World-wide Insurance Activities against Climate Change

The Ceres report on Insurer Responses to Climate Change has just been published. It is an updated version of the same report published 2 years ago. The report states that the insurance industry is in the front line of Climate Change, and the report makes for interesting reading.

Ultimately the Insurance Industry's interest in climate change lies in the volatility of underwriting experience. That means the losses caused by large scale natural events. In Australia we've experienced significant losses over the last 2.5 years, starting with the floods in Newcastle, and including the Blacktown hail, Brisbane floods, Victoria fires, and just large scale storm activity. In the long term the Insurance Industry needs to be profitable in order to attract capital. It therefore needs to deal with events causing losses. If the long term trends are changing, the industry needs to respond if it wants to stay profitable.

From a society perspective, we want to improve our disaster resilience. I have been amazed by the response to the Victoria Fires. It clearly was a terrible event and affected people in a most horrible way. The response to it has been overwhelming. The money raised for the event in a very short space of time nothing short of incredible. Nothing can ever replace the lives that have been lost, but the society will do a relatively good job of restoring the property damage. Insurance played a big part in that.

Contrast that with the widespread floods and destruction in Myanmar in May 2008. Some 90,000 people are known to be dead, and another 50,000 just missing. The natural disaster quickly turned into a man-made disaster with the poor handling by the Myanmar government of aid, and actually being slow or reluctant to issue visas for foreigners coming to help. A terrible example of a disaster against which the world was not resilient.

From the Ceres Report, some points of interest:
The scope of activities identified is wide. It ranges from disclosure, to product innovation, to carbon offsets, to industry participation, to leading by example.

The Ceres report identifies 643 specific activities from 246 insurance entities from 29 countries. A 50% year-over-year increase. The number of product innovations increased by a factor of 2.5, and is the biggest contributor to the increase in activities.

According to the report there are now 24 companies world-wide offering Pay As You Drive Insurance, with discounts of up to 60% over normal insurance.

Disappointingly I think only 13 micro-insurance programs. Micro-insurance is very important for poverty alleviation efforts. We all have great protection in developed countries should something go wrong. Not the same in poor countries. The report identified microinsurance
products covering 7 million policyholders. The purpose of these products are to respond to food and water shortages in rural areas of South America, Africa, and Asia.

Also interesting that the report says only 9 companies offering carbon offsets to their customers. Real Insurance's Pay As You Drive has a carbon offset option.

Also interesting the report says European insurers are much more advanced than their American counterparts. The exception in the US is AIG of all companies! AIG is progressive on the Climate Change front. So they may have broken the financial system, but at least they're saving the planet...

Another very interesting initiative is from Progressive. They've offered a $10m prize for efficient motor vehicle design. It is a pity that the auto industry is under so much pressure though.

The report does contain some numbers on Pay As You Drive successes, but it is unfortunately still sketchy. Nevertheless, the table is below:

The original Ceres report can be found here.

A New York Times write-up of the report can be found here.

Hollard South Africa's Pay As You Drive

The following is an infomercial from Hollard in South Africa. A 2 minute infomercial that explains some details around how the product works.

Brand new "Pay How and Where You Drive" product from MiWay

A brand new Pay How and Where You Drive (PHWYD) product has been launched in South Africa. It is called MiDriveStyle and is by a company called MiWay. They’ve got a highly entertaining advertising campaign.

There are a number of things that are interesting about the product:

1. It is device based, with a GPS.
2. The device has a peculiar name. It is called a Zhaker(!?).
3. The device does emergency management. So when you are in an accident it “calls home” and gets help.
4. The device also lets you know if you run low on battery.
5. The most peculiar thing about the device is that it emits a noxious gas when tampered with or when it loses power! So it tells you you’re running low on your battery, and if the battery runs out… Bad smell. I am not so sure about that feature.
6. You can use the Zhaker to “red-line” areas. So you can tell the device that you don’t want your daughter to go anywhere near the house of that annoying boyfriend…. Interesting.
7. The information can be used to fill-out your tax returns. That will be neat in Australia.
8. You can check on the website where your car is. That clearly comes with all the privacy concerns that haunt location based devices.

The website is still quite uninformative otherwise. It is not clear as to how the pricing works. The device I hear is very expensive, and has an ongoing monthly cost, which will eat into potential savings.

MiWay is an innovative company. It will be good to see how this product develops.

It is well worth a look: MiWay.

