2014 represents the best of times and the worst of times in the auto insurance industry. Financial results continue to be strong. Rates are trending up and P/C insurers’ net income rose modestly in the first half of 2014 according to Verisk Analytics.
No pain, no gain?
However, as the old saying goes, where there is no pain, there is often no gain. Is it possible that auto insurers are too comfortable to venture forward into territories not yet conquered?
It certainly seems that way from the usage based insurance perspective. Collectively, the industry seems to embrace the concept of usage based insurance. The industry also agrees that usage based insurance has the potential to be the next big market disrupter – akin to the change brought about by the introduction of credit scores as a rating factor back in the 90s. There also seems to be great buy-in to the concept of smartphone UBI – particularly since two major industry leaders announced smartphone UBI programs/intentions.
The only ingredient that seems to be lacking is forward momentum. This may be the worst of times in the auto insurance industry because many insurers lack any incentive to innovate.
Is a “wait and see” attitude prudent or foolishly tentative? Who will emerge the winners: The market leaders or the market followers?
Study finds early adopters grow faster.
According to a 2014 Harvard Business Review study, “The Digital Dividend, First-Mover Advantage,” there is a correlation between the early adoption of new technologies and better business outcomes. The study found that Pioneers (the 34% of the market who seek to gain first-mover advantage) are growing faster than other companies. Twenty percent of Pioneers have experienced more than 30 percent growth – twice that of those in the Follower category and three times that of those in the Cautious category. Those in the Cautious category were most likely to report no growth.
Interestingly, 54 percent of Pioneers report that their core strategy has changed due to changes in technology and 52 percent have changed their product/service offerings due to changes in technology.
Forty-six percent of financial services organizations in the Follower category cited “legacy technology getting in the way” as the biggest resistance to change.
How does early adoption translate to auto insurance?
To answer this question, it’s helpful to travel back in time to the mid-90s when credit-based rating made its foray into the auto insurance industry. What happened to the early adopters? Eighteen years later, at least one early adopter is now one of the top five largest auto insurers.
If you’d like to accelerate growth, it might be time to move from the back seat to the driver’s seat and become a leader rather than a follower. When you’re ready to do so, we are ready to help.
Lately we’ve been talking a lot about what consumers think of usage based insurance. We’ve talked about how they feel about it and whether or not they’re interested (they are). But who might benefit? That’s a different question.
It’s one thing to gather data on consumer opinion; it’s a slightly different thing to observe which customer groups stand to gain palpable benefits from making the switch to Pay How You Drive (PHYD) insurance.
Why does this matter? Because with this information, auto insurers can reach out to certain customer segments confidently with news of tangible benefits they may not know about. That’s value added. Which spells customer retention. Customers love to be educated about things that will make their lives easier and less costly.
Here’s where to start:
Statistics show that younger drivers are more likely to get into a wreck; therefore their premiums are usually higher. However, not all young drivers are deserving of their “risky” status.
How to tell them: Inform your youngest customers that under a traditional plan, their risk profile is determined by the behavior of others. Millennials, as a demographic, do not appreciate being lumped into a group and judged as such. They believe strongly in their uniqueness, and want to be treated as individuals.
PHYD insurance does just that. If your millennial customers can demonstrate they really are different by beating the statistics and driving safely, they can pay a lot less.
2. Low-mileage drivers
The more you drive, the greater your risk of collision. It’s a numbers game, right? But conventional policies often don’t price for all the possible mileage variances.
How to tell them: Explain that low-mileage drivers are much less likely to get in wrecks than high-mileage drivers. So it only makes sense that they should pay proportionally lower rates, and with usage based insurance that could be possible. Usage based insurance calculates your premium based on a variety of factors which include how many miles you actually drive. If your risk is lower because you drive less, usage based insurance might allow you to pay less, too.
3. Those who avoid night driving and rush hour
Statistically, those who drive between 5 and 7 p.m. and/or between midnight and 4 a.m. are more at risk of an accident than those who drive during other times of day. Traditional auto insurance underwriting lumps everyone together, assuming we all drive during high risk times.
How to tell them: This audience may include those who work from home offices or who have young children. Appeal to these types of customers by explaining that if they avoid driving during high risk times, they may receive a favorable driving score via usage based insurance, and that may result in lower insurance rates over time.
4. Safe drivers
Want to know something funny? Almost everyone behind the wheel believes they’re an above-average driver. It’s called illusory superiority: “Drivers consistently rate themselves as better than average — even when a test of their hazard perception reveals them to be below par,” according to Mark Horswill, a psychologist at the University of Queensland in Australia.
