How to Eat the Usage Based Insurance Elephant
Usage-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:
- 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.
- 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.
- 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.
- 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.)
- 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.