Insurance telematics and the “marketplace of motivators”

For all the promise that usage-based-insurance (UBI) solutions hold, and despite all the traction they seem to be gaining, the fact remains that most insurance companies are still in a period of trial and error with their individual offerings.

In the US, only a few companies have taken UBI offerings nationwide (Progressive and State Farm come to mind), whereas most are confining their UBI activity to a few states, like Drive Wise. Allstate’s offering is currently available in three states—Illinois, Arizona, and Ohio—and the company announced in July that it will test Drive Wise among Allstate employees to expand usage and further tweak the service. (For insights from Nate Bryer, Allstate’s usage-based insurance general manager, see Telematics, UBI, and driver education.)

“Insurers are trying things out, which is healthy for the sector,” says Robin Harbage, director at Towers Watson. But, he notes of the general market, “to date, a lot of this experimentation hasn’t been geared toward a long-term strategic plan.”

It’s critical, therefore, that companies develop cohesive strategies. Specifically, Harbage advises companies to approach UBI offerings with a clear goal for where they want to be four years from now. That goal will vary company to company, by size and market objectives, but it’s critical to define it, nonetheless. “Make sure that what you’re doing today puts you in line to meet those end goals down the road,” Harbage says.

Get granular data

The spectrum of insurance companies on the UBI front ranges from ‘all in’ to ‘wait and see’ to ‘out in the woods’. Eight of the top 10 and the majority of the top 20 auto insurance companies in the US either publicly offer UBI or are close to getting there. That said, there are hundreds of smaller insurers in the country, and most of these are still sitting on the sidelines.

“Lots of insurers are taking notes, not taking action,” says Harbage.

Harbage suggests that this segment of the market get in ASAP with concrete products. It takes at least two years to get the algorithms, system, and electronics in place to deliver a viable product, Harbage points out, and “the clock doesn’t start running on the development effort until you’re in the game. This isn’t something you can wait on forever.”

Harbage further recommends that firms make sure to gather as much and as detailed data as possible from device providers, so that they have all the requisite data to build a strong solution. In place of a summary set of data that comes as a default setting off of a device, they should demand the full stream of vehicle data. “If you’re going to spend a million dollars to collect data, don’t collect a fraction of it,” he says.

This is one lesson companies can learn from earlier generations. Early on, the cost of wirelessly transmitting data from a vehicle to an insurer was fairly high. So telematics providers had to summarize the data on the device and pass just a few standard elements—like mileage and harsh braking—to get the cost down. But now the cost of devices has decreased, as has the cost of transmitting information, especially now with wireless players like Sprint introducing its integrated, end-to-end UBI services and Verizon acquiring Hughes Telematics.

“Insurers used to have no way of knowing if the data they were getting represented the best predictive models,” says Harbage. “Now you should aim to get as granular detail as you can, so that over time you can investigate new maneuvers and behaviors.” (For more on UBI and data, see Telematics and UBI: The data challenges, Telematics and the value of data and Telematics and probe data: The revenue opportunities.)

Market differentiation

A year or two ago most insurance companies already in the game were simply trying to get a new segmentation tool into the marketplace. Now, the goal has shifted to market differentiation. For this class of companies, Harbage encourages program directors to focus on changing driver behavior rather than simply leveraging UBI to identify better drivers.

“Help mold drivers,” he says. “You’re not trying to find the best drivers of today; you’re trying to turn the drivers of today into the best drivers of tomorrow.”

To effect this change, Harbage believes companies must first provide ample motivation to drivers through a range of incentives, since motivating consumer behavior with a one-size-fits-all solution is generally futile. Motivation could come in the form of lower premiums, coupons for children or teenagers, the right to continue driving for an older driver, Harbage suggests. The key is that with a marketplace of motivators in place, companies will have the tools to actually stimulate drivers toward safer behavior.

Secondly, companies must provide constant and close-to-immediate feedback. This feedback may come in the form of in-vehicle tones or lights. It also could come as content fed to a smartphone or emails that drivers pick up on a home computer. (For more on smartphones, see Q&A: Telematics, UBI, and the connected vehicle and Smartphones as an incentive for insurance telematics.)

In-car alerts

Harbage tells of a colleague who wanted his son to stop slamming the brakes when he approached a stop sign. He repeatedly explained that gradually slowing down enables you to better anticipate road events and to avoid having to make last second decisions. And to each of these lessons the son responded by continuing to race up to the crosswalk and slam on the brake.

So the father put a simple device into the OBDII port that made a tone if the driver slammed on the brake or made a hard maneuver. The next time the son slammed the brakes, a loud beep issued from underneath the dashboard. The son looked at his dad and said, “What’s wrong with the car?” It was the last time the son slammed on the brake before a stop sign.

“The dad could go on until he was blue in his face and wouldn’t make a difference,” says Harbage. “As soon as the device was installed, there was the opportunity for a lasting and sustainable change.”

Such instant feedback devices are already present in fleet management solutions. Harbage notes that those fleets that integrate behavior-shaping devices see immediate benefits and savings, as the cost of accidents goes down, lost time goes down, and worker comp claims go down.

But to date, big insurers have shied away from adopting such solutions on the consumer front. Progressive’s Snapshot, for instance, is designed as a short-term measuring stick for driver behavior. Indeed, the insurer takes the device out of the vehicle at the five-month mark, effectively removing itself from the conversation as a molder of long-term behavior. Even those companies that have set their sights on more permanent UBI offerings have steered clear of in-car alerts.

“This is an area where everyone, the new players and the established, needs to work hard,” says Harbage. “If they do, market differentiation is a real possibility.”

Andrew Tolve is a regular contributor to TU.

For more on insurance telematics, see Special report: Insurance telematics.

For more all the latest trends in insurance telematics, check out Insurance Telematics USA 2012 on September 5-6 in Chicago and Telematics Munich 2012 on October 29-30.

For exclusive insurance telematics business analysis and insight, read TU’s Smart Vehicle Technology: The Future of Insurance Telematics report.