That said, drivers who really can deliver on their own safe driving self-confidence stand to gain a great deal from usage based insurance.
What to tell them: Offer your customers a safe driver discount with PHYD insurance. Let them know that if their driving is good, their premiums will go down periodically.
In addition to staying within the speed limit, safe driving habits include avoiding sharp turns, hard braking and aggressive acceleration events to name a few. Customers who practice those behaviors – or who believe they could, if they put their mind to it – will probably be happy to self-select and request the switch to usage based insurance.
Ready to empower your policyholders?
Tell these four customer segments how usage based insurance could be of benefit. Of course, there are many types of usage based insurance programs and details vary by state. Learn more about how UBI works for drivers here.
For those of you who weren’t able to participate, Insurance Telematics Update 2014 offered a spectacular opportunity to network and get the latest usage based insurance industry developments. Held in Chicago on September 3-4, the event delivered a glimpse into the future of auto insurance.
The tone this year was different than that of 2013. While last year, smartphone UBI was something interesting to consider, this year, it had a strong foothold in the strategies of most insurance executives. Why the change?
- Perhaps these executives are following the leadership of Allstate and others – pioneering auto insurers that have already announced intent and/or projects using smartphone telematics.
- Possibly, it’s that usage based insurance feels much more accessible to auto insurers of all sizes now that industry leaders have veered away from their history of using only proprietary technology.
- Maybe, changing perceptions can be attributed to the evolution of smartphone UBI and the fact that several reputable companies (Deloitte, Agero, Cognizant) have improved smartphone UBI apps to enhance the consumer experience. Many second and third generation smartphone apps have already eliminated battery drain and the need for start/stop buttons. And the most evolved are able to merge data collected in the car with power of cloud analytics for more accurate event interpretation.
- Most importantly, many insurers are investing great thought into how to use a smartphone telematics platform to revolutionize the insurance business model, connect with policyholders on a daily basis, coach them to improve driving behavior and interact positively and proactively. In a word: They crave customer-centricity and suspect that mobile telematics can take them there at the price they can afford and a timeline they can fathom. Insurers want to offer compelling driver portals, driver coaching and tips, gamification, social sharing, performance benchmarking, weather and traffic alerts, and even roadside assistance capabilities – all while collecting reliable UBI data.
It seemed that insurers have moved past the question of whether usage based insurance is a good idea. They mostly agree that it is the way of the future – perhaps a whole new model for connected consumer engagement – crucial in a digital economy.
They’ve also moved past the debate of whether smartphone UBI platforms can be trusted. If smartphone telematics is reliable enough for industry leaders, others are willing to jump on the bandwagon too. In fact, I spoke with several executives who said they knew for sure that their programs would not involve OBDs due to the added expense and consumer inconvenience. They fully intend to implement smartphone UBI platforms. After all, the smartphone platform is the only choice that can facilitate the customer-centricity they desire in their future business models.
So, it seems that the only question that remains for most is: WHO is the right partner?
There’s no question that usage based insurance poised for industry disruption. How soon will it happen? How long will it take for drivers to full engage with their insurers’ smartphone UBI programs? Only time will tell. For another perspective on the show and the future of usage based insurance, read this post.
According to a recent Towers Watson survey, there are almost twice as many people using usage based insurance (UBI) today as there were just 17 months ago.
In February 2013, the number of consumers that had tried UBI was 4.5%. This July, it’s up to 8.5%. So what else do we know about consumer opinion on usage based insurance?
The Survey Speaks: 3 Takeaways
- Even consumers who haven’t tried UBI yet are interested. Of the 1,000 people who responded, the majority (79%) said they were ready to take the plunge with usage based insurance – and if not quite ready, they were certainly open to the idea.
When asked how their answer might change if they knew for a fact that UBI would not raise their current premium, that number – 79% – quickly spiked to 88%.
- They’re less concerned than they used to be about privacy. Only 35% of consumers surveyed said they were still worried about UBI and privacy, down from 42% last year.
- Their biggest concern now: will it cost more, or less? While concerns about privacy fade, your customers do need some reassurance regarding cost. Almost half of those surveyed (48%) worry that the usage based insurance model would end up raising their bill.
When that concern is alleviated, however, enthusiasm returns.
There’s an easy answer to this. Offer UBI-related discounts only – never UBI-related penalties – and watch your customers respond.
