[Ins.Kuchinskas.2015.09.04] Are big data, smartphones and consumer experience the keys to UBI success? Susan Kuchinskas hears the debate on the second day of the Insurance Telematics USA 2015

Big data – and what to do with it – were top of mind on day two of the conference. How much data is enough? How good does it have to be? And where should insurers get it?

Regarding data quality, there's growing consensus that smartphone data is good enough for usage-based insurance (UBI). Andy Goldby, chief product officer for The Floow, presented results of his company's analyses of data from a variety of phones compared to a UBI dongle. He said there was "near-perfect correlation."

And Bill Mullaney, co-founder of D-rive powered by Deloitte, stated that a good mobile solution captures 90% of miles driven, which is much closer to reality than drivers' self-reported mileage.

There are, of course, more data points available through the OBD port. However, "we struggle to use the data we have now. More data in the short term isn't necessarily better," said Paul Stacy, R&D director of LexisNexis. Moreover, he noted that there are security concerns in attaching an OBD device, as well as product liability issues. He thinks it's likely that in the future, additional data will come directly from carmakers.

"Relationships between OEMs and insurers are already starting to happen," Stacy added. "The data won't come from the OBD port, it will be from embedded units directly transmitting to the OEM, and then from the OEM out to an aggregator."

Indeed, yesterday Verisk Analytics announced that General Motors (GM) would contribute automotive data to its upcoming Verisk Telematics Data Exchange.

There are dangers for insurers in that approach, according to Brian Pignone, product manager for TrueLane, The Hartford's usage-based insurance product. "If data is sourced through OEMs to several different insurers, what is our competitive advantage?" he asked. "If [that's the case,] we need to develop algorithms that lift our issue rates above those of other carriers."

Still, Pignone acknowledged that additional kinds of data "could be a goldmine for insurers in understanding how to adjust claims."

Chris Carver, president of ATG Risk Solutions, said insurers are getting more comfortable with going to third parties for data. "The data clearinghouse model will encourage a great variety of data becoming available, so insurers have the ability to create innovative products with that data."

Driver Improvement

While UBI software programs seem focused on identifying and rewarding the best drivers, there are other opportunities for working with riskier drivers.

"The good driver thing has been played out," said John Kramer, director of customer success for Octo Telematics. While most insurance partners seem to be targeting safe drivers at point of acquisition, he pointed out that that's only about 12% of the entire market. "I think it's a narrow target," he said.

In fact, Steve McKay, CEO of DriveFactor, a CCC Company, provided evidence that there is more upside in helping worse drivers improve via feedback. He presented results from an unnamed DriveFactor client. After 100 trips using a telematics service that gave feedback, the driving behaviour of the standard-risk group improved. But the driving of the non-standard-risk group improved even more. "People who have the most trouble have the best likelihood of improvement," he noted.

Making improvement into a game will boost improvement, according to Danny Maco, head of gamification and engagement for HiMEX. "People love games – and games will drive behaviour," he said.

How to move the needle

Speakers made many rueful comments about this being the year that UBI finally takes off – really, this year! Penetration remains quite low.

Roosevelt C. Mosley, principal of Pinnacle Actuarial Resources, presented the latest in Pinnacle's ongoing sentiment analysis of Twitter posts related to insurance and UBI. It found that privacy concerns have eased, from 23.4% in 2013 to 8.8% in 2015.

Looking at positive comments from US consumers, savings has consistently been – by far -- the top benefit, according to consumers, ranging from 76 to 74% over the past three years. The next-ranking benefit was excitement, at only 14%. Better driving ranked third with 13% of positive comments. However, better driving was up from 4% in 2013.

Mosely said this shows that drivers are recognising that they are learning better driving habits by being part of a UBI programme.

Consumers who try UBI programmes tend to stay with them, insurers are finding. And 40% of new customers sign onto a UBI programme if one is available, said Mullaney.

John Baker, vice-president of sales for Driveway Software, advised insurers to get creative and tailor their software programs to different market segments.

More rewarding programmes

Discounts are problematic, because they squeeze insurers' already narrow margins, and, once they're conferred, consumers expect them and no longer value them. The consensus at the conference is that insurers need to provide more value for consumers in order to get them to sign up for UBI. Several companies are promoting rewards instead of discounts.

Mullaney said successful UBI programmes do three things right:

  • Price risk more efficiently;
  • Engage with policyholders in new ways;
  • Build loyalty programs and value-added services;

Drivers can be rewarded in inexpensive ways via mobile devices, according to McKay of DriveFactor.

He said rewards should be:

  • Low cost;
  • Easy to redeem;
  • No need to file, if possible;
  • Designed to be part of a larger, fun experience.

Rewards, including badges, rankings, or discounts, can be redeemed on the phone with a bar code; on the web with a discount code; or via gift cards or merchandise handled by third-party rewards providers.

Read more about Progressive's new product launch on our Weekly Brief.

In his presentation, Brady Hoines, commercial director of fleet, insurance and OEM for Wejo, announced Rewardrive, an insurance telematics app for a still-unannounced global insurer. The policyholder pays the insurance premium and provides behavioural data via the app. The driver still has the potential of a discount at renewal and will get money off goods and services, enough to cover the premium over the lifetime of the policy in many cases, Hoines said. As the app gathers more data, the rewards will be more individually tailored. Retailers are willing to participate not only in anticipation of increased traffic but also because they can segment offers to Wejo's customer base to understand what works best.

In his talk about gamification, Dave Edington, senior vice-president of insurance and financial services industry strategist for Epsilon, advised, "Use behavioural data not just for premium reduction but for something more engaging."

Insurance for the future

Mike Simmons, senior vice-president of partnerships for Automatic Labs, identified four technology trends that are enabling disruption of the automotive and insurance businesses:

·         Connectivity: The plumbing layer that enables UBI, real-time infotainment and also fundamental to disruption;

·         On-demand economy: Car-sharing and mobility-as-needed combined with other technologies will require new kinds of insurance;

·         Electrification: Makes the machine itself simpler, impacting the supply chain;

·         Autonomy: Completely changes the way insurers need to think about insurance.

Insurers should prepare and embrace consumers' connected, digital lifestyles, said Ari Silkey, CTO of Zubie. "It's not just about UBI, it's about the connected car," he said. "If you want daily or weekly engagement, a score isn't enough. Integration into the connected life, connected home and connected fitness – that's where things are going."

Now catch up with what happened on Day I of the Insurance Telematics USA 2015