Progressive news item on MotorWeek

This clip was on MotorWeek, and discusses Progressive's MyRate product. It is a good clip to watch. It goes into quite a bit of detail on the product itself, and the consumer dynamic with the actual customer is informative. I also thought the web interface with the feedback on driving behaviour is very interesting.

nuride - What a fascinating concept!

nuride is a US online community that has already built up a base of 40,000 members. The premise of the community is that you register, and then record trips you have saved by either car pooling, taking public transport, riding your bicycle or even telecommuting. For each trip you score reward points, which you can redeem for discount vouchers, tickets to shows, etc. 

The practical use of the site is to connect to other people that have the same commuting needs as you, and car pooling with them. It looks like it is a particularly useful tool for large employers with many staff in one place. So you go onto the site and say you are traveling to say Swiss Re's offices. You link up with someone in your suburb that also travels to the same place that you did not know of. So obvious.

The reward benefits are sponsored by companies. I assume they do that either for getting feet through the door or out of a concern for the environment.

The cool thing about the site though is the connection to other commuters for car pooling purposes.

I hope their members know about Pay As You Drive insurance....

Coverbox discussion

There is a blog entry on Smart421 that discusses Coverbox and the implications for commoditization through Coverbox. It is a good perspective and a worthwhile read.

The blog posting is here.

Pay As You Drive in India

Three insurance companies are talking about launching Pay As You Drive in India. As with all things in India, there are a large number of cars. There are also massive insurance companies, most of them previously owned by the government. In the article below it describes what two of the companies are talking about doing. HDFC ERGO talks about a product similar to the Real Insurance product, but with a device monitoring mileage. ICICI Lombard points to a product more similar to the "paused" Norwich Union product. 

Source:

Motor cover convertibles on the way
Customers opting for this usage-based insurance will be asked to shell out an advance premium and indicate the number of kilometres they were likely to drive during the period of the cover, usually one year.


Have you felt cheated about the thousands of rupees you forked out as motor insurance for your car all these years when it barely stirred out of the driveway? Have you been frustrated by the one-size-fit-all nature of most motor insurance products, but had little choice other than put up with it?

That may be about to change, as rising competition forces insurance companies to try and distinguish their policies from those offered by rivals. Usage-based insurance is all set to debut in the Indian motor insurance market soon, as the country joins developed nations such as the United States, Europe and Japan in introducing what can be simply put as pay-as-you-drive (PAYD) insurance.

As the name suggests, the way this insurance product will work is simple; much like a pay-as-you-go or pre-paid mobile connection.

Customers opting for this usage-based insurance will be asked to shell out an advance premium and indicate the number of kilometres they were likely to drive during the period of the cover, usually one year. Once the originally-indicated distance is travelled, customers will have the option of topping it up further, and if the distance is less, the customer is refunded the extra payment.

“We are working on a number of add-on covers, including PAYD,” Ritesh Kumar, MD & CEO of HDFC ERGO General Insurance, told ET.

Add-ons are additional insurance that can be bought for a little extra premium on the basic premium.

For PAYD to work, the insurance company will ask customers to pay a premium based on the distance they are likely to drive during the year and install a small black box type of gadget inside the insured vehicle which will track the distance actually travelled.

“After a year, the individual will be either asked to pay an additional premium if he has driven more or we may refund him the extra premium if he has driven less. However, if there is an accident during the cover period, the insurer will pay the sum assured for repairs,” said Richard Wulff, HDFC ERGO chief underwriting officer.

HDFC ERGO is not alone in thinking about such a product. General insurers such as ICICI Lombard and Bajaj Allianz are also examining similar policy products.

“We are also evaluating the product which is very popular in the US. Under this system, every car will have a global positioning radio system that will send data, including average speed, the types of roads on which it runs and the driving pattern. The premium will be based on all these parameters,” said N Eswaranatarajan, head of motor insurance at ICICI Lombard.

A PAYD system has mixed success globally. While Mr Eswaranatarajan pointed to the policy's popularity in the US, Britain's biggest insurer Norwich Union dropped the policy last year after tepid response from customers.

Customers who joined had a gadget fitted inside their cars which constantly fed back data on where and when they were driving using satellite technology. This was found too intrusive by some customers.

Insurance industry officials in India said while legal decks were also cleared for insurance companies to launch such policies in India, there remained significant roadblocks, not least the effective monitoring of the mileage the vehicle has driven.

“There are two typical problems - our market, which is not very mature, may have issues with checking the mileage the vehicle has done initially when the product is sold and the subsequent monitoring. Additionally, prices for some makes of popular car models are already low. We are trying to work our way out of these problems,” said Vijay Kumar, head of motor insurance at Bajaj Allianz General Insurance. “We are deliberating on the PAYD policy,” he added.