Usage based insurance is on the rise… are you ready?
In every single one of the fifty states, there are at least four personal UBI programs up and running. As the usage based insurance model continues to gain traction into the mainstream, it stands to become not just an alternative, but a fundamental option that your customers expect to be able to choose if they wish.
How do smartphones impact this picture? Among those who already own a smartphone, the number of respondents willing to try smartphone-based UBI is an impressive 80%.
Smartphone UBI is easier for consumers as well as insurance providers, as there’s no under-dash installation and no upfront equipment costs. Smartphones also deliver an excellent user experience, one which customers are very comfortable with. Apps are fun, they add convenience, and they’re already a daily part of people’s lives.
Talk to us about developing a smartphone UBI program that works for your company: Click here to see how it works.
Personal auto insurance fraud is a problem. According to Verisk Analytics, it’s a problem on the rise. Between 2008 and 2011, the National Insurance Crime Bureau saw a 34% increase in questionable claims.
It’s also an expensive problem. Industry estimates show that soft fraud accounts for “about 10% of paid losses and loss adjustment expenses a year.” In 2011 alone, the total amounted to well over $13 billion.
The problem, it seems, is that many Americans don’t consider small mistruths to be fraud. They seem to think it’s OK to slightly change the facts if it saves them money!
Take false garaging addresses and mileage estimates, for example
One of the most common types of soft fraud, lying about where the car is garaged to receive auto insurance rates for a more affordable zip code, has traditionally been a tricky one to track. But with the data that smartphone UBI apps are designed to collect, and it’s much easier to compare the reported garaging address to the actual garaging address. The same is true regarding the estimation of annual mileage.
While these untruths may seem harmless, they add up to big profit loss. In fact, insurancefraud.org reports that premium rating errors account for nearly 10 percent of the $161.7 billion in personal auto premiums written. They found that drivers are five times more likely to report midterm mileage changes that reduce premiums than they are to report changes that may increase premiums. The website quotes a 2010 Quality Planning Corporation study that found that vehicle-garaging rating errors account for more than $2 billion in annual premium leakage.
How to step up your soft fraud defense
Verisk puts it this way:
“Basically, carriers need to step up their game in a big way. They’ve made large investments deploying technology and data to improve the customer and agent experience. But they’re falling behind in the race to identify fraud and rate evasion – a race they can’t afford to lose.”
While most auto insurers think of usage based insurance as a strategy to improve customer attraction, retention, pricing and loss ratios, it might be time to expand UBI thinking to include the objective of fraud deterrence. When you add in the potential savings of eliminating even 10 percent of premium leakage due to auto insurance soft fraud, the usage based insurance ROI formula becomes even more compelling.
Learn more about smartphone UBI here. Also, download our free smartphone UBI report, “10 Reasons to Unplug and Unburden Your UBI Program.”
If you want to talk buying power, let’s talk millennials.
Born in the last 20 years of the twentieth century, millennials (a.k.a. Gen Y) represent 79 million people. Many are still in school, but make no mistake: already, they wield $170 billion annually. And that number is sure to rise. By 2020, a comScore white paper predicts, they’ll have a hand in a whopping 30% of all retail purchases.
Call them the most important audience to engage for your future growth, and you won’t be exaggerating.
So how to engage them?
First step, understand what’s driving them. Millennials are tech-addicts. Early adopters. The mobile generation. They’ve cut their teeth during the digital revolution, and as a result, they rely on connected devices like a fish relies on water.
For example, take a look at this marketing survey by Rosetta. It shows that 68% of millennials check email hourly, calling their mobile phone “the centerpiece of their life.” Pew Research backs that up, saying 80% of people aged 18–34 own a smartphone.
Apps play a starring role in this picture. Millennials use apps for shopping, gaming, entertainment, social networking – and they don’t just use them. They love them.
Smartphone UBI + Millennials
Our experience with usage based insurance has convinced us that smartphones are the next logical step in the innovation of PHYD insurance. And for millennials, it’s a match made in heaven.
When choosing apps, millennials select for convenience and functionality. They’re “achievement-oriented, tech-savvy, team players, family-oriented” (source).
Smartphone UBI encapsulates the same: it’s a highly-functional technical innovation with the potential to turn road safety into a goal-oriented game, encouraging drivers to compete against one another for safety … creating an incentive that appeals both to team players and the family-minded.
The possibility of gamification spells big opportunity when marketing to millennials, but even without that element, the technology alone ties together many important qualities that drive the millennial mindset.
