Q&A: Taking a Hybrid Approach to UBI Data
Dongle or smartphone? As the usage-based insurance industry debates the pros and cons of each, LexisNexis and new acquisition Wunelli talk to Susan Kuchinskas about the benefits of both.
Last September, LexisNexis Risk Solutions launched its Telematics Mobile product, a white-label mobile app for smartphones that capture and transmits information about driving data. In May, the LexisNexis Risk Solutions acquired Wunelli, the telematics data services provider based in the UK. The combined companies claim that their combined datasets will result in one of the largest provider-held insurance telematics databases in the world. Wunelli says it's tracked close to 900,000 million miles of driving.
There are strong differences in the US and UK markets, and, in the States, 50 separate sets of insurance regulations. Susan Kuchinskas talked to Ash Hassib, senior vice president and general manager of auto and home insurance at LexisNexis, and Penny Searles , managing director of Wunelli, to find out their strategy for addressing the two markets.
LexisNexis and Wunelli each have a smartphone solution. What are the advantages of this approach?
Hassib: In the United States, it's a hybrid approach, while, in the UK, Wunelli has developed a smartphone app that doesn't need any device; it collects the data on its own. We're taking the app that Wunelli has and merging it with what we have in the U.S. market.
Searles: We found that the standalone smartphone application with driver identification has been a massive step. It's inconvenient to have a box installed, but app-friendly consumers are very happy to download an app, and it will pass data to us in the same way that a black box would.
What is your connected driver concept and how is it different from other approaches to UBI?
Hassib: The smartphone enables this concept. When you look at telematics in the US, it's based on a device you put in the car. If I have multiple drivers in my household, the insurer can only look at the way the car is driven overall. The connected driver concept brings telematics closer to the standard way of evaluating risk. In the past, you looked at a family vehicle's score based on a device in the car and that score might look so bad the insured would demand a very high premium. If you take the same family and look at the connected driver view, which takes into account the different drivers' behavior, and apply the rating factors, you could arrive at a very competitive premium, because you could price them better. We looked at data scored with these two methodologies and a lot of cases showed significant differences.
What are the strengths and weaknesses of smartphone apps and OBDII devices?
Searles: With our smartphone app, we have very viable data that will identify which driver is in the car. A deviceless app can give you driver attributes, but you cannot be 100 percent certain they're driving in the car you've insured. If we're going to use data for the lifetime of the policy, underwriter and pricing team might want more certainty that it's in the right car.
There's argument that, with the OBDII port, it's proxy data because you see the results of the event, rather than the next generation of UBI modeling, which gets into the decisions behind the events, such as why someone consistently brakes hard at a certain time of day. The crucial thing about the hybrid solution is that you get the data reliability of the ODBII device, as well as identifying the driver as opposed to the connected car.
What are the major differences in the U.S. and UK markets?
Penny Searles: In the UK, primary distribution is through price comparison sites where all insurers display prices. It's very aggressive in pricing and the pricing gets adjusted daily. Telematics has taken a bit of an upturn here because it allows an insurer to differentiate. Understanding driver behavior allows them to lower prices for good drivers and they're able to sell directly to consumers.
Do these aggregation sites have any way to recognize a good driver and give him or her a better price?
Searles: Not at this time, but we are collecting that information from drivers so they can use it in the future. A good driver on one of the safe driving products wants to take their data and give it to insurers and say, "What can you do for me?" All aggregator channels are starting to work out how that can be done. One of the key reasons we were excited about LexisNexis is that their data distribution is far advanced to Wunelli's. Once aggregators are looking for that facility, LexisNexis can provide us with a very easy step into a data hub that allows that information to be distributed.
How far away is driver data portability in the UK?
Searles: In 18 months to 2 years. We're driving that in the UK. We can approach aggregators and say, "Let's build this facility in and give the customer a score at quote rather than a customer taking out a policy and having to prove their worth.
And what about in the United States?
Hassib: We're a couple steps behind the UK, but we see signs in the US of carriers expressing similar desires in the future. If I'm rolling off a telematics policy with carrier A and carrier B is interested in writing me a policy, they'd like to know my history rather than having to collect that data from scratch. But it will take much longer than 18 months.
In the United States, Progressive has a very early start in UBI and a great deal of accumulated data that it sees as a competitive advantage. Why would insurers be willing to share their data with others?
Hassib: Insurers would have to come together. We already have pooled databases, and carriers contributing their own data for own their benefit eventually. They have gotten used to the idea that they're giving up something but getting something as well. Progressive is not likely to be one of the first because of its dominant position, but the others, I think, will see the advantage of pooling their data together to try to catch up.
Searles: If in the beginning we had introduced the idea that in future we would share this data, carriers would not have wanted to participate. You have to take carriers one step at a time. We have to get them to understand the value of the data. Once everyone is comfortable with the quality of the data sets out there, there is an ability to get them to share it.
What about data compatibility among the carriers? Is that an issue?
Hassib: We've created standards over time to minimize the disturbances of these disparities to insurance companies. Insurance companies are looking to us to provide consistent scoring and formats regardless of the method of collection. Today we support multiple devices and return the same score and the same set of reason codes to all of them.
What do you see as the major challenges for UBI industry as a whole?
Searles: In the UK, the biggest challenge is the tsunami of data availability. Insurers need to put themselves in a position to get ready for that now in order to understand value of the data. It's hard for teams of senior managers within insurance carriers to put some shape around something when they don't know what the piece of value looks like.
Hassib: In the United States, there's not as much data for carriers to understand the impacts on their insureds. We're taking a lot of the insights Wunelli has developed that will help our customers in the US to get a better understanding of what they are dealing with in the US. The second challenge is awareness. Still, only one in three consumers in the US are familiar with what telematics or usage-based insurance is, despite all the Progressive Snapshot ads. One company advertising can only go so far. The rest of the industry, or at least a couple of leaders, have to jump into the marketing effort.
Susan Kuchinskas is a regular contributor to Telematics Update.