Technology Driving Change in Insurance Industry

Most of us believe we’re good drivers. A new kind of insurance company expanding into NH wants to be the judge of that.

Root Car Insurance, based in Columbus, Ohio, is the first U.S. insurer to operate solely through a mobile phone application. Would-be customers download the company app, then take a test drive. All the while, the app monitors performance and behavior, and reports back to Root.

Dan Manges, Root’s cofounder and chief technology officer, says the driving score that users generate is the “single largest factor that determines policy rates with Root.”

“The worst 30 percent of drivers cause nearly 45 percent of all accident costs,” Manges says, adding that the company is expanding and will be in NH soon. “By not insuring bad drivers, Root is able to offer lower rates to good drivers.”

Root Car Insurance is one example of the rapidly changing insurance industry. Its transformation through technology goes well beyond selling policies through websites and letting users report claims through smartphone apps. These days, insurance companies are using big data and other modern modes to gather information about the people, businesses and property they insure.

Insurers are using drones to assess properties and even investigate claims, often more quickly and at a lower cost than by sending employees to each location. They are also issuing endorsements (or riders) for ride sharing and short-term rentals.

These transformations are happening fast. “Almost every month that goes by there is something new,” says Patrick Kane, principal at Kane Insurance of Portsmouth, which represents about 40 insurers. “Companies are investing [much of] their money in technology. It’s crazy how much they are spending, but they have to.”

Deep Data Dives
Insurance companies are in the business of buying risk, says Tony Payne, vice president of external affairs for Maine Employers Mutual Insurance Company, or MEMIC, a regional firm with offices in Manchester. For a price, customers transfer the risk of financial loss from a car accident, house fire and myriad other calamities to an insurance company.

This transaction represents a bet by both sides. Customers are betting that they will have a loss, while insurers are betting that the loss won’t happen.

Historically, insurers would look at a handful of core metrics to determine rates. Depending on the type of insurance, things like past claims or the age of the person or property would likely be factors. Those standards have not gone away, but insurance companies are now tapping into a much wider pool of information to better understand the risk.

Getting this data hadn’t been particularly easy until recently. Progressive Insurance’s Snapshot device introduced in 2008 was a trailblazer in the use of telematics, data gathered by monitoring a vehicle. The unit tracked drivers’ speed, hard stops,  time of day driving, and other basics and remotely communicated with the home office. Then Progressive introduced a Snapshot smartphone app in 2015 that replicated the plug-in device. Safe drivers are rewarded with discounts.

Progressive has logged more than 25 billion miles of road data, providing an unmatched glimpse into how people operate behind the wheel. The company uses this information for more than just setting rates. Last year, the firm ran a pilot program in several states that tracked distracted driving. The results showed “a direct correlation between distraction and loss,” says Jim Haas, Progressive’s business leader for Usage-Based Insurance, in a news release.

“Something as simple as putting your mobile device out of reach while driving could make our roads safer.”

Progressive began tracking cellphone use via Snapshot phone apps for all new customers in 2019. People who use their phones less while driving can qualify for even more savings.

Insurance Innovations
Similar trends are occurring in property insurance. Insurers have taken notice as more homeowners install security systems, cameras, thermostats and other smart devices that can be accessed via smartphones. Steven Cote, president of Chalmers Insurance Group in Ossipee, says a few carriers have introduced credits on a homeowners policy for installing these devices.

“While [the tech is] still relatively new to market, more and more insurers are beginning to study the impact smart home technology may have on both rates filed and losses realized from break-ins, freeze-ups or pipes bursting,” he says. “As this technology develops, so too may markets improve especially for seasonal and secondary homes.”

Workers’ compensation is another segment of the insurance market that has changed with the times. MEMIC has specialists that are using new technology to improve safety and reduce claims. That, in turn, reduces what companies must pay for workers’ comp coverage, according to Payne.

One focus is preventing slip-and-fall injuries on the job, which are one of the most common types of workers’ comp claims. MEMIC has employees trained in specialized equipment that can monitor traction in high-traffic areas and determine what, if any, changes are necessary to improve safety, he says.

MEMIC is also looking at ways to improve ergonomics in the office. Through its E-Ergo program, employers share photos of staff at their workstations. Trained MEMIC employees then analyze the images and look for red flags that could lead to injury.

The prevalence of wearable technology such as the Apple Watch, Fitbit and smartphone health trackers has spurred interest within the insurance industry as well, Payne says. Insurance companies want to get data on exertion, physical activity and even pulse rate. “There are lots of conversations within the industry,” Payne says. “We haven’t gone there yet, but it is an area where [you can] begin to collect vital statistics in individual wellness, and it really introduces a whole new level of ability to assess risk.”

Cost/Benefit Analysis
All this data gathering does raise concerns about what insurers might do with that data—something regulators in NH are already following. Rate filings with the NH Insurance Department offer a glimpse into how insurance companies use technology and data. Commissioner John Elias says agency staff track this information to ensure customers are treated fairly.

Elias, who became commissioner last year after a career in insurance, sees an upside to the broader use of data when issuing policies, specifically lower prices. “Carriers are gathering so much data and buying so much data, which I do think makes the products sometimes cheaper because expenses are cut down,” he says.

That seems to be the model Root Car Insurance is following. By focusing on safe drivers, the company says it can offer substantially lower rates. How much will vary, but the company says savings can be as high as $1,100 a year.

Root already has a license in NH, which is considered a first step toward entering the market. But it still must submit additional paperwork, including its rates, to make sure that they are not too high or too low.

While some customers might not like a smartphone app tracking their driving habits, others will have no problem with it if it means lower rates. And given the rapid pace of change within the industry, it’s safe to assume that bigger firms will be closely watching Root and considering similar programs of their own.