DriveEasy: GEICO's bet for Telematics
The American Insurance case: GEICO current customer approach through telematics. Using mobile application and the pay how you drive model, the company collects millions of miles of driving data to provide customers insights such as driving score and improve pricing modelling.
“DriveEasy, StartDriving and KeepSaving” is GEICO’s premise for the Smart Mobility scenario. Their app-based program aims at detecting driving, calculating premiums in accordance and making roads safer.
According to NTT DATA’s latest Insurtech Global Outlook 2020 report, 78% if the investment of startups in this ecosystem was concentrated in three main companies: Root Insurance, Cambridge Mobile Telematics and Friday. Observing these three, one characteristic raises as common, that of “Pay How You Drive” mode of serving. Two companies with a pay-per-kilometer model were ranked in the top five, something that clearing shifts the way insurance was used to function. Travelers or transport companies are now, with these applications, to receive directly from their service provider a personalized insurance offer according both to their behavior and needs.
GEICO, standing for Government Employees Insurance Company, was born in 1936 as an idea from Leo and Lillian Goodwin to offer insurance services for government and military workers. Their offer certainly expanded throughout the years and despite they still launch several programs to support the military servers, they have opened up their range of insurance products to a wider audience. In 1996, GEICO was acquired by Warren Buffet’s Berkshire Hathaway, becoming other of the many subsidiaries of this giant investor. The action has been even denoted as one of “the most admired Property & Casualty insurance operation in the United States”. From then on, the company has been marked with A++ rating by A.M. Best and AA+ rating by Standard and Poors, a position only earned by 5% of the companies in the country.
Since its beginnings, GEICO has been strongly concerned about driver safety, partnering even with local, regional and federal agencies to support legislations that protect drivers, and, mainly, build public awareness on the safe driving message. In their intent to achieve this goal, Warren Buffet’s Berkshire Hathaway started the telematics program: DriveEasy. This initiative by GEICO measures the driver’s behavior through its mobile app. Throughout the mobile application and a especially-developed algorithm, the real-time driving behaviors of customers is estimated and based on how risky or safe it is, the premium is calculated.
The premise seems simple, but there are several implications across the insurance value chain. Not only underwriting becomes a tailored process to each insured profile, but new products can be designed on the premise “Pay How You Drive”. The more real-time data the company collects from its drivers, the more accurate the risk management model is.
Likewise, the DriveEasy model guarantees information symmetry between the insurer and the policyholder, an ethical problem that has for years haunted the insurance industry. It is not only about lowering premiums throughout a more efficient risk-pricing and customer segmentation, but to add significant value to the user, widening the scope of traditional interaction driver-insurer. Also, the Pay How You Drive model analyses aspects of driving habits such as speed, break style or aggressive acceleration, encouraging customers to driver safer and pressuring a reductions in claims. At the distance of a click, you have your driving score measured, maps and driving logs, positive touch points and drive-better incentives. “It is just one of the ways we make saving on your car insurance easy”.
Telematics is evidently becoming one of the increasing uses of sensors data in insurance, as its applications allow insurers to track their insured and collect valuable data on their driving performance. This will lead to companies like GEICO –which is currently serving more than 17 million auto policies and 28 million vehicles– to reduce loss costs, manage claims better and charge more appropriate coverages.
Nevertheless, it is just one of the many moves carried out by Berkshire Hathaway to deploy this technology within its insurance operations. The firm launched as well in 2019 an insurance product for small businesses called THREE, which aims at protecting these from worker compensation, liability coverages, property and auto.
This demonstrate not only the Group’s but the whole auto sector fast growing interest for innovative technologies, acknowledging their advantages in the today fast moving industry. GEICO’s telematics app DriveEasy is one of the many steady progresses conducted across the insurance and reinsurance businesses to provide solutions that adequate their offer to the “customer-centric” more and more vital trend.
Simple overview of telematics impact in insurance Value Chain
GEICO’s case is an additional detailed illustration of Auto Insurance landscape, the relevance of this market can be analyze to collect insights and visualize some trends. Apart from the telematics usage from top Insurers the current landscape also signalize the strength of American Insurance sector, in 2018 the P&C net income reached 58 B USD translating the 10.5% boost in net premiums compared to the previous year.
The sector is moving fast to transform its business to follow the Smart mobility ecosystem changes. It can be observed the insurance industry moving to improve their business and follow the trends. According to J.D. power, an online car sales platform, customer centric solutions will strongly come from carriers and startups. Partnerships, indeed, has been one of the rising tools insurers use to perform certain parts of value chain, automation and business processes. In 2020, Cambridge Mobile Telematics launched the Safest driver platform, that is an initiative sponsored by Progressive and Uber to reduce risky driving behavior. The app provides incentives with rewards through a competition among users and provides valuable insights on users’ driving behavior.
Moreover, 74% of American insurers developed mobile apps to empower policy holder providing relevant coverage information, allowing their coverage management and self-services. The customer experience is the main variable to young driver adoption, in fact, Globaldata shows that 22,3% of UK drivers between ages 25 and 29 purchased a UBI policy in 2019. Hence, the data shown evidence the traction and size of customer centric approaches including telematics in the near upcoming years.