United States: IREG Update - April 17, 2015

USAGE-BASED INSURANCE

The National Association of Insurance Commissioner's Center for Insurance Policy and Research (CIPR) recently released the findings of its study on telematics-supported usage-based insurance (UBI). The study examines the fundamental transformation that telematics technology and UBI are having on the US automobile insurance industry, and includes the results of a ten-question survey which was completed by insurance regulators in 47 US jurisdictions. For insurers that currently offer UBI (and for insurers considering entry into the UBI market), the study and survey offer valuable insight into the UBI market, as well as the related issues facing insurers and regulators, and the consumers they serve.

Background

UBI calculates auto insurance premium rates based on actual driver behavior. Policyholders are charged more precise premium rates that take into account exactly where, when, how and how much the policyholder drives her or his vehicle. Mileage and other behavioral data such as braking, cornering or weaving across lanes are captured using a telematics device that sends data remotely from the policyholder's car. The telematics device can be built into the car, self-installed by the policyholder through a corresponding vehicle outlet or even downloaded as an application using the policyholder's smartphone. The telematics device sends data wirelessly to the insurer who processes the data and sets premium rates accordingly. In general, policyholders who drive more miles, at higher speeds, in more congested areas will be subject to higher premiums than drivers who drive short distances, at slower speeds, in relatively safer areas. When administered and regulated correctly, UBI can effectively align the interests of consumers, insurers and regulators.

UBI can represent a distinct advantage to policyholders over traditional insurance, in which fixed premiums, based on actuarial studies, credit-based insurance scores, personal characteristics or some combination thereof, are assessed annually and typically paid for in advance semi-annually. UBI utilizes recent driving behavior, adding variability to monthly premium expenses which are more individualized and within the control of the policyholder. Low-risk drivers are no longer counted on to subsidize high-risk drivers. Moreover, because policyholders are rewarded for driving less and more safely, it is believed that UBI has the potential to significantly reduce the number of accidents of UBI policyholders, as well as driving related costs such as fuel and maintenance.

Insurers can benefit from UBI by being able to more-accurately assess risk, while the potential for lower premiums provides a strong incentive to policyholders to drive more safely. Public policy makers likewise appreciate the potential benefits of UBI. When administered properly, UBI's emphasis on less and safer driving can help relieve traffic congestion, reduce fuel consumption, lower overall carbon emissions and decrease infrastructure costs.

Though by no means new, telematics-supported UBI is a growing segment within an otherwise stagnant $170 billion US automobile insurance market. For example, the number of policyholders participating in a UBI program nearly doubled (from 4.5 percent to 8.5 percent) between 2013 and 2014. One market research firm projects the number of UBI policies to grow by approximately 35 percent each year through 2017.

Key issues concerning UBI

A significant investment is required to implement and maintain a telematics-supported UBI program. Success is measured by an insurer's ability to develop a profitable program while managing the costs of technology, hardware and data storage and analytics. This is expected to become easier in time as technology gets cheaper, data becomes standardized and the analytical tools available for assessing such data become more sophisticated.

On the regulatory front, existing state laws may be discouraging a faster increase in the number of insurers offering UBI programs. For example, laws that require insurers to notify policyholders far in advance of any change in premium make little sense in the context of a UBI program where premiums can fluctuate frequently based on policyholder behavior throughout the year. Similarly, restrictive rate and filing requirements can pose significant hurdles for insurers who wish to protect proprietary statistical information that is subject to public inspection.

State regulators and consumer watchdogs are also concerned about the manner in which telematics data is collected, used and maintained. One study author called the development of telematics a "market failure" from a consumer and public policy standpoint and compared the collection of telematics data to the controversy surrounding the insurance industry's use of credit scoring. Some have pointed out that the use of telematics without transparency could lead to problematic outcomes such as the use of driving data as a basis for denying claims, or have a negative impact on low-income or minority policyholders who are more likely to drive in urban areas. 

There are also concerns about data privacy and security and the potential for release of driving data publicly or to law enforcement.  Consumers are understandably dubious that the benefits of UBI, outweigh the fact that their individual driving habits will be monitored and potentially shared. Studies do indicate, however, that a sizable segment of drivers are receptive to UBI. The CIPR study references a 2014 survey conducted by Deloitte in which approximately 25 percent of respondents indicated that they would be receptive to a UBI program if it meant they could save money on insurance premiums. And  slightly less than half of respondents indicated that they would not allow their driving to be monitored regardless of the potential to save money.

Conclusion

UBI represents an potential opportunity for insurers to capture greater market share in the automobile insurance market. Insurers must carefully consider the costs and risk associated with investing in this still-developing arena. From a consumer perspective, however, UBI is clearly not for everyone.  Data privacy and security concerns remain, and most state insurance departments have yet to promulgate laws and regulations specifically related to UBI. As the UBI market continues to evolve, insurers should anticipate increased state regulatory activity in a number of areas, including rate and form filings, premium fluctuation notice requirements and data privacy and security. Regulators are particularly likely to start making determinations about whether compiled data may be used for purposes other than policyholder rating such as claims investigation, direct marketing and to assist law enforcement.

The NAIC CIPR report can be found here

ICYMI....

Noteworthy links from the past two weeks

General

  • AIG received approval to use drones in its insurance business [Quartz]
  • John Hancock developed the first US life insurance product that offers discounts for customers who allow the company to monitor their workouts and other health-related behavior [New York Times]
  • NYDFS released a report on bank cyber security practices in relation to third-party vendors [New York Times]
  • Massachusetts' Governor decided on a new insurance commissioner [Insurance Journal]
  • City & State magazine profiled the leadership team at NYDFS [City & State]
  • And Rob Easton, NYDFS Superintendent Lawsky's top insurance deputy, decided to leave for the private sector [Reuters]

P&C

  • HSBC and Assurant settled flood insurance "kickback" class action [Law360]
  • Federal flood insurance premiums rose [New York Times]
  • Progressive decided to employ usage-based aggressive driver surcharge in Missouri [Detroit News]
  • NYDFS indicated it is probing potentially faulty engineering reports used in connection with Hurricane Sandy flood insurance claims [International Business Times]

Life & Health

  • The New York Times critiqued the life insurance industry's reserving and accounting practices [New York Times]
  • The Labor Department moved to a 90-day comment period on its proposed fiduciary standard for retirement investment advice [Business Insurance]
  • Plaintiffs claimed that Premera was negligent in allowing data breach [Kaiser Health News]
  • Virginia adopted new rules limiting long-term care rate increases [Insurance & Financial Advisor]
  • The SEC sued a Los Angeles company for fraud in connection with the sale of life settlements [Law360]
  • The Centers for Medicare and Medicaid Services fined Aetna $1 million for errors in telling customers which pharmacies were in network [Law360]

International

  • French insurer AXA SA said too big to fail capital rules could slow economic growth [Insurance Journal]

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Events from this Firm
22 Jan 2019, Seminar, San Francisco, United States

Dentons is pleased to offer a full day of classes, just in time for the California MCLE compliance period deadline of January 31, 2019.*

23 Jan 2019, Seminar, Los Angeles, United States

Dentons is pleased to offer a full day of classes, just in time for the California MCLE compliance period deadline of January 31, 2019.*

24 Jan 2019, Other, New York, United States

Join Dentons’ Health Care Partner Lori Mihalich-Levin and White Collar & Government Investigations Counsel Christine Genaitis as they lead conference sessions at AHLA Academic Medical Centers and Teaching Hospitals Institute.

Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions