Surging Interest in Pay As/How You Drive

The success of pay-as-you-drive programs is a given; today, however, using telematics and location intelligence tools, insurers are renewing efforts to help deliver a positive customer experience by rewarding drivers for how they drive.

The number of global insurance telematics users will grow at a CAGR of 90 percent from 1.85 million in 2010 to 89 million in 2017, according to ABI Research, a firm that provides in-depth analysis and quantitative forecasting of trends in global connectivity and other emerging technologies in North America, Europe and Asia.

“While insurance telematics or usage-based insurance (UBI) is far from a recent phenomenon—U.S.-based Progressive was already trialing solutions back in 2002, and just recently received its fourth patent—a renewed interest in this market has occurred over the past two years, with an acceleration in uptake, as well as a dramatic change in the very nature of UBI, migrating from pay as you drive (PAYD) to pay how you drive (PHYD) based on continuous driver behavior monitoring and analysis,” says Dominique Bonte, group director, telematics and navigation at ABI.

The firm’s “Insurance Telematics” report outlines PAYD and PHYD across different form factors such as embedded, portable and converged in North America, Europe, Asia-Pacific, and the rest of the world.

The big picture behind UBI, notes the research firm, is to enable insurers to create an environment of continuous customer communication and feedback, while using the opportunity to up-sell value-added services such as teen driver monitoring, stolen vehicle tracking and roadside assistance.

While drivers appreciate being given an opportunity for premium discounts by paying for only the risks they take behind the wheel, the downside to insurers remains in the self-selection of low-risk drivers. Policyholders, meanwhile, face challenges in understanding just how complex auto policy programs work, installing telematics hardware, etc. The existing default UBI hardware solution—a dedicated device plugged into the vehicle’s diagnostics OBD port—may soon be upstaged by either factory-installed technology (as in-car connectivity penetration rates increase) or—for the aftermarket—converged devices such as smartphones wirelessly connecting to the OBD bus via Bluetooth adapters. Other industry-wide challenges affect both parties, such as pending IP litigation, a lack of standards, and more, notes ABI.

That said, telematics and location intelligence technologies are actively being offered in commercial lines. Travelers Insurance recently launched its IntelliDrive Fleet Safety Solutions program, which provides consulting services and resources to help customers create a better understanding of how fleet vehicles are operated. Powered by telematics, and a Software as a Service platform for location intelligence delivered by Telogis Inc., the feedback provided includes everything from speeding and hard braking to helping eliminate false or exaggerated claims by third parties.

Other key benefits of the telematics solution, notes Telogis, include better fuel efficiency and routing, reduced wear and tear on vehicles, identification of unauthorized vehicle use and stolen vehicle retrieval. Travelers is offering its IntelliDrive Fleet Safety Solutions for local and intermediate fleet customers through Travelers and to its long-haul trucking fleets through its Northland division, one of the largest trucking insurance carriers in the country.

Insurers are aware of the benefits and challenges of using Telematics, according to research and consulting firm Celent, and the benefits appear to be winning. In its report, “Telematics-Based Insurance: Has Its Time Finally Arrived?,” the firm points to claims-improvement opportunities, which might include improving fraud detection, for example, by using accelerometer readings to gauge the G-force during impacts and settle whiplash claims more accurately, reducing lead time between accidents and first notice of loss, which increases the likelihood of achieving a speedy and fair settlement before the involvement of third parties.