UBI Going Mainstream?

When is UBI going to go mainstream? And will it take a killer app to kick the market into high gear?

That’s the debate that continues to rage in the auto insurance industry. Advocates say it is growing faster than many insiders expected, while naysayers claim consumers aren’t convinced enough to jump on the bandwagon.

Backers of the technology-based insurance products and devices point to gains in both awareness and adoption, plus the dongles are now being sold in the most mainstream of marketplaces—at Walmart.

But even a recent Towers-Watson survey showed just 8% of drivers had signed up for usage-based insurance (UBI) products. Some bullish UBI supports say that’s more than expected, but the doubters say consumers aren’t convinced the UBI solution is more equitable than the traditional proxy-based rating system that has defined the industry for decades. The skeptics also say that drivers are concerned about privacy issues, are simply not familiar enough with the product, and insurers do not see a large enough profit upside to transform their entire business model.

As a result, these skeptics say UBI will remain an interesting product of minor importance, restricted mostly to young drivers attracted by lower premiums and other such niche markets.

Some proponents of UBI have become frustrated by its slow market growth. According to Roosevelt Mosley, principal and consulting actuary at Pinnacle Actuarial Resources, penetration of the solution in the U.S. market currently stands at “between 5 and 8%.”That level had originally been posited as its tipping point, but market growth remains stubbornly slow.

As a result, insurers offering a UBI solution are still looking for the “killer app”, a business model so attractive to both consumers and other insurers that it will transform UBI into a mainstream product. One such solution may be a device that offers enough added value to both consumers and insurers to convince them to take the plunge, a device such as the Audiovox Car Connection.

A device with many services—and an insurance option

The Car Connection plugs into a vehicle’s OBD-II port and sends data to a central server. The Audiovox device works with three companies currently offering a UBI policy—Liberty Mutual, American Family Insurance and The General Insurance—at a discount based on driving performance. The Car Connection also monitors a vehicle’s health and fuel economy, tracks its location, allows parents to monitor their children’s driving, and provides driver performance feedback.

The device also comes with a smartphone app that allows the driver to access information about her car’s health and location as well as her driving ability.

“We’re creating enough value with services so that people are getting interested in other services [on the device], such as insurance,” says Hillol Kargupta, president of Agnik. The Big Data vehicle analytics software company provides the software and back end for Audiovox and helped develop the user interface.

According to Dan Murphy, vice president of Telematics Solutions at Audiovox, the device is currently available in more than 4,000 retail outlets, including Walmart stores. That makes it available to millions of consumers willing to pay the average market price of $119.95. A separate data plan through program partner AT&T is required for another $10 a month. And Audiovox tries to make the cost palatable by promising savings of “up to $425” on its Car Connection Car Insurance Discount program.

“This is the most natural way to get insurance discounts,” Murphy says. “It offers many other reasons to put the device in the car besides just getting a discount.”

The added value provided by the additional services is the key to winning over consumers, he adds. “It is easier to connect with insurance companies when there are so many other reasons to get connected.”

Murphy has a point. In a 2013 survey conducted by Telematics Update, a list of the most desirable value-added services for a UBI business model included fuel economy, geo-fencing, vehicle maintenance alerts, remote vehicle diagnostics, teen tracking and monitoring and vehicle tracking, all of which the Audiovox Car Connection offers.

Agnik’s Kargupta says the device has an added value for insurers as well. “One of the challenges of insurance telematics is infrastructure costs,” he explains. “With the consumer bringing the device to the car, you no longer have insurance companies underwriting all of this architecture. This is giving a low-cost option to insurers.”

In addition, UBI is offered as an opt-in product, “instead of having something forced down their throats,” Kargupta maintains. “With privacy protection being a top priority and insurance companies not having to accept these costs, this is how we drive adoption.”

The fact that insurers will not have to cover the cost of the hardware has interested a number of insurance companies currently in talks with Audiovox about participating in the program, Murphy says, without providing any names.

