The Changing Usage-Based Insurance (UBI) Landscape in North America
With a growing group of telematics experts touting the benefits of usage-based insurance, below is an interview with leading connected car company, IMS addressing the changing UBI landscape in North America.
1) WHAT IS THE USAGE BASED INSURANCE MARKET SIZE ?
According to a report by industry analysts Global Market Insights, “The North America usage-based insurance market is projected to hold a majority UBI industry share of over 35% by 2024. The demand for telematics globally is expected to see significant growth through 2024 valued at over $107 billion, according to the report. While the emerging trends and global sales of commercial vehicles telematics-based policies are expected to reach a growth rate of 18% by 2024.”
2) USAGE BASED INSURANCE IS A RELATIVELY NEW CONCEPT FOR THE INSURANCE INDUSTRY. HOW HAS IT EVOLVED?
If we compare the inception of this technology (UBI 1.0) with where we see it today, (UBI 2.0), the evolution driven by consumer demand is clear. In the beginning, the value of this technology was really for the insurance companies. They were heavily focused on adopting it because of the shift in pricing, and ways to drive business to attract lower-cost drivers to their companies. Also, UBI was only seen as related to the auto insurance ecosystem. The early adopters wanted the lowest cost technology (OBDII port enabled), cheapest software plans and to have the data generated travel only between the car back to the insurance company. This was only scratching the surface of what the technology could do for drivers, the sole purpose was seen as a singular data tool for the insurance company.
Today, this model has rapidly progressed. UBI telematics (2.0) has now required the early adopters to shift into a customer-centric model, as more and more insurance companies light up this telematics technology. Differentiation has become a key factor as more choices are offered to auto insurance policyholders. The value of this technology has shifted from only to the insurance company, but also expanded to the drivers and partners that fit into this new ecosystem. Pricing is also not the sole benefit insurers are seeing, the customer-relationship management aspect is also at play. With UBI 2.0, in-vehicle communications are starting, and customers have many different touchpoints with their preferred provider. Whether it be driver coaching, vehicle emissions reports, automobile health updates, OBDII technology benefits are not only tied to pricing for auto insurance.
3) TELEMATICS UPDATE RELEASED A SURVEY, WHAT ARE YOUR IMPRESSIONS OF THE FINDINGS?
The barriers to growth identified in the survey resonate with feedback from the industry we have been hearing time and time again. Moving from UBI 1.0 (early adopter stage) to UBI 2.0 (market norms), has business decision-makers focused on: making the economics work, bringing over more auto insurance policyholders to adopt the new technology, having key executives support the shift in business, and ensuring an overall understanding of the value real-time telematics data can bring to insurance companies.
4) WHAT DO YOU SEE AS THE IDEAL VALUE CHAIN UBI 2.0 CAN BRING TO AUTO INSURANCE COMPANIES?
As we’ve worked with the top insurance companies across North America, we’ve noticed a series of trends that can be identified in five key areas.
For companies to successfully bring in UBI within their business model, they must work diligently through these five stages:
Business Foundation – an acceptance of a telematics-based auto insurance business model, and support amongst the executive team for a mass adoption amongst their policyholders. This is a game-changing business decision, and the foundation must be strong.
Devices and Deployment – with so many telematics devices to choose from, and different deployment models, there is no one-size fits all. Small-medium sized insurers often require a more hands-on approach, so a commitment to walk them through every step of the process must be demonstrated. Larger companies require a low-maintenance approach – they want the device solution to be scalable and require no down-time for their customers. We’ve found success with our data source agnostic device model, meaning it works with a wide variety of sensors for data collection – from smartphones and OBD devices to self-powered devices and hardwired boxes, it collects and processes data to support your connected car and telematics-based programs. Along with the services and responsiveness of our employees who have been award-winning throughout the industry, companies want to partner with people they can trust and rely on throughout all stages of their deployment.
Data – this is a business driver, as the data must be accurate and reliable. Access to online dashboards, service-up time and data integrity should be proven and validated. Also, security is a major issue here – end-to-end the ecosystem must be solid.
Analytics – this is the fun part! There are so many ways to transform the data into driver analytics. What can be extracted to shape driver experiences? It can’t be data in and data out – that will only last for so long. When actuaries can see patterns and trends, that’s where the magic begins to happen.
Intel – Imagine being able to predict an incident before it happens? Merging data analytics together with driver behavior is a game-changing reality companies are just beginning to realize the benefits of. Examples include: correlating driver drowsiness to driver distraction, vehicle acceleration and braking patterns to driver performance…this is a new world that is changing the future of modern transportation.
5) HOW DO DRIVER DISCOUNTS IMPACT USAGE BASED INSURANCE ADOPTION RATES?
According to research from Deloitte, adoption of UBI technology see’s the biggest uptake when there is a discount of at least 20% to participate. Users will be reluctant to adopt new technology when the benefits seem minor or don’t make a significant enough impact.
6) WHAT ABOUT YOUNG DRIVERS? AREN’T THEY ALWAYS THE EARLY ADOPTERS OF NEW TECH?