“They don’t just want an online map, a restaurant app, or a game… they want the best version of these apps that are different, better, cooler, more creative, and more personalized than anything else they’ve used before” (source).
While some drivers have expressed concern about UBI and privacy, that doesn’t hold as much water for millennials, who are “less concerned about privacy than older generations” (source).
Moreover, and this is important, millennials want to stay in touch with you through a variety of media. They actually “prefer a combination of email, search promotions and social networks when interacting with companies and brands” (source).
In other words, they’re looking for a multi-faceted connection to you and your services. Integrating the smartphone into that picture is a smart move.
Learn more about how smartphone UBI works for your business. Click here.
According to Seattle news station KIRO 7, American Family Insurance has an OBD problem.
Recently, the insurance company recalled a bevy of onboard diagnostic (OBD) devices named MySafetyValet, which it had distributed to customers across 17 states last spring. The problem? A few of the devices were interfering with vehicle electrical systems.
“In a small number of vehicles, the device may affect the electrical system and cause the vehicle to shut down during operation,” Sandra Spann told KIRO 7.
Not an unknown problem
The same malfunction happened with the Progressive equivalent, Snapshot: litigation was the result. And while there haven’t been any crashes yet linked to the MySafetyValet issue, American Family Insurance isn’t taking any chances.
It’s a textbook example of one of the more predictable dilemmas that OBDs can bring. Recalls are expensive. Malfunctions are unsafe. The fallout can be a mess.
In fact, OBDs have what it takes to compromise an entire pay-as-you-drive deployment, undermining the basic benefit-set that UBI offers. In an article titled “Ditch the Onboard Device, but Not the UBI Model,” ITA contributor Jake Diner named these devices the culprit behind a common string of roadblocks that organizations may run into when rolling out UBI.
He boiled it down to “the six insurmountable challenges” of OBDs:
1. Costs x 3: The initial cost, fulfillment cost and replacement costs
2. Vehicle compatibility and potential for electrical interference
3. Inconvenience and waste: Drivers don’t want to crawl into the “no man’s zone” under the dash so many devices are left uninstalled
4. Data problems: inaccuracy, ambiguity, conversion hiccups, ease of fraud
5. A disconnect from user experience (not offering feedback, tracking transparency)
6. Snail-paced rollout speed and a frightful lack of scalability
Anticipating the future of Usage Based Insurance
From where we stand, it’s pretty clear that the OBD is a bit of a dinosaur. There are sleeker and better usage based insurance solutions available now. Diner’s words:
“Smartphone UBI technology has now been tested and proven to overcome every one of the six OBD challenges listed above at a much lower cost and in a significantly shorter timeframe.”
While there certainly are some challenges to overcome in a successful usage based insurance implementation, bear in mind that OBD can make those challenges bigger and harder. Smartphones do the opposite: mitigating the difficulties, smoothing out the speed bumps. It’s the “lighter, more nimble” choice, Diner concludes.
Brush up on the advantages that a mobile approach facilitates, and find out what a smartphone-based UBI deployment can do for you: click here.
A few days ago, Forbes published this article on how insurance providers are leveraging smartphone UBI technology to track driving behavior and offer customers better-targeted plans. Here are the takeaways.
1. Progressive is taking Snapshot to smartphones.
Snapshot is a device that can be installed on a vehicle to track mileage and monitor driving behavior, like when a driver slams the brakes. Now Progressive “has challenged more than a dozen tech entrepreneurs and mobile developers” to deliver the same functionality via smartphone UBI app, in time to launch next year, according to Forbes.
2. A smartphone UBI app could theoretically do more, more easily.
The current version of Snapshot can’t combine its readings with GPS data; a smartphone UBI app could. Also, while Snapshot has to be physically installed on a vehicle, smartphones are simply along for the ride – making the customer’s life easier.
3. But first, engineers have to distinguish between “sudden braking” and “whoops, I dropped it.”
The idea of tracking motion with a smartphone poses a few legitimate hurdles. How can an app keep your driving behavior separate from the normal motions you put your phone through during the day? (Hint: Driveway knows the answers to these questions.)
4. That doesn’t mean it can’t be done.
Allstate has already done it. To compete with their rival Progressive, the company introduced the smartphone UBI app Drivewise, which launched last month and is currently being tested in three different states.
