Dec 2014

Pay-per-mile v. Usage Based Insurance: How Do They Stack Up?

usage based insuranceA California startup recently introduced another model for auto insurance: pay-per-mile. This new company, Metromile, has a simple value proposition: The less you drive, the more you save. Unlike traditional car insurance premiums, their monthly “base rate” is calculated by miles per month. And unlike usage-based insurance (UBI), the company isn’t looking at driving behavior.

Who benefits … and who doesn’t?

For those who don’t drive a lot, the pay-per-mile model may produce lower rates, saving customers up to $500 per year, Metromile said. While Metromile won’t charge customers for more than 150 miles per day (250 in Washington), it’s an ominous price structure for drivers who are on the road frequently. Auto News put it this way: “Because of the industry’s risk-pooling practices, the break-even point is around 10,000 miles per year. Drive more than that … and conventional insurance would probably be cheaper.” According to Metromile’s website, per-mile insurance is currently only available in California, Oregon, Washington and Illinois.

How does pay-per-mile compare to usage based insurance?

Like usage based insurance, the pay-per-mile model could be an auto insurance game changer. Metromile CEO Dan Preston says, “70 percent of the variation in insurance claims filed can be chalked up to how much customers drive, with just 30 percent tied to driving habits.” With that stat in mind, pay-per-mile seems logical for certain segments of the market.

That said, Metromile operates much like first generation usage based insurance solutions, relying on an onboard diagnostic device known as a Metronome for data collection. Those of us who have watched the evolution of usage based insurance know firsthand that hardware is expensive and cumbersome, making it difficult to cost-effectively roll out and scale a program. The use of hardware creates inherent inventory, storage and distribution challenges – all expensive. Furthermore, there’s the chance that those who receive the hardware never actually install it, creating a separate issue of wastage.

Pay-per-mile innovators may be well-served to follow the lead of usage based insurance, and try a smartphone-based platform to track miles instead.

Different strokes for different folks

While a certain segment of the market will appreciate the simplicity of the pay-per-mile approach, others may be looking for more. For example, usage based insurance may continue to be a more attractive option for the following audiences:

  1. Those who drive a lot, drive safely, and want to be rewarded for their skill. No explanation needed here. If you drive a lot, and drive well, UBI is likely a more advantageous option.
  1. Millennials. On one hand, Metromile says their approach appeals to millennials, because younger customers drive less, relying on alternative modes of transportation. On the other hand, it lumps people together, which isn’t exactly the approach that Millennials covet. IA Magazine describes the millennial mindset this way: “Millennials have grown up in a world of individuality: I am unique, I am different, there’s nobody like me in the whole world. I have control of my life, I’m self-reliant, I get to make decisions – don’t tell me what to do.” Conversely, usage based insurance treats each customer as unique, offering millennials the opportunity to prove themselves on their own merits.
  1. Those who value relationships. As we said earlier, to gain long-term customers, you’ve got to build long-term relationships. Usage based insurance provides insurers opportunities to communicate positively with customers every time they drive – rather than making their only points of interaction the “potentially negative touch points” of “claims or billing.”

At the end of the day, both pay-per-mile insurance and usage based insurance have value. It really comes down to the audience you intend to serve, and your ability to cost-effectively introduce and scale the program.

To learn more about smartphone UBI, download our free report, “10 Reasons to Unplug and Unburden UBI.” Want to learn more about Driveway Software?  Get our Fact Sheet here.


Dec 2014

How auto insurers can help solve the inequality crisis

auto insurance underwritingWe’ve all heard of the cycle of poverty – a situation in which low income families become entangled in a continuous poverty cycle because they are less able to access education and other resources. However, what you may not have thought of is how auto insurance underwriting practices may contribute to these socio-economic inequities.

Imagine this scenario

Anna is a low-income single mother who cannot afford good health insurance. Her child becomes chronically ill. The medical bills pile up, and because she has missed work to care for her child, she is unable to pay some of her bills on time. Anna’s already fragile credit score takes a serious hit. Then, when her auto insurance renews, she receives more bad news. Because her credit score is low, her insurance rates significantly increased. Now the cycle continues. While struggling to afford auto insurance, other bills slide and Anna’s credit score continues its downward spiral.

A good idea with an unintended consequence

Two decades ago, when auto insurers began using credit scores to establish insurance rates, this was surely not the scenario executives envisioned. They simply knew that for whatever reason, there was a correlation between credit scores and auto accidents. And, they knew that by leveraging credit score intelligence, they could likely drive down auto insurance loss ratios.

There’s an unintended side effect though: It’s harder (a lot harder) for lower-income people to maintain good credit as you can imagine based on our earlier scenario. Even if low income people are above-average drivers, their below-average credit scores could saddle them with heavier premiums.

Now that we know better, we can do better

While credit score intelligence improved auto insurance profitability, it’s by no means the ultimate solution. While there is some correlation between credit scores and driving behaviors, there is an absolute relationship between real driving data and a driver’s propensity for accidents.

Now that auto insurers have the means of going beyond credit score rating, they should. It’s the fairest approach, particularly for those concerned about leveling the auto insurance playing field for low income Americans.

What if insurance companies were willing to use UBI data as an alternative to traditional credit-based underwriting? What if low income Americans were able to request that their insurers use real driving data to establish their rates? There would be a real incentive to drive safely – a key benefit for everyone out on the road.

Economics and insurance: Why it matters

When you think about the socioeconomic correlation between income and car insurance, it becomes clear that lower-income people are disadvantaged. Credit-based premium rating is just one example of how people who have less to spend ironically end up paying more. As an article in St. Louis Post Dispatch reports:

“High school dropouts may pay more than people with master’s degrees – even when the well-educated have worse driving records. Janitors may pay more than business executives. People who rent may pay more than home owners. People who live in poor, crime-ridden parts of town will pay much more than others.”

Usage based insurance has the potential to help sidestep the murkiness of income inequality by setting insurance rates based on how people actually drive, rather than by their bill-paying ability.

After all, everyone deserves a shot at affordable auto insurance. And, everyone could use an incentive to drive safer.  Perhaps usage based insurance can help us achieve both those goals. Click here to learn how usage based insurance works for auto insurers.


Dec 2014

The Unbanked - a Good Fit for Usage Based Insurance?

usage based insuranceIt’s easy to assume that pretty much everyone has a bank account. After all, it kind of boggles the mind, imagining what it would be like to get by without one.

Still, 10 percent of America is “unbanked” meaning that they are individuals who don’t use banks at all. In addition, another 17 percent are considered underbanked, which means, according to PBS, that “they use a bank account in addition to an alternative financial service like payday lenders or payroll cards.”

A marginal slice of the population? Not really: we’re talking 27% of the nation.

To make things more interesting, those un- and underbanked individuals are smartphone users.

  • Among the unbanked, 70 percent use smartphones
  • Among the underbanked, 40 percent use smartphones

Occasionally these bank-averse individuals do open an account, and when they do, statistics show they have an overwhelming preference for mobile banking. That’s true among regardless of income level. And while later they may choose to close the bank account, the phone remains an important fixture in their lives. Bank accounts may come and go, but smartphones are forever.

Does usage based insurance appeal to the unbanked?

If you’ve never opened a bank account, you probably don’t have a credit score. And when you don’t have a credit score, it’s tough to get car insurance. Some insurers may shut the door on you entirely. Others may require you to pay higher premiums. Here’s where UBI could present an interesting solution.

Anyone who’s already using a personal device on a daily basis is probably willing to consider getting auto insurance via a smartphone app. The un- and underbanked demographic, in particular, is even more likely, given their preference for mobile banking.

Usage based insurance eliminates the need for insurers to factor in a driver’s credit score when setting their rates. By basing the cost of insurance on a driver’s behavior, usage based insurance sidesteps the need for credit data.

This means that providers who offer UBI-based insurance without requiring credit data have a competitive advantage when appealing to un- and underbanked customers, because they can offer them more competitive rates. That’s a significant advantage as we’re talking about 27 percent of the population.

This is just one more way usage based insurance could transform the face of car insurance. Click here to see how usage based insurance could revolutionize your approach to insurance.


Dec 2014

The Auto Insurance Loyalty Puzzle: Is Usage Based Insurance the Missing Piece?

usage based insuranceIn any industry, customer loyalty is a precious commodity. That’s no less true in the world of auto insurance. As Bain & Company puts it: “Loyalty improves a carrier’s economics and leads to sustained, above-market growth.”

