Application Research On The Development Of Usage-Based Insurance And Its Ratemaking Methods

Along with implementation of Traffic Accident Liability Insurance for Motor Vehicles, auto insurance is the first big insurance of domestic property insurance market. In the recent years, auto insurance accounts for 70 percent of the completely domestic property insurance market shares. Nevertheless, P&C insurance companies take much cost in auto insurance in early stage and always use 2009 ABC clauses. The situation leads to almost no difference among auto insurance products and competition of low price. Therefore, big-size companies get low profit, median and small-size companies almost cannot survive. Under that circumstance, in 3th 2015, China Insurance Regulatory Commission (CIRC) decides to release new auto insurance market-oriented premium reform that revise clause and premium. The reform simplifies and standardizes the content of the clause, and formulates premium-rate-making methods so that greatly improves P&C insurance companies'independent pricing power. Hence, what makes P&C insurance companies competitive are not bottom-price auto insurance products, but change to more risk-matching auto insurance products and business models. And with the development of the Internet of vehicles (IoV), usage-based insurance which combines IoV and insurance can solve the risk identification, accurate pricing, claims service and other various problems. Therefore, UBI will be the next origin of force of auto insurance competition.The first chapter is the introduction. Firstly, this paper briefly explains the purpose is to illustrate the development status, future trends and application process of the Internet of vehicles from the theory and practice. Then this chapter reviews the domestic and foreign related papers, summarizes the research status of UBI and auto insurance ratemaking, and find few scholars analyze the actual implementation of OBDs and IoV. So this paper focus on these two key points of the writing direction. After a brief introduction to the main research contents and methods, this paper analyzes the main innovation is to compare the domestic and foreign OBDs and UBI programs, and detailed introduce the A insurance company's UBI program; at the same time, due to fast development of UBI programs and lots of products, there may be some omissions.The second chapter is logical starting point of the full context, this chapter analyze the development of auto insurance market and auto insurance market-oriented premium reform. This chapter illustrates the characteristics of auto insurance is large amount and high frequency claims, expand the insurable interest and maintain the public interest. And this chapter give a brief category of auto and auto insurance. Based on the proportion of auto insurance market and the competition pattern, this paper analyzes the situation that domestic auto insurance market is in a monopolistic competition. In 2015, market share of the top eight insurance companies occupy 97.94% of the entire amount of the auto insurance market, but the overall cost of the first eight rate reached 96%. On this basis, the development of auto insurance and the innovation of the insurance industry are closely relates to the auto insurance market-oriented premium reform. Firstly, it analyzes the four stages of auto insurance market-oriented premium reform, a new round of auto insurance market-oriented premium reform points in 2015:One the one hand, better risk-matched rate structure is adopted, making the existing auto insurance rate is related to benchmark risk premium, the rate adjustment factor, and additional cost rate. Rate adjustment factor gives insurance company more independent pricing power. On the second hand, more compact and reasonable clauses are adopted, to protect the consumer's personal legitimate interests.The third chapter analyzes the present situation and development of IoV and UBI products. The generation and development of IoV and UBI provide a new direction for insurance companies to identify risks and differential pricing. This paper analyses the meaning of IoV, the terminal-tube-cloud system, IoV industry chain, the development of domestic IoV. This paper analyzes the development of IoV in detail, and focus on the analysis of twelve kinds of On-Board Diagnostic's (OBD) mainly equipped cars, charge characteristics, and release time. Then this paper introduces the three generations of UBI and point out that domestic UBI is still at the second model named pay-as-you-drive(PAYD). After that, the paper analyzes the current situation of domestic and foreign UBI, and analyzes 11 foreign UBI projects in comparison as a reference for domestic UBI project. At the same time, the paper points out what the value of UBI is that IoV can filter risks, make premium by customers'risk situation, and improve the status of claims, enhance companies'brand value.The fourth chapter gives a theoretical introduction of UBI's ratemaking actuarial models. Firstly, making a definition of pure premium which can be decomposed of loss frequency and loss severity and determining the key of ratemaking is to model loss frequency and severity. Secondly, making a general introduction of auto classification ratemaking actuarial models, and illustrates ratemaking process is to determine rate factors and using statistics models to determine loss frequency and severity. Then this chapter focus on the analysis of auto classification ratemaking factors, and analyzes industrial three aspects of rate factors of the people, the car, the circumstance; in the meantime, introducing basic theory of industrial mainstream GLMs. At last, through analysis of UBI pricing models, this paper think UBI selects the rate factors that can reflect driving risks more precisely, and gives the common rate factors. The paper points out the because of not enough customers of the UBI program and not enough credibility, so that using the UBI as a factor to fix the current auto insurance rate.The fifth chapter is the analysis of the A insurance company UBI project case. The A company cooperates with a consulting company, using the OBD+APP model. In the pilot period, to complete installing almost 3,000 equipment as planned. Customer participation ratio is more than expectation, installing success ratio is more than 95%, monthly online equipment ration reaches 88%, APP monthly log rate reaches 92%. With the help of consulting company of establishing the rate factor system, the A insurance company uses actual claims data and GLMs to model driving score of loss frequency and severity independently. This paper finds the loss frequency negatively relates to the driving score apparently, while the relationship of loss severity and driving score is not significant. So considering using driving score factor in loss frequency model, and smoothing it as risk cost factor coefficients. The experts give suggestion of driving score factor coefficients. Finally, this paper gives 3 examples of fixing current rate methods by using driving score coefficients, proves they can indeed reflect driving risks of auto insurance rates and complete matching auto insurance rates with risks and pricing by risks.The sixth and last chapter is the summary of the context. According to the three problems of UBI developments:Firstly, the large amount cost of UBI needs more capital of hardware, personnel and patent by insurance company; Secondly, pricing methods, making clauses of UBI are different from these of traditional auto insurance. UBI products have more diverse and clauses have more personalization, etc. so there are some problems of consumer rights and interests and new reserve and solvency calculation standards. Thirdly, the whole IoV industry focus on UBI, but insurance company can't illustrate profits of UBI programs. The investment of external company may not get investment return from these programs. So insurance companies should think how to develop the UBI business models. To solve these problems, this paper puts forward responding strategies:Firstly, Under the general trends of auto insurance market-oriented reform, insurance company should actively layout UBI, and master technology of UBI to achieve advantages. Secondly, OBDs are basic equipment of UBI data, so it's necessary to promote development of OBDs. Thirdly, based on the development trends of IoV and big data technology, to build a uniform and open sharing platform of auto insurance information. The enterprises join in a IoV investment integral and exploit UBI together. And to shape a good business model and facilitate the entire IoV's health development.