OEMs and UBI: The Start of Something Big

Usage-based insurance seems at last to have caught a tailwind and appears to be slowly becoming part of the market mainstream as insurance companies recognize its benefits and, perhaps more important, OEMs start listening to what the insurers are saying and offer usage-based insurance as part of their embedded connectivity solution.

That is what Swedish car-maker Volvo is considering doing, says Volvo Car Corporation’s director of Market Development, David Green. “We are currently building the infrastructure which can be used by our customers for multiple functionalities,” he explains. “And one of the likely early examples will be UBI.”

Volvo has for years been offering traditional car insurance, underwritten by various carriers, in all major global markets. It is now investigating the connected insurance solution “because insurance companies are telling us their customers want it,” Green says, and because of the benefits it can therefore bring to Volvo.

“UBI is an easy, early win,” Green says. “It’s an established business model, it’s growing in popularity and the industry is telling us that aftermarket solutions have significant downsides.”

The downsides of OBD-II dongles include data security issues and their relative fragility. “We put a lot of effort into building our telemetry secure both from the perspective of data security and in the event of an accident,” Green says. “You want to be connected after a crash. That’s the whole point.”

In the long term, the type of data available to a Dongle is limited, he adds, and may not provide what insurers are looking for. Surprisingly, Volvo’s insurers have not prioritized G-force detection. They are more interested in where the driver is, what time of day it is, what type of road the car is on and the number of people in the car. “That’s what we’re being asked for: a nice, simple data set,” Green says.

If Green says that “the jury is still out” on whether offering UBI will give Volvo an additional selling point, he believes that UBI may promote customer loyalty, or stickiness, to the Volvo brand. “It’s about creating a better user experience for the customer,” Green says. “This is important for everyone: Volvo, the insurer and the insured.”

Volvo may test the product with certain customers in key markets and, if the results are positive, it could be on the market relatively soon. But Green says that offering UBI at the point of sale will not necessarily mean that customers will purchase it. “It is currently an unknown and will probably depend on the market,” he explains. “In Sweden, the majority of customers buy insurance at the point of sale. However, markets differ.”

But he believes that once the insurance product offered to customers in the showroom includes UBI, it will start to go mainstream. And this should happen, Green says, because offering UBI at the point of sale “is the best situation. If the usage-based model is to gain traction it needs to be done by OEMs, because we can build quality of service based on the fundamental integrity of the embedded black box.”

John Heffernan, assistant vice president, Standard Lines Strategic Initiatives, at State Auto Insurance, completely agrees. “UBI is the future of auto insurance,” he says. “And in my opinion the really disruptive influence in the UBI ecosystem will come from the OEMs. And to some extent that is already beginning.”

For Heffernan, offering UBI at the vehicle point of sale makes very good sense.“The key to the whole value proposition is data acquisition, and the most painless way to get the data is to get it straight from the car with permission acquired at the point of sale.”

There are also benefits for the car-maker, Heffernan says, including the creation of an addition source of revenue. “The OEM is leveraging data that already exists into a new revenue stream,” he explains. “When insurance carriers install a Dongle to acquire that same data, the OEM gets nothing from the data their vehicle made possible.”

Heffernan says car-makers have in the past been reluctant to get into the space, citing consumer privacy concerns regarding the data. “But they are already collecting data for their infotainment systems. And it would not be a viable concern if the decision over the use of the data were in the hands of the car owner.”

He notes that “all the data the OEMs are already mandated to capture is the data we need to provide drivers with real-time feedback that could significantly improve their personal safety. The huge potential for increased driver safety should be the motivator to encourage OEMs to facilitate data-sharing capabilities with carriers willing to invest in the infrastructure.”

State Auto is currently working with TSPs that are investing in all the leading data-acquisition strategies—Dongle, Bluetooth, and smartphone— while also developing relationships with OEMs “to be ready to make that path available to us when and if the OEMs open the door,” which he considers the optimal next stage.

“We have to progress from requiring the dongle and move to getting [the data] directly from an embedded system, such as [GM’s] OnStar or [Renault-Nissan’s] R-Link,” Heffernan says.

The main reason is the cost. “Getting data via a Dongle or a smartphone is expensive for us,” Heffernan says. “Ultimately, we want to work with TSPs and OEMs. The OEMs have the data and the way to transfer it. We’re waiting eagerly to see driver data acquired directly from the OEM’s.”

One insurance company that has taken that step is Progressive insurance, the provider of what is probably the world’s most popular UBI product, Snapshot. It was announced in early January that the carrier has entered into a partnership with GM’s OnStar that will allow owners of all 2016 GM models, most 2015 models and some 2013 and 2014 models to have their driving ability rated and get a UBI policy from Progressive.

According to David Pratt, Progressive’s UBI general manager, the marketing of the program will start in the summer. “OnStar will introduce a safe driving assessment service for its customers,” he explains. “After three months, they will send the drivers an e-mail telling them how they did and what they can do to improve. And they will send a suggestion on the insurance option.”

Drivers interested in a UBI policy from Progressive will then agree to have their driving data sent to the company. “After the customer chooses to share the driving data with Progressive, OnStar will send us the information needed to calculate the Progressive Snapshot discount score,” Pratt explains. “We’ll use the same scoring algorithm that we apply to driving data from the traditional Snapshot device.”

Progressive’s Snapshot is based on installing the company’s data-gathering device in the car. With the OnStar program, that will not be necessary. “One advantage for the customer is that he or she never has to install a device,” Pratt says. This is not only a benefit for the customer, but for the product as well. “Any technology that makes it easier for customers to participate will help UBI become mainstream,” he says.

According to Pratt, the program will also take some consumer uncertainty out of purchasing a UBI policy. “I think that after the 3-month experience with driving assessment, they will have a clear idea of how they stack up against other drivers, and a lot of people who hear they are safe drivers will want to sign up with us.”

Customers will also have experienced having their data looked at and analyzed, perhaps easing any privacy concerns they might have.

Obviously, Pratt views this partnership as a huge opportunity for his company’s UBI product. “GM sells three million cars a year in the U.S.,” he says. “We’re hopeful that this will mean big numbers for us.”

Pratt says the partnership will also bring benefits to GM, including “that the customer will use the OnStar to reduce the cost of car ownership” through the UBI discount.

If everything works out as planned, this could be the start of a long and mutually profitable friendship, not only between GM and Progressive specifically, but between OEMs and UBI insurers in general.

Find out how automakers are getting involved in UBI in Europe at this year’s Insurance Telematics Europe 2015 (April 14-15). It is the biggest gathering of insurers telematics executives in Europe looking at how to stay relevant in today’s evolving market.