But what do we mean by “loyalty” exactly? What does it take to make customers stay with an auto insurer for the long-term?

Customer retention isn’t just customer satisfaction.

When a customer chooses to stick around because of the benefits an insurer provides, their actions are driven by positive experience. You could say, then, that the key to customer retention is customer satisfaction.

You’d be mistaken. A new survey released by Accenture Global found that while 86 percent of insureds who filed a claim were satisfied with how it was handled, 41 percent of those customers are still likely to switch insurers in the next 12 months.

In fact, the data shows that the very act of filing a claim makes a customer more likely to switch insurers, even when they’re completely satisfied with how it went.

It’s not to say customer satisfaction in the claims process doesn’t matter – speed and transparency being the two most important factors, according to 94 percent of Accenture survey respondents. Having access to digital channels also ranks high on the satisfaction requirements.

However, if having a claim tends to trigger the insurance shopping process, the most important question may be how to prevent the claim altogether.

Use UBI as a tool to prevent claims and build the relationship.

By harnessing usage based insurance data, insurers can define strategies to help customers manage risks and even reduce the number of claims they file. As a result, insurers not only lower claims costs, but may gain an advantage in customer loyalty, says Bain & Company.

However, usage based insurance isn’t just about data collection. In fact, it offers insurers the opportunity to go far beyond information gathering to the state of relationship nurturing. UBI provides a chance to communicate with customers every time they drive in a positive and constructive manner. It’s the ultimate digital connection – not hinging on potentially negative touch points like claims or billing, but rather facilitating quality, helpful coaching on an ongoing basis.

And here’s the great thing: The relationship nurturing capabilities start immediately. Insurers can provide helpful driving tips as soon as UBI policyholders install the app and take their first trips. Insurers don’t have to wait for data, actuaries and new rating tables. They have an instantaneous ability to provide coaching and thereby start a new kind of insurance relationship.

They say that when you teach a man to fish, you feed him for a lifetime. What happens when you teach a man, or a woman, or their teenagers to drive more safely and avoid the pain of accidents? They appreciate it and remember it. And, greater loyalty, retention and referrals just might ensue.

Click here to learn how usage based insurance works for insurers.


Nov 2014

Usage Based Insurance: The New Lie Detector?

usage based insuranceLast week, California District Attorney Offices in 22 counties filed 171 felony and 28 misdemeanor charges against 187 people for alleged auto fraud involving 40 insurance companies. While these numbers are staggering, the truth is that 49 other states could probably do the same.

Insurance fraud is becoming more of a norm than an exception, particularly in the wake of a shaky economy. In fact, 24% of those polled by the Insurance Research Council said that it’s acceptable to pad an insurance claim to make up for a deductible and 18% said that it’s OK to pad a claim to make up for premiums paid in the past!

In auto insurance, fraud involves several little white lies, including:

  1. Falsifying the garaging address
  2. Underestimating annual miles driven
  3. Omitting some drivers in the household
  4. Overstating the extent of damages when filing claims
  5. Fudging when and how an accident occurred
  6. Forgetting to report changes that may impact applied discounts

According to a 2010 report by Quality Planning, premium leakage cost auto insurers $15.9 billion in 2008. Breaking down the total, vehicle rating factors including annual mileage and rated territory accounted for $6.5 billion in lost premium, while driver rating factors such as unrated operators, accounted for $8.9 billion.

Fortunately, through smartphone-based UBI, auto insurers finally have a way to deter and detect fraud, and to recapture a portion of the dollars lost to premium leakage.  

  • First and foremost, usage based insurance has a built-in deterrence factor. Those who are more prone to fraudulent activity are least likely to sign up. Therefore, the quality of your policyholder pool naturally improves as a byproduct of UBI.
  • False garaging addresses are easy to detect thanks to the GPS element of a smartphone UBI platform.
  • Annual mileage driven becomes a non-issue because the usage based insurance app periodically communicates with the vehicle’s odometer.
  • Certain smartphone UBI apps develop driver signatures over time and are able to detect when other people are driving by comparing current driving behavior to the normal policyholder driving behavior. This capability could flag the possibility of unreported drivers.
  • Smartphone UBI apps also detect hard braking and sharp cornering events, as well as a vehicle’s geographical location at any given time. This data could be used to corroborate a policyholder’s claim. For example, if a policyholder says a tree limb hit his car in his driveway at 9:09 p.m., but the UBI data shows that the car had a hard braking event that occurred 22 miles away from home at 9:09 p.m. on the date of the reported damage, further investigation may be warranted.