5. Continual improvement is key.
Progressive is taking its time. According to the Forbes interview, they’ve been developing their approach to driver-monitoring since 1998, and continue to evaluate a variety of possibilities, including a hypothetical collaboration with Google Waze. In this case, customer perception and excellent results take priority over a speedy launch.
6. Even with behavior-related discounts, numbers are up.
Customers who use Snapshot get a good deal: The Forbes article reports that Progressive has chosen to make the discount so big, the company only breaks even. Still, Progressive benefits nonetheless: these usage based insurance drivers get in fewer accidents and remain customers longer.
7. Behavior change may be in the cards.
Nobody’s ready to spill the beans, but according to the Forbes article, Progressive is thinking about incorporating driver-feedback into their plans for the new smartphone UBI app so that drivers can improve driving habits over time.
8. Smartphone UBI is a “rapidly expanding phenomenon” projected to reach $80 billion by 2020.
The idea of smartphone UBI auto insurance apps has been catching on globally, the consulting firm Ptolemus reports, with wearable devices that allow users to pay (and get rewarded) for how they actually behave – a concept so attractive, the trend is likely to spill into other markets, like health insurance, as well.
Find out why smartphone UBI apps are catching on so fast: click here.
Most insurance executives agree that usage based insurance is near its tipping point … ready to take its place as a dominant auto insurance solution.
However, opinions are still mixed on which telematics method will prove most effective – the smartphone UBI platform or the traditional onboard diagnostic device.
There’s no doubt that smartphone UBI offers more cost-effective execution and faster speed to market. It eliminates the expense of purchasing, distributing and updating hardware – overcoming a tall industry hurdle.
Furthermore, research has shown that consumers are receptive to the idea of smartphone telematics. It seems logical that a smartphone app is a less intrusive solution than plugging a black box into one’s car. We also know that smartphone and app usage are growing exponentially. Those who have smartphones never leave home without them.
However, one question remains:
Can smartphone UBI data be trusted?
To definitively answer the “data” question once and for all, we’re pleased to announce the Driveway Data Challenge.
1. Three drivers: Jake the sleep-deprived, Igor the distracted and John the lead foot
2. Three weeks: August 4 through August 24
3. Two telematics methods: Smartphone UBI app and OBD device
4. Two questions:
-Who is the safest driving risk?
-Which device detects the most driving data?
5. Results: The outcome of the Driveway Data Challenge will be revealed at Insurance Telematics USA in Chicago, at our breakout session, “Are OBD Devices the Gold Standard for Usage Based Insurance?”
As far as we know, no one else in the industry has conducted this type of comparison. If you’re in the middle of a usage based insurance buying decision, this information could cause a U-turn in your UBI strategy.
As soon as the solution reaches its tipping point of 5% market penetration, it’ll officially be considered a “mass market product.” From that point on, telematics will be “an essential tool in rating risk and pricing,” and usage based insurance “will ultimately become the dominant auto insurance solution.”
How can insurance companies speed the process?
In a new white paper by Insurance Telematics USA 2014, Director of Commercial Auto Telematics at Liberty Mutual Anthony Largo says: the secret could be a good discount.
It makes sense if you think about it. Any new technology is, to some extent, disruptive. It asks people to change, to leave the familiarity of their comfort zone and switch their efforts to a new solution.
Usage based insurance, in particular, requires consumers to let their insurance provider track their driving behavior. They may not want to install a device on their car and they may have concerns about tracking via smartphone.
To make the leap, customers have to know they’re getting something worth the risk – and the promise of great service may not be enough. But a discount? That’s where the usage-based insurance deal gets tempting.
Case in point: the Progressive story
The report goes on to tell the story of Progressive, currently “the undisputed market leader in usage based insurance.” Their strategy was slow, meticulous and extraordinarily successful: the company developed a truly user-friendly device, created a marketing campaign to introduce the solution to their customers, and demonstrated an unswerving commitment to making UBI work.
And the results? In 2010, the year before Progressive started advertising their product, only 10% of consumers were aware of usage based insurance. By 2013, that number had jumped to 35%.
Get the scoop.
Learn the dynamics of the Progressive strategy, find out why smartphones are the “killer app” slated to carry usage based insurance into the mass market, understand the value of “value-added” services and catch a glimpse into the future of UBI. This is a white paper worth reading.
Ready, set, go: click here to visit Telematics Update 2014, where you can download the full report. Also, join us at the conference in September. Make sure to attend our breakout session, “Is Using an OBD Device the Gold Standard for Usage Based Insurance?”