The insurance telematics industry is moving fast. This was quite apparent at Insurance Telematics USA in Chicago earlier this month. Just one year ago, the main topic debated was whether insurers should use smartphone apps or OBD hardware to track drivers’ behavior. This year, that question was no longer a question. The industry has moved forward with smartphone telematics adoption.
As evidence, look at industry leaders Deloitte, Progressive and Allstate.
At the show, Deloitte spoke about the great success of the accuracy, reliability and maturity of the D-rive end-to-end smartphone UBI platform, powered by Driveway Software technology. Bill Mullaney, co-founder of D-rive powered by Deloitte, stated that a good mobile solution captures 90 percent of miles driven, which is much closer to reality than drivers’ self-reported mileage. The National Association of Mutual Insurance Companies recommends the D-rive program as the telematics solution for its members.
Last year, Allstate expanded its Drivewise UBI program by unveiling a Drivewise mobile app to gauge driving behavior through the smartphone. This year, Allstate’s award-winning smartphone app now features Allstate Rewards allowing safe drivers to earn points that they can spend on deals for merchandise gift cards and local offers.
Even more interesting: Through Drivewise Mobile, any driver can use the app to earn rewards points, regardless of whether they have an auto insurance policy with Allstate. As Allstate’s usage based insurance general manager, Nate Breyer said in a TU-Automotive interview, “We’re focusing on providing a product to attract and retain the safest drivers. We know that drivers that want to be safe want to be rewarded for that driving, and our UBI product gives them a means for proving that they’re safe and thus being rewarded.”
As another sign that mobile insurance telematics apps are on the rise, Progressive launched a pilot for its smartphone-based solution that should be available to select U.S. customers in September. In another move to use smartphone telematics to move beyond discounting to attracting new customers, Progressive’s smartphone app is rumored to be available for everybody to try before they buy.
The new question on the table: how to leverage big data.
Now that insurers have confidence in smartphone-based telematics solutions, the new question on the table is how insurers can leverage big data and use smartphone telematics to move beyond discounting.
We all know that people love their devices and they love their apps. How can auto insurers create usage based insurance apps that will facilitate remarkable experiences for their insureds? While Allstate has taken a giant step in the right direction with its rewards approach, there is much, much more to be done.
In addition to looking at creative ways to use apps, it’s important to use big data to find creative sources for new market share.
In Driveway’s presentation, “Grow Sales from Stagnant to Standout,” we discussed how to identify key growth opportunities in an industry that’s not growing by focusing on the safest standard drivers and the safest non-standard drivers, including new entrants. We used data collected from 248,415 drivers using the Driveway app to evaluate driving scores and identify key opportunities, including certain segments of senior drivers, millennial drivers, and new entrants (those coming off parents’ policies or new to the U.S.).
It’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.
The 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 knowif you’d like to be considered.
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.
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.
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.
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.”
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?”