Noteworthy Takeaways from New Study on UBI Telematics
The National Association of Insurance Commissioners (NAIC) recently released their latest study with the Center for Insurance Policy Research (CIPR). The topic? Usage based insurance of course.
The purpose of the new study, “Usage-based Insurance and Vehicle Telematics,” was to examine how UBI has changed the face of the auto insurance, from the impacts of telematics on the market to its implications for insurers, consumers and regulators alike. Below are key highlights.
New benefits, new risks.
The auto insurance industry “is undoubtedly undergoing a fundamental change,” the study said, resulting in more efficient risk-pricing and broad benefits to just about everyone involved. PHYD pricing “promises to benefit individuals, insurance companies and the country as a whole.”
Wait a minute. How could the whole country benefit from usage based insurance? Here’s one example: Simply giving consumers an incentive to drive fewer miles could result in the following societal benefits:
- Individuals are empowered to reduce their premiums.
- CO2 emissions fall.
- Traffic decreases.
- Fewer collisions improve public health.
- The nation’s dependence on oil becomes less acute.
At the same time, insurers that avoid bringing UBI telematics into their core offerings end up shouldering an unnecessary burden, “as companies failing to do so face fairly extreme adverse selection risk,” the study said.
It’s easy to see their point. Why would safe drivers who travel fewer miles at low risk times want to continue paying rates that reflect the average risk rather than their own risk? Why would safe teenagers want to continue paying exorbitant rates? Once UBI awareness increases, budget-savvy, safe drivers will rapidly migrate to UBI policies.
What role do smartphones play?
“Smartphones are an ideal telematics solution as they are typically equipped with a host of relevant sensors, such as GPS, accelerometers and gyroscopes,” the study said. “They also have large data storage capacity, or infinite with the cloud, and superior communication abilities.” Furthermore, they aren’t encumbered by hardware device or installation costs.
A few additional highlights.
The 86-page study covers a great deal of information, including telematics modeling and analytics, market observations, economic considerations, consumer concerns and regulatory implications. That said, here are a few quick takeaways.
- Most of the survey respondents (89 percent) said that UBI is available in their jurisdiction of the United States.
- California, New Mexico, the Virgin Islands, Puerto Rico and Guam lag behind in that regard.
- For regulators, data transparency is a crucial prerequisite to letting telematics programs into their areas.
- Smartphone telematics apps include features that make UBI programs more transparent.
- The main benefit for insurers is the ability to develop more accurate risk assessment and pricing.