© 2011 Towers Watson. All rights reserved. The Case for Usage Based Insurance Telematics-based insurance revolution 2 nd December 2011

© 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 1 Additional data provides step change in insights but some challenges Contents Customer and business benefits The case for Usage Based Insurance (UBI) The power of UBI data What do UBI products look like? Example products

The case for UBI towerswatson.com 2 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

towerswatson.com 3 Recent news headlines about UBI The little black box that could help fight soaring car insurance costs - The Independent, 10 September 2011 Is the black box pay-as-you-drive system really helping slash motor insurance costs? - The Mail, 10th September 2011 Black box technology cuts motor insurance premiums by £700 - The Telegraph, 13 September 2011 More than two-thirds of U.K. drivers over age 35 would consider having a telematics monitoring device installed in their car to save money on their insurance, according to new consumer research commissioned by Towers Watson. Willingness to potentially participate in a pilot was higher still, at 77%. TW consumer survey, London, April 2011 Eye on the road: Some insurance companies are introducing monitors that track driving habits to determine possible discounts - Chicago Tribune, 3rd October 2011

© 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 4 What do we mean by UBI? Insurance Premium $1,200 $1,080 $1,000 $900 Insurance Premium $1,200 $1,080 $1,000 $900 Company Feedback Vehicle Score VIN:12345… Miles driven:6,234 Event 1 per mile:.05 Event 2 per mile:.01 Customer Feedback Insurance Premium £1,200 £1,080 £1,000 £900 Risk data from an in-vehicle device offers new rating scores and a platform for new services

© 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 5 The Vision: What if…...you want a proposition that can proactively engage with your customers, enhance the customer experience and provide insight and guidance on risk activity?...you implement a process that reduces the loss ratio by more than 20% for the portfolio as a whole?...you found a variable that could segment your current book such that 20% of your vehicles had a loss ratio five times lower than the highest 20%? Usage based insurance can provide all of the above - and more…

© 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 6 UBI is changing the game for motor insurance Geographic trends North America Early adopters and fast followers Competitive factors driving development Self-installed OBD devices frequently deployed Product propositions range from ‘safety focus’ to promoting ‘good driving behaviour’ rating Europe Emerging market Competitive factors driving development Insurers compete for ‘self- selection’ of better risks Focus on ‘young driver’ proposition (except Italy, where focus is on theft and safety) Use of hard-wired devices South America Potential market South Africa Developing market due to high theft and fraud Asia – Pacific Limited movement Different markets are at different stages of development, but UBI is increasingly being used across the world

© 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 7 Why UBI is game-changing - for insurers and customers Significantly increases risk rating capability and pricing accuracy Differentiated product - and provides platform for new, value-add services Appeals to consumers as it is tailored to their driving activity and behaviour, and allows product/pricing ‘control’ Attracts lower-risk customers via self-selection Allows customers to understand and eliminate risky behaviours, actually reducing accident frequency New data available to increase efficiency of claims handling and reduce fraud Positive impact on road safety All of these advantages lead to increased customer satisfaction, improved retention and opportunities to manage profit margins more effectively Increased Profits and Retention Risk Reduction Claims Handling Customer Satisfaction Better Pricing Self Selection

What UBI can mean for insurers towerswatson.com 8 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

towerswatson.com 9 Effective market positioning: ‘what,’ ‘how,’ ‘price’ Source: CIS website.

© 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 10 Example Consumer Proposition - U.S. Source: Progressive website

© 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 11 Example Consumer Proposition - U.S. Source: State Farm website.

The power of UBI data towerswatson.com 12 © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.

towerswatson.com 13 Device Technology Evolution Early adopters: Hard-wired devices installed in vehicles by professional engineers Mid-term: Customer self-install devices via onboard diagnostic port (OBD) with other types of ‘light’ or self-install devices imminent End vision: Smartphone or SatNav app/link providing connectivity to data streamed directly from vehicle via Bluetooth End vision Mid TermEarly adopters ?2012 NOW

© 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 14 UBI data is unlike typical insurance data Without TelematicsWith Telematics Update frequency AnnualReal time, trip, daily Data qualityRenewal UWDaily scrubbing VariablesPre DefinedManufactured Records per policy FewA Million per Year Data size*Gigabytes Terabytes (when uncompressed*) Trip Distribution by Time of Day

© 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 15 Sample data

© 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 16 Sample data

© 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only. towerswatson.com 17 Towers Watson is represented in the U.K. by Towers Watson Limited, Towers Watson U.K. Limited and Towers Watson Capital Markets Limited. The information in this publication is of general interest and guidance. Action should not be taken on the basis of any article without seeking specific advice. © 2011 Towers Watson. All rights reserved. Proprietary and Confidential. For Towers Watson and Towers Watson client use only.