Insurers and agents have diverging views about the impact of telematics and usage based insurance (UBI), and agents are decidedly more pessimistic, according to “Telematics/Usage-Based Insurance: Implications for Agents,” a research brief from Strategy Meets Action.
Half of all agents surveyed said it will be difficult to sell UBI; more than a third said they will need significant training, and as many said they expect agency market share to decline as a result of wider adoption of the technology. More than half, 53 percent, expect commissions would decline as a result of rising UBI sales. A quarter said UBI will be a source of growth.
Agents and agency companies also said UBI programs will be difficult to implement, and that direct writers will be more successful with the products. A significant minority, 25 percent, said UBI represents an opportunity for agents and brokers to grow their businesses.
Insurers also expect more aggressive consumer adoption than agents do, SMA said. Progressive reports that a third of new customers are signing up for their Snapshot program, for example, and insurers expect 7 percent market penetration by 2014, while agents expect only 4 percent of the market to adopt UBI by then. The gap between expectations only widens thereafter, with insurers expecting market penetration to reach 36 percent of consumers by 2020, compared to 19 percent for agents and brokers, SMA said.
“Even a penetration of 10 percent will create a tipping point that will influence the nature of the market for all insurers writing personal auto insurance,” SMA said.
SMA offers reason for agents to be more optimistic. UBI is more relationship intensive than traditional auto insurance, SMA said. Traditionally, customer contact may be as infrequent as receiving a bill and renewal statement. However, for UBI customers, regular communications about driving habits are expected, and because they are measured over time, the premise of instant price quotes breaks down.
In the agent/broker market, insurers must create interest within their distribution channels, SMA said. “To accomplish this, agents must be led to understand how consumer interest will be created and what their role in helping to generating it will be. It is also critical that agents have a clear understanding of their role in the whole UBI process and how it will ultimately affect their businesses and their profit potential.”
SMA said successful insurer strategies must address:
• Education of agents, including how UBI will positively effect agents and consumers
• Understanding of the agents’ role in the sales process and afterword
• Articulation of UBI’s upside potential to create cross-sell opportunities and strengthen customer relationships
• Description of compensation
• Alleviate fear and lack of product knowledge, the additional workload it could create, or the potential to hurt their customer relationships if something goes wrong
• Consumer education on the benefits of UBI, customers’ obligations, and how the process works
Most UBI offerings currently belong to direct writing companies, SMA found. Progressive’s program is active in 44 states; Allstate’s in 16 and State Farm in 47. Among agency writers, Travelers, The Hartford and Safeco are considered leaders, but now have modest footprints, SMA said. More than 70 percent of North American auto insurers are developing strategies, piloting or implementing UBI programs, and Progressive has more than a million UBI customers. “Many in the industry believe that 50 percent or more of the private passenger auto market could be in a UBI program by 2020,” SMA said.
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