It’s well known that data points to the young driver segment as being receptive to adopting new technology over experienced drivers. Due to questions surrounding data privacy, young drivers are comfortable with sharing location-based information with their insurance provider (anonymized of course!), which is familiar to those who use geotagging via social media forums (ie. FourSquare, Twitter, Facebook, etc). These generations see a tradeoff and are more familiar with the concept.
7) ONCE YOU GET DRIVERS BUYING INTO USAGE BASED INSURANCE PROGRAMS, HOW CAN YOU ENSURE THEY STICK WITH IT?
Key performance indicators for UBI success do not only account for adoption. Driver retention is a major area that insurance companies must focus on. Once drivers opt-in to adopting UBI technology, building a long-term relationship presents a win-win for drivers and their insurers alike.
To ensure policyholder retention, the term “strategize, choose wisely and treat kindly” immediately comes to mind. Find new, compelling reasons to attract users. Once the technology is in place, go deeper by finding connections to value-added services you can introduce to personalize the experience you have with your drivers. “Best risk” drivers are those that are receptive to coaching, which can be achieved through telematics technology. Providing real-time feedback such as dangerous behaviors observed (ie harsh braking, acceleration, cornering, etc), provides an ongoing dialogue that is critical for developing a safer and smarter pool of drivers. When drivers feel rewarded for their solid record of safe driving, loyalty will grow when you are able to introduce additional benefits that tie into their overall driving experience (ie. discounts on an oil-change with a preferred partner, tie-ins with gamification to share progress on social media, roadside assistance discounts with industry providers, etc). Adoption and long-term retention are key factors to the long term success of your UBI program.
8) THERE’S A LOT OF BUZZ LATELY ABOUT THE “CONNECTED CAR” – HOW WOULD THAT WORK IN THIS UBI ECOSYSTEM?
McKinsey & Company published an article titled, “What’s driving the connected car.” We are not quite there with fully embedded connected car technology, but the industry is well on its way. McKinsey & Company observed, “Today’s car has the computing power of 20 personal computers, features about 100 million lines of programming code, and processes up to 25 gigabytes of data an hour. Yet while automotive digital technology has traditionally focused on optimizing the vehicle’s internal functions, attention is now turning to developing the car’s ability to connect with the outside world and enhance the in-car experience. This is the connected car—a vehicle able to optimize its own operation and maintenance as well as the convenience and comfort of passengers using onboard sensors and Internet connectivity.”
UBI is an exciting component of the connected car ecosystem because of the tangible benefits achieved in the following areas, including:
- Seamless integration: Connected cars connected to UBI technology have the potential to connect to drivers, to transportation infrastructure (road charging systems, traffic lights, etc) in addition to a host of technologies that drivers can bring with them (smartphones, wearables, music players, wireless home systems and more). When moving inside and outside of their vehicle, the connected car powered by UBI technology should have limited interruptions and connectivity concerns. This can be streamlined through the adoption of platform-based technology that supports a diverse ecosystem of partnerships that sit on top of a unified platform.
- Content providers: Again, seamless integration is critical when connecting to a host of value-added services. Drivers will want their roadside assistance provider, smartphone of choice, satellite radio, email, and text messaging and mapping software to easily integrate into their vehicle with limited downtime or inflexible connectivity. Value-added services offered to drivers outside of sole auto insurance premiums will extend the relationship drivers have with their policyholder of choice, due to the variety of customized options they can take advantage of.
- Sophisticated mobile applications: Smartphone applications are critical in the UBI space, as drivers want to be able to access reports on their driving behavior and dashboards with real-time feedback. Unlike “UBI 1.0” which was a data-driven transaction between the vehicle and insurance provider, the jump to “UBI 3.0” will see mobile data integrating with OBDII technology to further refine the driving experience. Applications that allow drivers to log-in to review analytics generated from raw OBDII data is a very valuable proposition that ensures transportation technology pushes the boundaries into safer, smarter and greener benefits for drivers worldwide.
- Policyholder personalization: UBI breaks the boundaries of the traditional insurance model, bringing drivers in-touch with their insurer on a customized basis. If you look at two individuals side by side on paper (same year of birth, gender, make and model of vehicle, years of driving experience, geographic location, etc), they may appear very similar. However, their unique driving styles and interest in products and services could vary greatly. By enabling auto insurers to offer frequent and personalized touchpoints with policyholders (ie. integration with dealerships for maintenance, vehicle health reports for gas mileage tips, family programs to appeal to new drivers in the household, etc), a stronger relationship between auto insurers and their policyholders ensues.
- Robust scoring with data analytics partners: Data means nothing without analytics and intelligence. As more UBI partners join into the UBI ecosystem, actuaries have access to an increased volume of data and trends. Patterns and insights emerge that are not possible without the sophisticated infrastructure to support detailed analysis. Telematics data collected by UBI providers, combined with a database of insured losses from several insurers, and external data such as maps, road type, and weather, create a uniquely powerful segmentation tool that will power the connected cars of the future.
Usage-based insurance and mobile telematics continue to gain traction across North America, as insurance companies take advantage of new technologies to customize the experiences of their auto insurance policyholders. No longer an outdated model that relies heavily on generalized data, telematics-based data is unlocking the next generation of rewards and value-added services benefiting insurers and drivers alike. With personalized insurance offerings, new drivers and experienced drivers alike have more choices available throughout the auto insurance marketplace to meet their unique needs.
