EP10 – Improving Commercial Auto Ins Profitability Using Technology and Analytics with Luminant Analytics CEO, Renu Joseph.

Commercial Auto Insurance has really struggled. A very large market, where insurers just can’t raise rates fast enough to keep up with insurable losses that are rising even faster. Unlike personal auto, commercial auto is complex, with ever-changing exposures, mobile across state lines and until recently, the inability to find technology that could economically scale with the evolving exposures. That has changed and in this episode, I spoke with Renu Ann Joseph, CEO of Luminant Analytics on how insurers can use technology and the emerging external data generated from that data to keep them in control of their losses and exposures.

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Renu Ann Joseph – https://www.linkedin.com/in/renu-ann-joseph-83048a4/
Luminant Analytics Homepage: https://luminantanalytics.com/

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Inflection Point for Commercial Lines – https://luminantanalytics.com/inflection-point-for-commercial-lines/
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Transcript

Nick
We're live. Okay. Renu Ann Joseph even though that's not a new name Luminant Analytics. Why don't you spend a couple minutes and give us an elevator pitch? Who are you? Why should we care?

Renu
Excellent. So Luminant Analytics helps insurers price and select risks better with external data. Why should you care? an insurer should care because in one line of business, the industry has got it completely wrong, because they miss looking at external data. And that line of businesses commercial auto, where there were certain structural changes in the industry, which could have been captured, which was captured by data, but the industry missed it, mispriced it and is still in dire straits. We help insurers convert those external data into actionable insights via data and models. And that's a value proposition.

Nick
Where'd the idea come from?

Renu
So two things. One is partly my background. I'm an economist. And I've spent my entire career looking at data with a very keen focus on making it useful to the business and the second is my most recent job where I was part of a niche research team in a fairly large reinsurance company where the focus was using external data to price better. So it was just after the previous role, I found the shortfalls, and I rolled into a new role setting up the company to fill in the shortfalls that I felt was there in the industry.

Nick
So those that that are listening or watching that don't understand commercial auto, can you split split the world in two if you can and talk about before luminance and after limited, how were things priced? And how are you doing it now?

Renu
Okay, so the most important difference is that Luminant will offer a commercial insurer a benchmark for the market. So let's say let's look at a preliminary word, a commercial attention Someone who writes drugs, looks at their own set of data and prices of policies. And that's because that's how they've done it for the past 1020 years or even longer.

Nick
So what sort of data? Can you explain? How for the layperson? Yes, it may not understand what is the data that they actually have?

Renu
Yes. So they have the data on the truck, some features of the vehicle size, where it operates, who operates it, and some underlying feature of the industry that owns the trucks. That's the that's the historical claims data. And then once there is an accident, the insurer gets details of the accident. Right, who, who was involved in the accident? What is the payout? How long did it take? What was the cause of the accident? Where did it happen? So that's an insurance world, a policy that they send out and the claim that they get and when they price it what they have to Remember is that everyone, every insurer. So you can think about an interest a consumer, I go to Amazon and or to target and buy us a little basket of goods, that basket of goods, it includes my preferences, what I like to eat when I like to eat and insure is kind of the same. The insurer preferences is their risk appetite. So it's what kind of trucks Do you want to insure? Do you want to insure the really big trucks that go according to state or do you want to just do the short distance ones? So, the risk however, interesting that that preference is constant, right. Now, when does it not become constant? When do you as a consumer not know that your preference is not constant? When you go into target, for example, and you see more goods, right, then you know that your your basket of goods that you could kind of afford or want has increased? That's a context that you get Only when you see the external world.

Nick
So that applies to the commercial entity as well. Absolutely. So so it can't, it can't remain constant for the insurer because it doesn't remain constant for the business that they're insuring. They're constantly evolving as well.

Renu
Exactly, exactly. So

what insurers have been doing has have been pricing according to their own risk preferences, because that's what they could capture with their data. But the fact of the matter is that the underlying market, social, economic demographic changes have have changed a lot. And a really great example is you think about a truck driver. 2530 years ago, it was a very well paying profession, and they had good hours over the past 25 years that's declined. The truck driver is more stressed and because of for example, changes in Food. Even you could say more obese, there are a lot of factors that has changed the quality of a truck driver and insurer will see this because if you have, let's say there is not a good truck driver driving a 25,000 pound truck tractor trailer, there's an accident, the responses are going to be less perfect. The insurer gets the consequence when there is a loss. And what we say is that the changing nature of the roads of the truck driver, behavior safety, it's all available in different data sources. You need to be creative enough to do two things. One is to go look at the different data sources that is outside and think about, okay, there are 20 different data sources, which are the 10 ones that capture that change in behavior. Well, and the second thing is, how do we integrate that into our current pricing models. And in commercial auto, insurers are struggling with both, which is, how do we filter the signal from the noise when it comes to external data? And second, how do we integrate, say dynamic pricing or information about behavior on a on a minute by minute basis into relatively static pricing. So these are the two challenges that is that an insurer sees or has been seeing for a long period of time. And what we try to do is we, we want to help an actuary or a product manager or an underwriter. We want to help them do their jobs better. Because luminance, competitive advantage is our knowledge about external data, and how we can bring in more different modeling techniques more or creative ways when there is not enough data. That's our strength. So an insurer should use us to help enable big current professionals to do their job better.

