Insurance companies’ heavy reliance on the popular premium discount model is hindering progress of the usage-based insurance market in the U.S., according to a new study by Novarica.

While the model remains a good way for newcomers to enter the market, insurers must move beyond offering discounts and provide additional value propositions to the consumer. Those are among the key findings in the industry consulting firm’s “Telematics in Insurance: Current State of UBI and Market Challenges” report, which concludes that carriers’ strategies should focus more on customer experience.

“The discount model will remain because it is something consumers can associate with a gain, but it should not be marketed as the main value proposition,” said Thuy Osman, research and consulting manager at Novarica and the study’s author.

Instead, Osman suggests improving road side service, educating drivers and targeting specific consumer groups to increase UBI adoption. Travelers Insurance’s IntelliDrive program, aimed at low mileage drivers, and American Family Insurance’s TeenSafe Driver product, tailored to parents, are a couple of examples in the industry, she says. Gamification is another potential value proposition for consumers. By completing driving challenges, drivers can earn rewards points towards gift cards at popular brands and restaurants.

Current State of UBI

As it stands, the number of insurers offering usage-based insurance has doubled since 2010, with Progressive’s Snapshot Discount program leading the pack, Novarica says. The number of UBI vendors has quadrupled in the same span to 220, although less than 10% focus solely on insurance, according to the study. Going forward, experts predict market penetration will surpass 10% by 2020.

However, a report released earlier this month by Strategy Meets Action suggests UBI adoption may be running out of gas, contending that customers are still wary of how insurers will use the data they collect.

“Privacy has always been a big issue,” said Osman. “The value proposition isn’t at a point where customers are willing to enroll in programs.”

The industry is in a transition phase as smartphones have begun to serve as the main device of choice for insurers to record data. Consequently, insurers are bracing themselves for the arrival of the connected car and autonomous vehicle. “We went from the black box to the dongle; now, mobile and will continue on to the connected car to record driver data,” said Osman. “Concerns about the smartphone will keep it from fully replacing the dongle [insurers prefer a device physically connected to the car], but the connected car might replace it completely.”

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