Telematics and UBI challenges for insurers

Usage-based insurance (UBI) is growing in popularity in the US, which trails only Italy in the UBI market. Vehicle insurers considering a UBI option, however, are entering a complex arena. In the US, nationwide UBI coverage is challenging for insurers to implement. “The UBI market is differing a lot from one region to another,” explains Cyril Zeller, senior sales director in Telit’s Global Telematics Segment, who points to the range of privacy laws and insurance regulations that make blanket UBI coverage impractical.

UBI, what’s more, is not one-size-fits-all, and insurers are now confronting a series of strategic choices. Chief among these is the choice between charging users based on the miles they drive and more complex systems that take into account driver behavior.

Targeting the right segment

The pay-per-mile vs. Pay-How-You-Drive (PHYD) decision has far-reaching implications for insurers, affecting not only what devices they’ll use and which service providers they’ll partner with, but what role they plan to play in a telematics industry that is still largely fragmented.

UBI models are highly dependent on which segment insurers plan to target. “The technical involvement the insurer wants to have in the project will dictate the kind of supplier he needs to engage with,” says Zeller.

One decision insurers must make early on is what kind of installation best fits their customers. Devices that record robust vehicle information typically require professional installations. Insurers targeting commercial lines probably won’t see professional installation as a serious obstacle.

Then again, most commercial fleets signing up for UBI will already have some kind of fleet management solution in place. These fleets won’t be enthusiastic about switching TSPs. Installing two devices in every vehicle may create unnecessary costs and unforeseen technical challenges as well. In PHYD modules, “two applications in the device have to be bundled, which is not possible for firmware-led hardware platforms,” explains Zeller. (For more on commercial line applications of UBI, see Insurance telematics and the fleet sector.)

Personal lines

For insurers targeting personal lines, any device requiring professional installation is unattractive as it acts as a disincentive for customers who might otherwise consider UBI. Where Mobile Resource Management is unnecessary, user-installed dongles are a compelling alternative. Dongles are “the first form factor in the telematics industry that don’t need professional installation,” says Zeller. In the US, dongles, which usually come at sub-$100 price points, are helping UBI gain traction. The relatively small amount of data transmitted by dongles keeps service plans cheaper than more robust alternatives.

These plug-in devices come with their own challenges, however. Dongles are as easy to unplug as they are to plug in, which makes them ineffective for stolen vehicle recovery. This is an understandable concern for insurers. It’s also a feature that may be regulated in the near future in countries like Brazil if pending legislation passes. (For more on UBI in Brazil, see Insurance telematics in Brazil.)

Dongles are perfect for tracking miles driven, but their position in the vehicle causes poor reception and can make it difficult to transmit more granular data. With more and more insurers entering the UBI arena, functionality will be key to competitiveness. Driver feedback and seamless integration with positioning systems could be major selling points once UBI gains acceptance with customers.

OEMs may soon get in the mix, too. Zellersees a future where customers can download a UBI application to their connected vehicle.Which raises an interesting question: Will insurers sell mobile resource management or will TSPs sell UBI? (For more on connected vehicles, see Industry insight: The connected car.)

The role of insurers

In seeking device suppliers, insurers must decide whether they want turnkey solutions that can simply be branded or whether they want a hand in device design. There are opportunities, as well, for insurers to develop their own end-user applications, giving them greater leverage in providing exactly the kinds of services and functionality that their customers want. This will take significant investment up front, however, which may be unappealing given the uncertain direction of UBI.

For now, as TSPs and UBI providers decide whether and where their paths will intersect, component manufacturers are providing for all outcomes. Telit is seeing impressive growth in the M2M space by offering modules to fit all UBI eventualities. Telit provides unified form factors in all cellular modes, for example, simplifying some of the challenges that arise from region to region. Telit also reorganized itself in 2011, doing away with its regional sales approach in favor of a focus on strategic verticals. (For more on M2M, see Industry insight: Telematics and machine-to-machine communications.)

Greg Nichols is a regular contributor to TU.

For more on UBI, see Industry insight: Insurance telematics.

For the latest on UBI, check out Insurance Telematics Europe 2013 on May 7-8 in London.

For all the latest telematics trends, check out Telematics India and South Asia 2013 on April 17-18 in Bangalore, India, Data Business for Connected Vehicles Japan 2013 on May 15-16 in Tokyo, Telematics Detroit 2013 on June 5-6, Content & Apps for Automotive Europe 2013 on June 18-19 in Munich, Insurance Telematics USA 2013 on September 4-5 in Chicago, Telematics Russia 2013 on September 9-10 in Moscow and Telematics Munich 2013 on November 11-12.

For exclusive telematics business analysis and insight, check out TU’s reports: In-Vehicle Smartphone Integration Report, Human Machine Interface Technologies and Smart Vehicle Technology: The Future of Insurance Telematics.