Nick
So I know from personal lines, I'm aware of companies that are beginning to, you know, plug in devices that keep track of speed, location, braking speed, acceleration, you know, a lot of those factors, I assume that's in commercial trucking trucking as well and what other types of external data may exist that could it could enrich the underwriting process.

Renu
So, yes, the telematics data or the GPS data is available for for commercial fleets just like you have in personal auto, but my assessment is that it has not fully flown through the pricing process because that the telematics provided usually generates a scorecard on the basis of certain parametric, and then gives it to the insurer then how it is used is kind of lost in translation. So that's one thing. The second thing is telematics use is not as wide as it is in the US as states in Italy. So right, especially for personal auto, so there's always a problem that, then you're getting a sample selection problem. People who know their monitor, change their behavior, and so they use it. So that's a bit of a challenge when it comes to telematics, which is also why I when we when luminal is building its models, we build them at a state level or an aggregate level not at the individual level because we don't have the client data are when we model it are our assumptions are very different. We go back to an accident. Why does an accident happen? And we we think there are three outcomes a death and injury are appropriate. do damage, only accident? What's the driving factor? Behind each of these three? Is that linked to the economy? Or is that linked to the way roads are maintained? Is that linked to the age of the drivers? So there are a few factors that you can look at data over time. We model that we have find a relationship, and then we actually project what that means. So in the beginning, I didn't willfully include telematics in the models, simply because I don't believe there is enough sample consistency and volume to make a powerful story. However, if there is a commercial auto insurer who says here there is data, could you integrate that into our pricing models, and eventually can get into rate filing? Absolutely, you can.

Nick
So, I've been reading recently that part of the issue with commercial auto is their inability to keep up with germs. Awards. So talking about remaining consistent or inconsistent is social inflation, the, you know, the way that a jury will respond. And I think for the most part, they, from what I understand juries view commercial entities harsher. When there is a death or a severe injury. Can you talk about how how the industry has lacked the ability to sort of keep up with social inflation?

Renu
Well, I think that

social inflation is really hard to measure and pinpoint. So I must say that I've three I feel like I've been in, in conversations, my claims people and lawyers have been there. And they all come and tell me you can't model that. You just can't. I think that the self defeatist attitude, because we won't know till we try So I think a lot of the conversations for social inflation is, yes, there is all social inflation, but we can't do anything about it. That's, that's 111 part that I think is actually it's a mental attitude. And that kind of has to change a bit. The second thing is the data. How can we actually get to social inflation? So social inflation is a key driver of loss severity. And that's one of the things that I want to do, which is basically, here's an accident, what does it cost? And I'll come to a cost estimate for an accident without any claims data because you have certain competence of a cost. And one of this is actually a factoring in in for persistent social inflation coming through. Julia was, the reason is that there's a lot of information out in the state courts in their documents. There are companies that are mining it. They mined it, and give it to the lawyers to the attorneys. When they try to give it, give it to the insurance, the interest kind of don't know what to do with it because it's the people who might have a different mindset. And you need to be able to marry that mindset to the mindset of an insurer who wants to convert everything into a loss of purity. So social inflation is something that we can absolutely tackle. We will never get it correct. Because, you know, jury verdicts are fickle. But yes, we can actually see trends, at least a year ahead of time, such that actuaries can reserve better. You don't need to go into a tunnel without any light. That's what everyone is doing now. Right? You just saying, Yes, social inflation, Julia, what's going to happen? But we don't know what else we can do. Let's just go right in. And let's pray that this ends on its own.

Nick
Well, that gets to your your mindset comments. Right, so the mindset that I am now seeing for carriers are MBAs that have done commercial insurance in the past. There's a lot of art, you know, I'm throwing, you know, they almost want to just give it up. explain to someone you know, someone that might be interested in commercial auto carrier exempt and mga why now is the time to actually use this sort of data and technology? Why is now the the opportunity to get back into commercial auto, or if you have commercial auto, why is now the time to really put the pedal down and actually start to take advantage of the opportunities that you're presenting?