One more consideration in your UBI ROI formula –

Isn’t it time to take a tougher stance on fraud? As you calculate the potential costs and returns of usage based insurance, make sure to include the potential impact of fraud reduction in your equation. That figure could be just as important as the new market share you plan to attract.

To learn more about smartphone UBI, download our free report, “10 Reasons to Unplug and Unburden UBI.” Want to learn more about Driveway Software?  Get our Fact Sheet here.


Nov 2014

Dip A Toe into the IoT with Usage Based Insurance

usage based insuranceThe Internet of Things is a rapid, widespread shift in technology that’s taking the world by storm. It’s the force that’s making a modern-day reality of the futuristic world – a world we used to only see in the movies.

  • Smart houses that turn on the lights and heat before you arrive home …
  • Shoes that tell first-responders where exactly where you’ve fallen …
  • Cars that parallel-park themselves …
  • Usage based insurance apps that can detect an odometer reading …

So what does this have to do with insurance?

If you’ve read some recent industry articles, you may believe that insurers are slow to catch on to the storm of changes brewing in the IoT. After all, when a worldwide trend is developing this fast, insurers can’t afford to get caught napping, as Insurance Networking News inferred last week. In the Nov. 5 article, author Lenny Liebmann says,

“Despite the proven value of vehicle telemetry in supporting usage-based insurance (UBI) offerings for car owners, the insurance industry is taking a wait-and-see attitude towards the broader Internet of Things (IoT). Their attitude means that it may be years before most insurers gain the ability to capture, analyze and integrate IoT into their pricing, underwriting and claims operations.”

The Insurance Networking News article was partially based on a recent report by Celent. When Celent asked a panel of insurance CIOs how C-suite management views the Internet of Things, 11 percent of small insurers and 25 percent of mid-size insurers replied that it would substantially change how they do business. None of large insurers felt the IoT would substantially change their business models. Many who were interviewed felt that it was simply too soon to tell. The report concludes that insurers are largely in a “watchful waiting mode,” with usage based insurance being one notable exception.

There’s a good reason that usage based insurance is the exception!

Starting a usage based insurance program is equivalent to dipping your toe into IoT waters. And dipping your toe is important for informed decision making. Those of us who work in insurance know that insurers aren’t napping, but they are cautious, and rightfully so – as they’re often the ones left paying for brash decisions.

Fortunately, usage based insurance isn’t an all or nothing proposition, particularly when compared to the unprecedented task of underwriting insurance for a driverless car. With usage based insurance, insurers can ease their way into program rollouts by starting slow, implementing a small self-selection discount, and keeping filings simple. If filings are based on a small self-selection discount, loss data and scoring models most likely won’t be needed to get started. Read more about our “feed the UBI elephant strategy” here.

American education reformer, Horace Mann once said: “Let us not be content to wait and see what will happen, but give us the determination to make the right things happen.” No – the insurance industry isn’t napping – it’s contemplating and strategizing.  By dipping a toe, testing the waters and making informed decisions, it can make the right things happen.

We have limited UBI pilot programs available. Let us know if you’d like to be considered.


Nov 2014

Usage Based Insurance – Past the Pain of Battery Drain?

UBI Battery DrainSince the dawn of usage based insurance programs, the issue of battery drain has been an underlying concern. But has that concern now been resolved?

Battery drain woes began with the OBD device …

One leading insurer offering an OBD-based UBI program was named in a class action lawsuit that claimed among other things that the OBD device “always drains a vehicle’s battery, making the battery worth less than it would be without the device. Many times a vehicle’s battery is drained to the point that the battery is non-functional.” The underlying problem with OBD vehicle battery drain is that the OBD device was never intended to run in a vehicle on a continuous basis. It was originally designed to plug into the vehicle’s CAN-bus for a few minutes to take some diagnostic readings.

