initial stage of usage-based insurance, insurers considered only
the miles a vehicle had covered to calculate the premium. This was
followed by a period when the “driving style” was considered to
arrive at personalized premiums. Now, usage-based insurance is
moving beyond premium discounts into offering driver engage-
ment features such as suggestions for safe driving, real-time traffic
alerts, vehicle diagnostics, parking suggestions, and emergency
support. In addition to these, an entirely new set of parameters
is being studied to assess the distraction, emotions, and health
of the driver to provide personalized and real-time guidance for
behavioral modification. The motor insurance has shifted from
the concept of pay-as-you-drive (PAYD) and pay-how-you-drive
(PHYD) to manage-how-you-drive (MHYD). By concerning
themselves with driver safety in addition to vehicular safety,
auto insurers are transforming themselves from mere insurers to
mentors for safe driving.
An Actuarial Challenge
Though the atomization of insurance to stage experience has
just started to manifest and the fragmentation and the bonding
models are still evolving, the experience-driven insurance is a new
paradigm—and a reality. It will begin to dominate the insurance
offerings in the next few years, and as insurers embrace experience
and transformation business models, they will become the driving
force and mainstay of the ecosystem in which all other service
providers will operate and thrive.
As customer expectation drives insurers to offer atomized
coverage at an individualized level, the traditional risk evaluation
and cross-subsidized pricing models will be challenged. Initially,
it could be an actuarial nightmare to calculate the right price for
the contextual and dynamic engagements because actuaries will
need to categorize, model, and price risk for various atomized
dimensions. They may also need to factor the contextual involvement of the ecosystem partners, duration, intensity, and variance
in the engagement models to get the prices right. However, in due
course, it would be a reasonable expectation that, in addition to
the conventional risk tables, insurers will come up with unique
tables for every engagement type and model, thereby converting
a challenge into an actuarial opportunity. If insurers identify the
right “experience sweet spot” and offer transforming solutions,
customers may not only be prepared to pay a higher price for the
offering but also become brand advocates.
Customers will be the big winners in the new paradigm. The
insurer-customer bonding will get strengthened, and customers
will start considering insurers as trusted advisers. Customers will
no longer be purchasing insurance just for risk remediation, as the
decision to purchase would be driven by the need for engagement,
experience, and life transformation.
SRIVATHSAN KARANAI MARGAN works as insurance
domain consultant in Insurance & Healthcare Innovation Lab at
Tata Consultancy Services Ltd.
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For providing telematics-based solutions, insurers
have atomized the risk factors into granules such
as mileage, garaging, speeding, hard braking,
cornering, day of the week, time of the day,
type of road, and routing.