Q&A: American Family Insurance on starting a UBI product from scratch

Q&A: American Family Insurance on starting a UBI product from scratch

The person who coined the phrase “The customer is always right” forgot to explain what happens when the customer doesn’t know what he wants. According to Pete Frey, that’s when learning through trial and error comes in.

Frey spoke to TU’s Jan Stojaspal about the many challenges American Family Insurance is having to overcome as it trials its first telematics insurance product. He also spoke about maintaining the company’s identity and the mishap that led to his employees’ car batteries dying.

Does your company have a UBI product in the market?

We’re just getting into it. In terms of getting into the market, we’ve been testing a pilot for two years, and now we’re kind of slowly getting into the area where we think it’s ready to go, slowly getting it out to some customers. But we’re making a quiet entrance. We want to make sure that we get all the kinks worked out and that we know what we’re doing before we make any kind of splash.

Anybody just starting out in this space has to bring together an immense variety of things for a successful UBI solution – vendors, data, storage, analytics, value-added services. How do you work with that? It must be overwhelming.

It can be. I think that’s been one of our biggest challenges … just to get our arms around all of that. When you get into it, it’s not like any other insurance product that’s out there. And, as an insurance company, something as innovative and as cutting-edge as this, it’s a little bit of a shock to the culture. We’ve had to take it apart piece by piece, and … we’ve run into some mistakes.  But it has forced us to think differently, it has forced us, as a company, to internally look at things a little differently.

You said, “Unlike any other insurance product.” Can you elaborate?

When you think of a product in any other space, it’s typically a tangible item — a car, clothing, furniture. An insurance product is a policy. It’s nothing you can really go to a showroom and see. And the product is based on a promise, the promise to protect you. UBI brings with it a whole different [challenge].

It’s a combination of technology as well as process as well as something that’s kind of new to the consumer, where their driving behavior is being monitored. And, all of a sudden, the insurance sector is being thrown into fulfillment of logistics type of services, supporting questions about a device, having to look into mobile software — more than we have every had to before.

So it’s brought a whole new realm of possibilities, as well as uncertainties, for an insurance company.

So how have you done?

We’ve had our trials and tribulations, but we’ve done well. And we’re tackling each obstacle as they come. We’ve had good luck with the vendor partner that we’re working with. We knew right away that we weren’t going to become experts in UBI, experts in telematics. We are an insurance company. And so I think staying true to that kind of helped us realize that we needed to open up that partnership, we needed to bring somebody who knew that space and who knew what they were doing, and to marry that with our insurance expertise.

So working through partnerships is one way of succeeding.

Absolutely. And I think it’s imperative. I think UBI takes insurance companies so far out of their comfort zone that you need to establish those partnerships.

Still, how do you decide about what to keep and what to leave out? How do you start modeling this new product?

If you’re able to get some type of trial, some type of pilot, out there, you start there. But you have to do your homework. A lot of carriers are just getting into conferences like this one [Insurance Telematics USA 2013]. They speak to analysts. They have to have that type of research to understand exactly what makes up the whole UBI system. And when they do that, I think it will at least give them some background, some baseline to start with, and then their partners can help push them through that.

But I think you have to trial. You have to test things out, not only through your distributor channels — that’s an important piece of it — but through your customer. In your trials, you’ll learn a lot. If you don’t test that out, it will be very hard to get into the market and not to make any serious mistakes.

Can you be more specific?

Early on in our pilots, we had preconceived notions of the type of data we wanted. In our pilots we realized, well, that doesn’t make any sense or that doesn’t mean anything to us or we found niches of data where we thought, ok, that tells us something, we can use that.

We also learnt about our customers, what they reacted to, positively or negatively. There would have been some embarrassments had we had a widespread, mass-market release.

Care to share?

A good example for us is we piloted early on with some of our devices that were causing battery issues. Luckily, this just happened with some of our employees to start with. But we were having negative effects on batteries because some of the settings on our devices were not correct.

Are you talking about car batteries?

Right. And there were some early things with data not coming in correctly, compatibility issues between devices. Those are critical, critical things. If you don’t get those cleaned up before you go to market, it will really hurt you.

Sounds like you can’t only focus on the technology.

That’s a very easy trap to fall into, especially when you see all the technology that’s out there and how it’s evolving. I think you need to be aware of it, but you can’t lose focus of what you’re really trying to achieve out there, not only for yourself as a company but for your customers.

How did you go about picking a business model?

I’ll separate it into two different things. You’ve got the business model, and you’ve got character traits of your program.

For the business model aspect, I think you have to decide … when you release a program like this, how are you going to support it? How are you going to sustain it, maintain it? And that’s where you have to take each of the pieces of the program and kind of deal with each one of them — from fulfillment all the way to supporting the customers that have devices in their car. Who’s going to do that? How are you doing to do that? And I think that’s where it ties right into having a vendor strategy that aligns with that.

Today, if you look at all the vendors, you’ve got your device vendors, you’ve got your telematics vendors, you’ve got your analytics, you’ve got vendors that tell you they can do everything including be a call center. You have to look at your company, look at your capabilities, look at your skill sets and decide what’s going to work best for you.

When you’re determining the character traits of the program itself — whether you want discounts, whether you want it to be [based around] value-added services, whether you want it to be about safety — I think you have to look back to the cultural fabric of your company. What do you want to be about?

Progressive is strong on discounts, and what’s what they’re about. You’ve got State Farm that’s putting out a safety message and value-added services.

At what point do you let the customers shape the product, considering the product is very new, and they’re probably unfamiliar with it?

You bring up a great point. They don’t know what they don’t know about something that’s new. So they might be telling you, well, I’ll do it if it can save me money. But if they found out that it could save them time or save them money and maintenance for their vehicle or make their teenagers safer drivers, that might be more appealing. So you need to listen to your customers, but also there is an element of education.

Jan Stojaspal is the executive editor of Telematics Update.

For all the latest telematics trends, check out Telematics for Fleet Management Europe 2014 on March 12-13 in Amsterdam, The Netherlands, Content and Apps for Automotive Europe 2014 on April 8-9 in Munich, Germany, Insurance Telematics Europe 2014 on May 6-7 in London, Telematics India and South Asia 2014 on May 28-29 in Bangalore, India, Insurance Telematics Canada 2014 on May 28-29 in Toronto, Telematics Detroit 2014 on June 4-5 in Novi, Michigan, and Advanced Automotive Safety USA 2014 on July 8-9 in Novi, Michigan.

For exclusive telematics business analysis and insight, check out TU’s reports: Telematics Connectivity Strategies Report 2013The Automotive HMI Report 2013Insurance Telematics Report 2013 and Fleet & Asset Management Report 2012.

Leave a comment

Your email address will not be published. Required fields are marked *