Battery drain continued to be a concern with first generation smartphone UBI apps …

The main culprit behind smartphone battery drain is the Global Position System (GPS) component. If a smartphone runs a GPS to determine the user’s exact location at any given moment (UBI-related or not), battery life will be impacted. While the GPS is acquiring and comparing satellite signals, the phone is unable to enter a sleep mode. According to Forbes, a smartphone’s ability to retain battery life is largely dependent on its ability to quickly enter and exit sleep mode.

An obvious solution is to simply plug the smartphone into a charger anytime one is driving. However, this is not realistic. For a smartphone UBI solution to be successful, it must be completely non-reliant on the driver. We can’t take the risk that driving data quality will be diluted because drivers forget to turn their phones on and charge them while driving.

What do consumers think about UBI battery drain?

In July 2014, Towers Watson conducted a survey of 1,000 U.S. consumers. Among other things, they asked consumers for their thoughts about UBI battery drain. Here’s what they said:

  • 39% would accept noticeable drain on battery life that impacts daily usage.
  • 76% wouldn’t mind a modest drain that doesn’t impact daily use.

A next-generation solution that meets consumers’ needs …

While all smartphone UBI apps are not created equal, some have managed to overcome the battery drain hurdle, including us here at Driveway Software. In our 2014 Driveway Data Challenge, we closely monitored battery drain. On average, the Driveway Software app had an average battery drain of 7 percent a day. Not bad, right? We feel that anything less than 10 percent daily battery drain is most likely acceptable to users and this is confirmed by the Towers Watson data.

Final charge …

Now that you know the facts, you can see … smartphone UBI is indeed past the pain of battery drain. Of course, this factor is a major consideration as you choose your smartphone UBI partner.


Oct 2014

How to Eat the Usage Based Insurance Elephant

usage based insuranceUsage-based insurance (UBI) is on the fast track. Consumers are interested. Insurers are exploring second-generation platforms, and as an industry, we need a way to capture the booming millennial market.

Yet there’s one thing holding many of you back. You see usage based insurance as a big, daunting endeavor –an endeavor requiring massive amounts of data, analytics, and product filings.

How to eat the UBI elephant?

Creighton Abrams once said, “When eating an elephant take one bite at a time.” While pondering this wisdom and its usage based insurance relevance, I Googled the phrase “how to eat an elephant” just to see if any further inspiration might arise.

Fortuitously, I stumbled on an insightful entrepreneurship blog by The Robert D. He says:

“Here’s the problem – most of us are trying to create a project, not dismantle one. We are trying to build something that does not exist. In reality, we are NOT trying to eat an elephant. We are trying to grow an elephant. So, start feeding it. One bite at a time.”

Robert D. advises that if you’re growing an elephant you should start by feeding it a series of small snacks, rather than a full Thanksgiving buffet. He also recommends using existing resources, borrowing from what has already been done.

Five small snacks to feed usage based insurance

With the “feed an elephant” strategy in mind, here are five small snacks to get you started:

  1. Start by implementing a self-selection discount of 5 to 10 percent. This discount has nothing to do with actual data or driving behavior, you’re simply making a fairly safe bet that those who are willing to be monitored are likely better drivers.
  1. Keep your initial filing simple. See if there’s a way to amend your existing safe driver discount, creating a tier for self-selection that you can file in every state. Because you are basing your UBI rollout on a simple self-selection discount, you don’t need loss data or a scoring model tied to UBI customers for the filings.
  1. Roll out your usage based insurance program one state at a time. Test your communication strategies and implementation on a small scale so you can see what works before you invest in the program nationwide.
  1. In your first few states, with your simple self-selection discount, start tracking and collecting data in two areas: mileage and time of day. (See more on these factors below.)
  1. After a couple of renewal cycles, start looking at how you’d like to change your usage based insurance model. This is when you can start worrying about more sophisticated filings. It’s also when you may want to incorporate other UBI monitoring factors such as braking and acceleration events.

Why start with drive time and mileage?

Drive time and total mileage driven are “known quantities.”  You may have some existing data already, so it will be easy to compare the results of your newly collected UBI data.

