This article first appeared in Insurance Thought Leadership and is reproduced with consent.
As much progress as the industry has seen in recent years, we can’t categorize UBI participation as mainstream when only 22% of people reported being in a program.
Smartphones have done so much for usage-based insurance (UBI), providing the technology to help move away from expensive aftermarket hardware through software leveraging smartphone sensors. One of the clear benefits has been lowering the startup costs of a carrier’s UBI program. Nonetheless, more innovation is needed for UBI to become more broadly adopted. As much progress as the industry has seen in recent years, I don’t think we can categorize UBI participation as mainstream when only 22% of people reported participating in such a program, according to internal research we plan to publish in the coming weeks.
Not just any innovation is needed, though. I think an improved product-market fit is critical, particularly in the interface with the end-user, the insurance customer.
Among the survey respondents, 67% said they are aware that connected vehicles could capture and transmit driving behavior data that can be used for potential insurance discounts. Moreover, 71% of respondents who had not used their vehicle and driving behavior data to get those potential deductions said they are interested in doing so.
The auto insurance industry has considered – and positioned – telematics as an opportunity to further engage with their customers. In fact, most of the telematics solutions available today, such as smartphone apps, offer plenty of touchpoints.
However, I think most consumers may view car insurance as one of those products you check in on once or twice a year, if that. As a result, it’s understandable that consumers may not be accustomed to interacting with their insurance carrier’s smartphone app.
So, is the industry pushing a product that consumers do not want to use? I don’t believe so. I think the low level of telematics adoption for UBI is more likely a case of mismatching a product with a service industry.
Finding That Product-Market Fit
The research shows consumers value the benefits of UBI, but, until recently, the only way they could access those benefits was through having their telematics data captured by smartphone apps or aftermarket devices. Insurance carriers had no choice, and they made a huge effort to encourage consumers to participate in UBI programs. But the game has changed. Now, there are connected cars and the telematics exchange, more advanced technology that can receive telematics data generated by connected cars, analyze it and normalize it to have that data available for a variety of use cases.
An exchange solution provides the elusive product-market fit for UBI. Having the ability to participate in a telematics program, like UBI, by simply turning the vehicle key is likely the simplest approach. In addition, with an exchange platform, the telematics data is ready and accessible at the point of need without a monitoring period.
This is a technology leap with huge potential to push a wider adoption of telematics and UBI products, because the solution provides the desired benefits without requiring aftermarket devices or smartphone apps: The data flows more seamlessly from the source to the exchange, where it is analyzed, normalized and used to build telematics-based solutions that can integrate into insurers’ workflows.
Higher Buy-In With Connected Cars
When I speak to insurance carriers about the prospect and value behind a telematics exchange along with the availability of telematics data, they are usually surprised. In the U.S., our estimates, based on internal analysis, show 16% of passenger vehicles circulating in 2020 were connected. Of the people driving those vehicles, our estimates suggest 60% have agreed to share the data generated by their cars for insurance purposes. That means potentially 40.6 million connected cars on the road in the U.S., with over 24 million drivers participating in UBI-type solutions. As we can see, telematics adoption by connected car drivers is much higher than smartphone app users.
When discussing higher executions of a telematics exchange, you can pull from a resource that has data collected from over 9 million vehicles and 250 billion-plus driving miles. This equates to tens of millions of years of vehicle logging and a massive opportunity for carriers. When data is sourced from different sources and normalized, it can suit a variety of telematics use cases. One such output would be a solution that could offer behavioral scores and attributes that can be integrated into workflows and used at several points of an auto insurance policy lifecycle, including point of quote and renewals, running alongside other data insights.
The higher rates of telematics adoption when it is offered to connected car drivers, in comparison with consumers using aftermarket devices and smartphone apps, is very encouraging. Interest in UBI solutions is also growing, partly because of the COVID-19 pandemic lockdown. The auto insurance industry will still need to innovate and offer flexible solutions, which are becoming more of the norm, instead of a competitive advantage.
Within this perspective, the simplicity of a telematics exchange can help insurance carriers take advantage of new telematics solutions with confidence in the product-market fit. Insurance carriers can know of any potential risk they are embracing when they offer an auto insurance policy at point of quote, not just at renewal. The consumers who are taking advantage of the option to share their telematics data related to driving behavior and vehicle performance may use their telematics data by simply turning on the ignition. The more seamless flow of data can help allow faster access to potential benefits and may contribute to a more transparent relationship between insurance carriers and their customers. And this is just the beginning.
It’s an encouraging time in the industry, to say the least. Powered by advanced analytics, telematics exchanges are making it possible to deliver innovative products with better-quality data aggregation and analysis, more informed insights, real-time scores and much more.