There is one other consumer benefit the device provides that may bring more consumers to UBI: the opportunity to have their driving behavior monitored, presented and rated, without it having immediate consequences on their pocketbooks.

In UBI parlance, this would be described as a Try Before You Buy (TBYB) solution, a business model many analysts are touting as a potentially effective method to attract consumers.

A 2013 survey conducted by the independent research firm Lynx Research Consulting for LexisNexis Risk Solutions found that consumers would definitely be open to such an approach. In that survey, 61% of respondents said they would be “more likely” to try UBI if they were given a three-month trial period.

In a sense, the device offers this trial period with its Driving Scoring feature, which registers such bad driving behavior as excessively hard braking or rapid acceleration.

Audiovox’s Murphy said it is too early in the marketing of the device to derive any meaningful sales figures or data on what percentage of Car Connection purchasers actually sign up for a UBI policy. But he is confident of success.

“We are currently in early adoption stage,” he says, referring to the sales of the device. “The next phase is early mass market. We’re 12 to 18 months from that stage.”

One reason for his confidence is that he believes a greater number of retail outlets will stock Car Connection in the future. “There’s a potential for other distribution channels, both in retail and aftermarket formats,” he says. “We could easily double the 4,000 outlets we have today.”

In addition, Audiovox is currently testing some foreign markets with a view to launching the solution abroad.

Murphy is also confident that the insurance option will eventually draw a large number of consumers to the device. “The initial response from distribution partners is that UBI is a desirable product and eventually it could be that as many as 30 to 40 percent of the people who buy [the device] do so for a car insurance discount.”

Murphy bases his confidence in part on what he sees as a rapidly growing market interest in telematics insurance in the U.S. “There’s been a lot of activity this calendar year in the market—and specifically in the last four months,” he says. “There’s a great appetite to have this program pushed out to consumers. There will be a great deal of momentum in 2015 for this device and this kind of approach.”

But the UBI market remains sluggish

However, not everyone is convinced that there is any way to accelerate UBI market growth, regardless of the lure of added services or any other “killer app.”

Roosevelt Mosley, Jr., of Pinnacle Actuarial Resources, for one, believes that UBI market penetration is inevitable but it will be a slow process.

“I don’t think this device will move the needle that much,” he says. “It certainly won’t cause the tipping point.”

Mosley explains that one reason for his pessimism is that there are other devices in the market offering similar services, albeit without an insurance option, and they have not been very successful according to Mosley, who says, “they have made some inroads with people who have teens.”

In addition, he does not believe that consumers will be willing to pay for the device when they can already get a UBI device free from Progressive’s Snapshot program, the most popular UBI solution by far on the U.S. market today.

“This is the market challenge,” Mosley says. “It’s all dependent on consumer willingness to accept the cost of this device.”

Another reason he is not optimistic that UBI will quickly move into the mainstream is that consumer opinion of UBI has not improved markedly over the past six months. Mosley surveys chatter on social networks such as Twitter and Facebook to derive a snapshot of public opinion from this informal data.

He says that positive opinion of UBI has increased from 26 to 28 percent over the past six months, while negative opinion has fallen from 55 to 48 percent.

The greatest decrease in negative views of UBI occurred in regards to privacy concerns and in misunderstanding about the program. “For example, many consumers thought that if they signed up and were bad drivers, their rates would go up,” he explains. “People are slowly but surely becoming better informed.”

But he doesn’t see UBI being mandated by the US government, as it has been in Italy and South Africa. Instead Mosley foresees a slow adoption of UBI in the US, UK, and Canada with just a 20 percent penetration rate by 2020.

“It’s moving in the right direction,” he says, “but very slowly.”

For the latest telematics trends, check out Connected Fleets USA on November 20-21 in Atlanta, USA, Consumer Telematics Show 2015 on January 5 in Las Vegas, Connected Fleets Europe 2015 on March 10-11 in Amsterdam, and Telematics Berlin 2015 on May 11-12 in Berlin.

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