‘Bad’ drivers and the future of UBI

UBI optimists say that telematics insurance is about to enter its long-expected golden age, during which the proliferation of new cars with factory-embedded connectivity will help the product join the auto insurance mainstream.

The thinking is that, in the US, carmaker subscriptions that include UBI as a value-added service and, in Europe, compulsory factory-embedded connectivity via the eCall mandate will decrease the cost and inconvenience barriers to such an extent that consumers will happily sign up.

However, UBI has an inherent market limitation, which happens to be an essential part of its identity – it makes discounts available only to drivers who qualify for them because of their exemplary driving behaviour, as measured and scored by data exchanges or insurers. Given its disappointing market growth to date, it would make sense for UBI providers to be as inclusive as possible. That is, something should be done for ‘bad’ drivers, who will not see the sense of sharing their driving data in exchange for no benefit at all.

This is of particular importance now. As Niranjan Manohar, programme manager, connectivity and automotive IoT, at Frost & Sullivan, explains: “There’s a shift happening now, because most OEMs have started to rethink the concept of connectivity, especially on how you position these systems in such a way that internal benefits can be reaped out of it. When you talk about better customer relationship management after sales, it has become key. This is happening because OEMs have in general failed to capture the data harnessing, which is the internal benefit.”

There are risks attached to a carmaker offering UBI to all of its customers who purchased a connected car. For example, what happens when two friends or neighbours purchase the same make of connected car and both opt to exchange their driving data for a possible premium discount but only one is adjudged to drive well enough to receive it? How much brand resentment will it inspire in the customer who is told that his driving is not good enough?

Some companies are planning to overcome that issue by using ambient data – that is, data already collected via location-based apps or services, such as Google Maps. The plan is to analyse the driving data ahead of time and then offer a UBI policy only to those who are eligible for a discount. However, this approach treads heavily on privacy issues and it does not address a situation in which a driver of a Brand A automobile learns that other owners of the same brand have been offered a discount but he has not.

Nevertheless, according to Manohar: “There are no initiatives at the moment targeting bad drivers. There is a small initiative from Ford to offer an app that provides a driving score based on driving behaviour, which could eventually lead to helping them work toward lower insurance rates.”

He says that most carmakers and/or insurers will probably offer a similar service to drivers who are not initially eligible for a premium discount. “They will probably be assisted via driver coaching to get lower rates,” he says. “They will be offered a driver coaching app to help them get better and get a discount. It will be coaching harsh braking, cornering, acceleration and all of it will be voice-activated. So, while the connectivity is not helping them reduce premiums, they could use it to get reduced premiums based on better driving behaviour.”

There is another issue facing UBI providers in the near to medium future, when most carmakers will be selling only, or primarily, connected cars, and that is autonomous technology.

“In about five to 10 years, you will have Level 2 and Level 3 automation,” Manohar says. “That will be a fifty-fifty scenario. Half of the insurance will be owned by the driver and half will be owned by the OEM directly. The product liability will be part of the OEM package. With Level 2 and Level 3 cars, they will package the insurance in the cost of the cars. This conversation is going on in the industry now.”

Yet, when cars offer the same ubiquitous connectivity as smartphones do now, consumers will be judging carmaker-provided apps on similar criteria as they now apply to smartphone apps. That is, they will eagerly share personal data if the benefit is sufficiently attractive. However, with carmakers assuming half of the insurance cost and lower premiums probably being offered by insurers to drivers of cars equipped with ADAS systems (as some UK insurers are currently doing), there will be little room left for a convincing UBI discount.

In addition, if the owner of a Level 3 car only drives half the time the vehicle is on the road, would it not make more sense to offer him a micro-insurance policy, based on the distance he actually drives the car? This would be far simpler and be perceived by customers as far less of an invasive than tracking driving behaviour.

There are certainly more questions about the future of UBI than there are certainties but Manohar is confident of one thing: “UBI will not be as mainstream as it is touted to become.”

[Ins.Mortkowitz.2017.03.21]