Renu
Yes. So the first example is, the first reason is there are actually a few companies and the industry knows who they are, who've done it kind of better, right? So it means That if those companies can do it better, not doing it better makes you lose a competitive advantage that enough should be reason for you to, to think about it. The second reason is that so many people have put their hands off it, that I consider it a Greenfield initiative insurance. There are no bad risks. There's only badly price risks, and in commercial auto insurance consistently, being married to badly price risks. So if there is a time to reassess your internal appetite, your book of business, this is the time. The third thing is the pandemic. Right. We all know it's, the world has gone still. But we are all eating. And we are buying things from Amazon. Right? Exactly. the trucking industry is driving it. And so if I were a commercial auto insurer, and you wanted to know what to do, you would call me Because this is the perfect time, right? To do something a bit different,

Nick
you know, so so the we're in the New World, right? Yes, it will, we're going to be you know, and I debated this with folks that, you know, we may have a Wii recovery and go back to the way we used to be, I really struggled believing that I think we are in a new normal, I think there will be an entire workforce that will be working from home, therefore, there will be fewer cars on the road. And therefore, just by default, commercial auto losses will go down because there'll be fewer accidents, fewer deaths, fewer injuries, fewer life liability claims. So that by itself seems seems to me would would open up the opportunity layer on top of that, the proper analytics on that and you You can get a fresh start. If you've been a commercial auto writer, if you're new, you can start off, you know really gung ho at the start and have, you know, potentially several years of victories under your belt. Yes. Can you can you comment on that?

Renu
Yes, I actually that was the third fourth point which I should have mentioned, which is that personal auto industry is expecting a decline in personal auto or move away into autonomous cars, right? This could very well start that and not by shift to autonomous cars, but to the work from home. And on the same side, it might actually push the demand for semi autonomous trucks. Right and in their interest, do they want a slice of the pie. They need to get in with analytics. Otherwise, then they lose it to the OEMs and to the product guys,

Nick
because they can't use you can't use the traditional actuarial Matt mechanisms absolute to price this new type of auto liability.

Renu
Yes. And so this this new normal as you say, and I completely agree. It's a perfect reset point on the industry. And so I've been prospecting for commercial auto force two years and I've had lots of rejections and feedback. And I was when the pandemic happened and apart from the incredible sadness, I was thinking, for those insurers who adopt Carpe Diem, this is a make or break. The ones who say we want to try something a bit different. We'll be the ones to benefit from innovation, and later the ones to survive.

Nick
I think I think a lot of what you're saying will come down to mindset, because no disrespect, I think the the analytics and the data have been around for A little bit of time here. And those that have spent time in technology in the analytics in the data know that this will work. Yeah, I think it comes down to the ability for the insurers or the mga is partnering with insurers to understand that it's, it's potentially not as risky as they think it is. It's in I kind of, sort of parkins to you know, you make an investment and you take a big loss. It's scarring. Yeah. Right. And it's hard to come over that. But you're I think you're absolutely right in the ability to start fresh, start new here with a different approach. So you don't have to take the risk that you used to take. And the industry itself is probably going to become less risky, just by innate nature of the of the environment that we're at.

Renu
Yeah. And we all know that the industry He doesn't like to take risks. But now it is faced with that thing conundrum of do I take a risk converted into an opportunity? Or do I just do standstill? And it's, you know, at the end of the day, the ability to move innovation. I believe that that the onus is on the senior management. It's it's a vision, it's wanting to know where you want to business five years later, and what you're actually going to do materially to change it. Because of course change cash should be bottom up, but it should come from top down. And it's so again, I look for a visionary CEO or a CEO who says, Yes, this is a new normal. Let's attack this and let's read the first benefits. That would be a great partner for Luminant.

Nick
Renew whenever someone asks me, how do you do know if a company is taking their strategic data and digital initiative seriously. And I said, You'll know when you see the senior execs rolling up their sleeves and getting in the middle of it. It's, um, that that is the big difference. You're right. I think it needs to be driven. Yes, bottom up, but I think it needs to be led top down. And if this if the CEO and the CEO are not fully committed fully on board, they're not rolling up their sleeves and getting involved in the decision making and only collecting their executive summary of weekly meetings or whatever. If things can go awry.

Renu
Yep. I agree. And it's also rolling up their sleeves and doing it every day. As a friend once told me if you're an entrepreneur, you wake up every day and you do the same thing again, even though you know you're going to fail, right but you do it because you have Passion, and you are an entrepreneur. This is the time for a CEO for a CEO to be an entrepreneur, this is the perfect time, right. And there are so many companies in the Insurtech world with ideas. And so it's just a great time for incumbent to work with an Insurtech. And to figure out where we blend together and I, I believe that the industry has moved away from considering Insurtech to be, you know, we replaced them, at least in certain fields. We need to really admit the fact that we will do better when we work together. They will be discomfort, for sure. But it's insurance is a long business. So it's grit sheer grit, that that leads to good innovation and good analytics. Yeah.

