Too Small To Succeed with Usage Based Insurance?
Being on the leading edge of technology usually doesn’t come cheap. Whether you’re introducing an electric vehicle, a driverless car or usage based insurance program, there’s a tremendous amount of research, development and testing involved. For this reason, smaller players are often spectators, letting the big guys lay the groundwork. And, that’s exactly what has happened with usage based insurance.
The big guys have spent the past few years testing the pay as you drive insurance waters. Who are the usage based insurance pioneers? They include:
- Progressive Snapshot
- Allstate Drivewise
- State Farm Drive Safe and Save
- Travelers Intellidrive
- Hartford Trulane
Unfortunately, the return on investment for most of these first-generation pay as you drive programs has been missing in action. In fact, a May 19, 2014 article in the Insurance Journal states, “For the insurer to ‘break even’ the savings from better driving must offset the costs of technology and any telematics-based discounts.” In one example with an OBD dongle-based program, loss ratios would have to drop 22 percent to justify a permanently installed dongle that lasts about three years.
While that percentage is high enough to keep a small or regional carrier out of the usage based insurance territory for a long while, it doesn’t tell the whole story – it only tells the story of the usage based auto industry pioneers. And now that those pioneers have forged the pay-as-you-drive insurance trail, the journey has been much easier for anyone who cares to follow.
With that short history in mind, here are three new developments to make you reconsider usage based insurance:
- Cost: One of the biggest costs encountered by the UBI pioneers is the hardware expense. When you eliminate the hardware, ROI gets a lot more manageable. There is literally no inventory or distribution with smartphone UBI. Drivers simply download the free insurer branded app onto their smartphones.
- Value: UBI is moving beyond a price focus to a method of offering policyholders comprehensive value. Again, the smartphone offers a friendly interactive customer conduit. The smartphone app can be customized by each insurer to provide coaching, facilitate roadside assistance or allow for parental monitoring of teen drivers and more. The app represents a brand much better than a little black box ever could.
- Data interpretation: Another major chasm between insurers and profitability has been the usability of data collected. Many insurers have difficulty accumulating enough data mass to make actuarially-sound decisions about underwriting and pricing. Fortunately Driveway already has more than 170,000 drivers with apps installed, and with that mass, we’ve developed a proprietary scoring algorithm so that driving behavior is instantaneously scored for both the driver and the insurer if desired. Furthermore, data collected by the app is in many ways more accurate than that collected by OBD devices.
To learn more about the affordability and accessibility of smartphone-based UBI, download our free report, “10 Reasons to UNPLUG and UNBURDEN your UBI program” today.