Consumers and UBI: The power of value-added services
Jessica Royer Ocken explores how value-added telematics services are promoting acceptance of usage-based insurance
Usage-based auto insurance seems to be gaining traction, but it relies on an in-car means for insurers to acquire data about the drivers they cover. And, of course, drivers must agree to release their data.
In some parts of the world, acceptance has been encouraged by outside factors. The vehicle-theft rate in South Africa, for example, is such that car insurance is virtually impossible to obtain without installing a vehicle-tracking device. All three major auto insurers in that country offer their drivers a discount in exchange for access to the driving data the device can collect, reports Robin Harbage, director at Towers Watson.
The prevalence of vehicle theft has also helped propel UBI into the marketplace in Europe, and particularly high insurance rates in Brazil make drivers eager for any means of getting a discount, including providing access to their mileage and driving habits, explains Roger Lanctot, senior analyst at Strategy Analytics. (For Roger Lanctot’s take on Brazil, see Strategy Analytics: “Brazil is one of the fastest growing [telematics] markets”; for more of TU’s Brazil coverage, see Telematics in Brazil and LATAM: Going beyond GPS, Telematics in Brazil: Ensuring security for cars and cargo, Telematics in Brazil: The law of the market, and Telematics in Latin America: Getting ready for infotainment.)
Often just the opportunity to save is enough to overcome consumer skittishness about sharing information. (For more on consumer attitudes toward UBI, see Telematics and UBI: How to increase consumer acceptance.) These days privacy is just another commodity, says Lanctot. Nevertheless, another incentive has entered the fray: value-added services.
More than a discount
In China, auto insurance is purchased at the dealership, right along with the car, Lanctot explains, and the package usually includes an aftermarket module that plugs into the vehicle’s OBDII port. It provides insurance discounts in exchange for driving data, as well as roadside assistance and a message to the dealer when the car’s system gives a diagnostic alert. UBI packages with an assortment of value-added services have also entered the US market.
These UBI value-added services, which include navigation and stolen vehicle recovery, as well as roadside assistance, could well be the future of auto insurance, Lanctot says. “But it’s like Moe, Larry, and Curly trying to get through doorway at the same time,” he adds. “There’s a mad dash to get to the right solution, but nobody has it all figured out.”
This situation has evolved, he explains, because insurers worldwide would prefer to use an embedded OEM system to gather their UBI data, but auto manufacturers have been slow to provide this. Although a few insurers use OnStar as a way of measuring mileage and perhaps providing a few services, most have turned to aftermarket solutions.
Progressive sends interested customers a device they plug in and drive with for one policy period, then return, reports Harbage. Their savings and feedback on their driving habits are calculated based on this ‘snapshot’ of their behavior. However, the newest aftermarket UBI device is a permanent one. In-Drive, by Hughes Telematics, has just been introduced in the United States in partnership with State Farm Insurance and their Drive Safe and Save program. (For more from Robin Harbage, see EMB: Telematics can deliver an improved insurance product.)
Because insurers are bringing their own devices to the UBI table, Lanctot says, they have an opportunity to “evaluate other opportunities,” such as value-added services, as well as collect the data they need.
The In-Drive example
The In-Drive device by Hughes Telematics—which also manufactures the OEM mbrace system for Mercedes—offers the broadest selection of services currently available via an aftermarket device. State Farm customers who are just interested in premium savings can be minimally connected to share their driving data and be provided with basic information, via a website, about their driving habits and how this behavior impacts their discount, explains Eric Berkobin, general manager for In-Drive with Hughes Telematics.
Customers who want more options can choose a package that includes voice-based roadside assistance, instant access to a State Farm agent, and vehicle diagnostic reports. Another set of services allows the car owner to closely evaluate, and even manage, the driving habits of a teenaged or elderly driver, and there’s also a smartphone-enabled option.
In-Drive has been packed with services, and more are constantly being developed, so it can appeal to the market in many possible ways, Berkobin explains. He adds that Hughes’ aim is to benefit the consumer, not just the insurance carrier. The UBI model has been “one-sided” in many applications thus far, he says.
In contrast, as interest in value-added services grows among drivers, insurers could be left out of the equation altogether. Hughes has also partnered recently with American Automobile Association Club Partners (ACP) in the United States to provide their membership—about 12 million drivers in 20 states—with AAA-branded In-Drive devices. AAA does not provide insurance, but the In-Drive’s features will enhance the roadside assistance, diagnostic, and safety services the company offers members.
Impact for insurers
But for all this focus on customers, there’s an array of benefits insurance providers can reap from these services. Ultimately, these added features could change the relationship between insurers and the insured.
Insurance companies have a “vested interest” in what happens when a vehicle they cover is damaged, Lanctot notes. If the vehicle includes a means to instantly contact the insurer, not to mention potentially transmitting immediate information about the incident to the company, “the opportunity is there to manage the whole accident scene,” he says. And from there, there’s no reason insurers can’t move into the “content aggregation business” to further strengthen their connection to clients.
A company’s choice of value-added service offerings also allows them to manage their brand image and focus, Harbage says. Progressive’s Snapshot aims at minimal invasion, while American Family’s Teen Safe program really wants to improve driver behavior, he explains. By providing feedback and incentives, insurers can create the opportunity to shape better drivers, not just reward those who already are.
Hughes does not currently have any UBI services or products available outside the US market, but it is certainly interested in expansion. As the market penetration of value-added-service-enhanced UBI grows, it “will be disruptive to the current industry on a global basis,” predicts Kevin Link, senior vice president of marketing for Hughes Telematics.
Lanctot agrees that big changes are still to come, particularly when the delivery mechanism for value-added services becomes OEM-based rather than aftermarket devices. Insurance companies should seize this opportunity to bring carmakers, application providers, and other stakeholders—even car dealers—together to craft compelling reasons and seamless processes for drivers to share information about their behavior and habits, he says. “There’s an opportunity here,” he explains. “Everything is on the table in a connected world.”
Jessica Royer Ocken is a regular contributor to TU.
For more on UBI, join the sector’s other key players at Telematics Munich 2011 on November 9-10.
Read TU’s report Smart Vehicle Technology: The Future of Insurance Telematics for exclusive business insights into the global UBI market.