After a muted year for growth in usage-based auto insurance programs, several carriers are rolling out new or reworked versions of programs that reflect changes in the preferred method of data collection and an increased focus on end-user experience as a selling point rather than just discounts.
For about the first decade of its existence, usage-based insurance (UBI) was powered by third-party telematics devices that an insurance company would have to provide to customers for installation in their vehicles, most commonly in the OBD-2 port. Now, telematics technology is embedded in cars coming off the lot. And if that’s not enough, the combination of GPS, accelerometer, and mobile broadband means that many consumers have a fully functional telematics device in their pocket – the smartphone.
“People are moving away from OBD-2-based devices to thinking about how they better digitally connect to their customers,” says David Bassi, executive director for EY. “They're looking at those alternative methods for collecting the data they need, and how they collect a fuller range of data.”
Now, a new wave of UBI products is rolling out, with carriers large and small leveraging smartphone apps as both the mechanism to collect the data they need and as a feedback and interaction point with their customers. While third-party technology isn’t completely out of the picture, most insurers prefer the smartphone-app approach due to its lower friction with customers, and are looking to build the best experience possible through that channel.
For example, American Family rolled out its KnowYourDrive program earlier this year in two states. The new program combines a dongle with a smartphone app, both of which are manufactured by connected-car company Automatic. As a result, an OBD-2-only program that the company has had in production since 2013 is being sunsetted.
“The industry has recognized that the smartphone has become ubiquitous and has the capacity to deliver just about anything through an app,” says Kelly Lien, VP of product management for personal lines at American Family.
In addition to collecting the data that powers the program, the Automatic app “provides information about driving habits, and can return tips and advice on how to improve driving,” he adds. “We’re excited to establish a deeper connection with the customer and allow them to earn a discount.”
But it’s not just the tier-one insurers finding partners for new UBI programs. Many startups, like Automatic, have emerged in the midst of the insurtech explosion with white-label programs for usage-based insurance that insurers of all sizes can adopt.
Massachussets-based Electric Insurance piloted a fully mobile-based UBI program, using technology from Cambridge Mobile Telematics (CMT), in Ohio last year. The successful pilot is leading the company to expand availability to four more states on March 1: Texas, Georgia, Connecticut, and Wisconsin.
“We’ve been tracking and monitoring [UBI] pretty closely for a number of years, and the availability and accuracy of the smartphone data made it possible for us to be part of the space,” says Mike Mucher, VP of sales and marketing for Electric.
Mucher says that in its Ohio pilot, Electric was focused on getting feedback on the user experience, reviewing all the touchpoints that it had with customers to see what worked and what didn’t.
“Our product team strategically felt it was important to see how our customers reacted to it as a feedback device, in terms of attempting to make their lives safer,” he explains. “Partnering with a team like CMT, we have smart people looking at the tech and thinking about how to help customers solve a problem.”
The evolving market
UBI veterans agree that the market for the insurance product is changing as customers expect less friction in being able to leverage new offerings. Even Progressive’s Snapshot, one of the longest continuously operating UBI programs in existence, is poised for transition, says Dave Pratt, the insurer’s GM of UBI. The company launched a Snapshot mobile app in four states in December.
“We give new customers a choice at sign-up: Do they want to get an OBD plug-in device or a mobile app to collect the data,” Pratt explains.
Currently, Snapshot is just that – a six-month sample of driving is used to determine any changes to the customer’s rate, then usually the OBD device is removed unless the insured wants to try for a better score. But Progressive sees the opportunity for expanded use cases associated with the mobile experience, that could keep them in contact with customers over a longer term. For example, if the app is running and someone uses the phone while driving, a report at the end of the trip can illustrate that for people in hopes of helping break the habit.
“I hope that we shift to a lot more people on mobile from the plug-in devices. It’s easier for them and cheaper for us,” Pratt says. “We can be more nimble with the mobile app as well, since it’s so easy for people to update.”
In Canada, Desjardins is in the middle of a similar transition. After entering the telematics realm with an OBD-2 device in 2013, the company is planning to phase out that technology in favor of CMT’s mobile offering for its Ajusto UBI product.
“We’re also not going to focus on just the youth market,” says Alex Veilleux, VP of innovation and strategic partnerships for Desjardins. “What we’re seeing is that the program is fully in line with our normal book of business based on age. For example, 32% of our Ajusto members are 50 and up, and it represents in total about 30% of our book of business.”
All of these trends add up to a big opportunity for insurers, Bassi concludes.
“I don’t think people are saying ‘We’re just going to dabble,’” he says. “I think insurers are ready when they have an app that allows them to understand risk and create a better experience for their customers.”