  • Drive Time: We can already predict based on data from the Insurance Institute for Highway Safety that most accidents occur in the late afternoon, between 5 and 7pm and in the middle of the night, between 12 and 3 a.m.
  • Mileage: Mileage simply comes down to the odds of being in the wrong place at the wrong time. Statistics have shown that people who drive more miles in a year are more at risk of accident of those who drive less miles.

While these two factors are simple enough, the actual data has never been simple to collect … without a UBI program. To date, you haven’t known when your policyholders drive and how much they actually drive with any level of accuracy. Now you will know and those two pieces of information could be profit-changing.

Now that you have an easy plan, the only thing left to do is to start feeding your usage based insurance elephant!  We’re here to help. We have limited UBI pilot programs available. Let us know if you’d like to be considered.


Oct 2014

Usage Based Insurance: Is Braking Bad?

usage based insuranceIn the usage based insurance realm, braking events are an important indicator of risky driving behavior. If braking events per 100 miles are higher than average, the driver may be distracted (i.e. texting); the driver may not be maintaining proper vehicle distance; or the driver may have aggressive driving tendencies. In many claim situations, research has shown that frequency leads to severity. Likewise in driving, it’s a safe leap in thinking to believe that frequent braking events indicate a higher frequency of crash avoidance and perhaps a greater likelihood of an eventual accident.

While most auto insurers agree that braking is a good activity to monitor, there is debate about whether usage based insurance braking measurements are reliable. Questions linger about the difference between OBD and smartphone braking measurements, leading back to our original question … is braking bad?

Before I address this question, let me explain a few details about how braking events are measured:

  • Braking event: A braking event is defined as a reduction of vehicle speed of at least 7 mph per second. For example, if I’m travelling 65 mph at 12:59:01 and I’m travelling 55 mph at 12:59:02, a braking event should be recorded.
  • OBD device: A basic OBD device takes a vehicle speed reading from the car’s onboard computer approximately once every second. The OBD device has a couple of key limitations most notably that the OBD speed values don’t have timestamps attached. So while the readings are assumed to be one second apart, there’s no way to verify that they are. In some cases, there are small variations and the readings are actually .8 or 1.1 seconds apart and these small variations can result in under- or over-reporting of braking events. Also concerning is the fact that some vehicles send multiple speed readings at the same time and some vehicles report the speed as a truncated integer. Granted, some OBD devices are more sophisticated and include an accelerometer and/or GPS sensors. However, these types of OBD devices are more expensive, further inflating the cost of usage based insurance programs.
  • GPS sensors: Some people believe that a GPS device can detect braking events. However, GPS sensors tend to produce many false positives. That’s because the typical GPS has a low average accuracy of measuring 10 meters per one hertz. So, whether used in OBD devices or a smartphones, GPS sensors do not have high levels of accuracy when used independently.
  • Smartphone platform: For the purpose of this discussion, we’re referring to a smartphone UBI platform which constitutes an app combined with cloud analytics. True accuracy comes from the smartphone UBI platform’s ability to interpret and infuse data from multiple modes of measurement. During our studies, our smartphone platform merged data from the GPS, accelerometer, gyroscope and magnetometer. Sensor fusion gives the smartphone platform the intelligence needed to differentiate between an actual braking event and “noise” like when a phone is dropped. However, a remaining concern is that the phone may be turned off at times and some activity could be missed. With that in mind, a smartphone UBI program must have a built-in mechanism for accounting for time periods in which the phone is off, and removing those time periods from the average braking event per 100 miles calculation. This was true in our study.

Now back to the question … Are braking event measurements bad or good?

Earlier this year, we conducted a number of tests to compare smartphone UBI measurements to OBD measurements. As part of our testing, we compared the braking events per 100 miles as measured by a smartphone using GPS only, a complete smartphone platform and an OBD device. Below is the average number of events detected by each:


Smartphone using GPS only

Smartphone Platform with Sensor Fusion

OBD Device

Braking Events per 100 miles 




While it’s clear that a smartphone with GPS only does in fact create “bad” results with excessive false positives, the other two measurements were remarkably close. Our conclusion is that auto insurers can confidently proceed with a complete smartphone UBI platform as described above, eliminating the burden and cost of hardware, while maintaining braking measurement accuracy.  For more on the results of our study, see our recent article and sign up to receive the full study results when they become available.

Page 8 of 10« First...678910