. So if
I'm driving 10,000 per year or 50,000
year, and accidents will happen around
the home, so why should I pay more? I
mean statistically, yes, there is a
probability higher to have an accident
but I don’t have to have it. Yeah.
The other one is with coaching,
particularly if you addressing young
drivers, we will improve the driver's
behavior long term, and there are
different studies which are proving this,
not from Accenture but from
independent companies.
The other one which is important,
whenever you're introducing a new
model, I think it's much easier to
introduce something which is rewarding
than punishing. And someone who will
have to pay by mile is a punishment, and
why should they take another
punishment from me? Rewarding here is
here is your level today and if you're
driving better you will pay less. If you are
driving the same or worse, you will come
to the same level as you have paid
before. So we are saying I will try to
encourage you to drive better. Yeah. And
I said I mean rewarding I'm quite sure is
much better than punishing for
introducing new things. The index data
model is there for good. We also have
approvals in Germany for using this is
because we are not transferring any data
on the place where you have this
incident. So there is no way that someone
can track down and use this against you,
not even the police. Yeah.
And the other one, when we have talked
to different insurance companies, they
say, yeah, it's nice. You know, I will buy
this and this component. Well, our
intention is to offer this as a full fledged
service. So basically, you can buy 10,000
devices, you'll get 10,000 devices
installed in the car. And then we will
manage these devices and send you the
data whenever you need it. There are
some clients that will say, yeah, please
send me data once a month which is
easy, and there is one client in particular
who said, look, Drazen, don't me send me
data, (inaudible) send once a year
because the key point in selling this to
the client is that I have a kind of check if
they are willing to drive better. Yeah. It's
more about psychologically, you know, to
see how far they are ready to adjust their
driving or not. Yeah. Any questions so far?
You're so quiet.
Ok. So where is the money? In the claims.
I mean we started very carefully at the
beginning and said, ah, there is a saving
about ten, 20 percent, and I said so far
I've had about 50 meetings across the
world with different insurances, and they
have taught me that savings are much
higher. And the key point is positive risk
selection. When you're selling insurance
and say, look, if you take this box which
will track how you're driving, you can get
a discount. And if someone is taking this,
you can immediately give him a discount
because this is a careful person, you
know.
And I think it's one of the key point in
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selling insurance, you know, to decide
what is a good, what is a bad risk. And I
say that's not my invention. That's from
clients like you that say that this would
be the key point. One of them said, told
me, Drazen, can you just do the black
shoe box, you know, empty one. This will
be the key point, you know, how much
this costs. Yeah. And then make it beep
every once in a while and that's perfect,
yeah. We are thinking about doing this
as well. Yeah. So this is a certain
percentage, what they say, about ten to
20 percent, maybe even more.
The other one is changes in driver
behavior. So there are a list of studies
that you can see which are proving this. I
mean they have had up to 500 drivers in
these studies. And I think the last one is
real interesting that in Germany they
have changed the law now and from
January next year even 17 years old can
get driver's license like in US if you have
someone in the car. I mean they've run
the study now for a year, a year and a
half I think and found out that if the
young drivers have someone in the car
who is driving with them, that driver's
behavior significantly improves and the
number of accidents goes significantly
down. Yeah. And our hypothesis here,
well, if you have a mechanical coach or
electronical coach, this should be about
the same, yeah. We can have some
addition savings in operating expenses
obviously because we are talking to
young generation who is living on
Facebook and internet, and I think this
can help a lot.
And I think this is the last slide. Yeah,
just one more thing. There is one more
thing which I haven't put here, and I
have too many (inaudible). When we are
talking about these mobile solutions,
now, they have one very important
factor. And please don't take this
personally. For me as a customer of
insurance, now, I can have only negative
experience with insurance because every
touch point with you is negative. One is
I'm signing the contract. I have to pay
money. Yeah? Then I have an accident,
it's negative and, you know, independent
how good you are, it's definitely a
negative experience.
And the third one is toward the end of
the year, you increase the rate, it's again
negative. Yeah? So is this. Yeah. The
point is with a mobile phone, you know,
or getting them onto the web, you can
improve, you know, how the perception
of your insurance is because it's a new
communication marketing instrument.
You can send some positive messages.
You can, beside telling them how to
drive, you can tell them where is the
cheapest gasoline, where is this and that
happening, you know. And suddenly,
you're changing your image. There is a
really positive experience about your
insurance.
So I think this is a quite strong message,
and I think the other one is with this
coaching what we are trying to position
here as a rewarding mechanism, I think it
gives you a chance, you know, if you look
at this from the marketing perspective, to
reposition the insurances as someone
who is helping you avoid trouble and not
helping you go easily through trouble.
Yeah. So you are actually going being
proactive instead friendly and
retroactive. Yeah. From that perspective I
think it's a quite interesting solution. I
said it's a different one because we are
coaching so long term solution. We are
not trying to punish anyone. It can help
you reposition your insurance and send a
completely different message and
increase the number of positive touch
points with you. So far for me.
Announcer: That was Drazen Nikolic, an
executive partner at Accenture speaking
at the recent Accenture Software for
Insurance Forum in Miami. Thanks for
joining us for this edition of Accenture
Insurance Podcasts. For more information
on services and solutions for insurance
visit Accenture.com/insurance.