Nick
You You did bring up the pandemic. Any other thoughts on how this may affect our industry. You know, have you in you're not even in the States right now we're here in Switzerland. Right? So you've been living, sealed up first, before we get into that question, how are things over on the European continent and specifically in Switzerland?

Renu
So Switzerland has been

excellent. I can't use a better word for it. I'm very proud of the country that I've adopted for seven years, because we get consistent messaging from our government, from our government staff. And there is people obey orders for the most part. And we're lucky enough that our hospitals were never overrun. So it's, again, it's highlighted What a perfect world Switzerland is. Europe, you know that there's been Italy's been hard hit Spain's been hard hit. But when I think of COVID-19, in Europe, I think about one word That solidarity, right? It's just people are combined about how we feel in an epidemic or what it means. I'm American. So I've already about America. And every day I wake up and read the news, and I see different messages, and I see all kinds of thoughts. And so my first thing is that you guys need to have one message about what this means for you. countries have different value systems, that's completely fine. But in times of these crisis, we need to kind of bring it all together. So I sit here and I see the difference in how countries deal with it. And as a social scientist, I'm just I would just say I'm, I'm interested. That would be the best word. But I hope that things get better in the US quicker. And all of us are dealing with an uncertainty. We don't know anything about the virus. So we don't know reinfection rates. We don't know vaccines. It's so much of uncertainty. And so I would say for just for us to understand what the new normal is, the word I will use, again is just be is solidarity, that we are actually in it together. So that's from the personal point of view. And I think, also the person going into the business I've I'm in an industry that is really slow, the sales cycle is really long. And now the uncertainty is extending it, right. So you need to kind of figure out, how does luminance add value? Where do we go first? Do we need to change any approaches? Because simply because interest are, I think one month later, they are there, their heads are still not wrapped around the idea. I think the whole of last month must be them trying to figure out how do we get everyone to work from home. And now who comes into work so it's basic business operations. So, which is why today, if you when he asked me, What are the interests trying to think I think a lot, most current industries are figuring out what this is going to be. Two months later, I think I believe in the insurance industry that they will have a better idea of what they want to do. Never perfect, but they will have a better idea. And I would say that, that that's the time for innovators and insurance companies to talk, because we have all kind of gone over our first panic hump.

And I think that,

Nick
like it's likely not to be the only one.

Renu
Yes, exactly. And and the other thing that I say this is a long journey, let's not do any investor to any Insurtech revised down your expectations. Right. This is something which is public health versus the economy. If there's no health, it's kind of hard to have an economy. And so I think that so far The response of the industry has not surprised me. Because it's very normal. This is a new situation for all of us. What really defines the industry in the next two to three months? What do we do? And the companies that actually say this is what we are doing, sends a strong signal to the rest of the industry that this is what they need to be doing.

Nick
Fantastic message. For those that want to follow along to the changes in the evolution of commercial auto and the types of things that you're doing. Are there any particular blog sites or trade associations where you can get like a finger on the pulse of how commercial auto is changing specifically in the you know, the insurance prism?

Renu
Well, I think that

Connie does Reports. Yes, Connie does report then the ATA has constant feeds.

Nick
Let me guess American Trucking Association

Renu
Association. And then there are certain other kind of data carriers, data vendors that do some kind of work like freight waves, which look at different kind of data and the movements. And my marketing lead and I are working on a piece that talks about what, what this can mean for the transportation industry. Nevada, which is a vendor does good updates. So, a lot of the the thought leadership comes from actually the vendor side, rather than the insurance side. And I think that's normal, right? insurers are trying to figure out okay, who do we give money back to? How do we get a business? So that's fine. So, I think also, if more and more intro text can talk about this, right about this, it's it is a big advantage. And I would actually, one of the trends I've seen is that anyone who can do data analysis goes and looks at the COVID-19 data and starts projecting debts. And then I was like, there's a battalion of people doing that. Let let the epidemiologist do their job. Let's see what this means for us. You know, whatever your industry is, think about it. Because there is a lot of there is collective wisdom, and we just need to kind of sit and think what this means and I'm, I'm pretty sure most of us will be off in our projections and what we what we think, but I think we are also at an interesting phase where what we think actually shapes the next year. It is not really what we do but what we think is translating what we do is what is going to be the next year.

Nick
Do Henry Ford quote, If you believe you can and you believe you can't, you're right.

Renu
Yes, yes. You're absolutely, absolutely.

Nick
Thanks for the positive message. Thank you for taking time out of your Saturday. Top commercial auto, and let's stay in touch. Let's have a, you know, some sort of recurring catch up so we can get our finger on the pulse of what's going on commercial auto, if that's okay with you.

Renu
That would be fantastic. Thank you so much for the opportunity.

Nick
And for those that are still listening, thank you for making it all the way through. same message, stay safe, wash your hands. Keep your distance and all that good stuff but stay safe everyone and it'd be kind subscribe. Thank you. Thank you.