Usage Based Insurance (UBI) has been around for more than ten years, with Progressive Insurance being among one of the early adopters in the late 1990’s. While UBI offers many potential benefits to consumers (decreased premiums, you pay for what you drive), the technology has not yet seen the massive adoption as originally anticipated.
In my work with insurance companies, I have seen several pilot programs that did not get the expected consumer participation. While it seems to hold a lot of promise, like many other consumers out there, I still have some reservations about signing up for a UBI program with my insurance provider. I would probably be a prime candidate for a UBI program because I’m a safe driver and I don’t drive a lot—mostly local driving.
If you’re an insurance executive and are curious to know why drivers like me are not signing up for UBI, I’d like to dive into some of the reasons. Overcoming the Fear Factor
Overcoming the Fear Factor
Consumers are sometimes reluctant to sign up for UBI programs due to fears such as:
- What if I drove over the speed limit for a few minutes — will it increase my premium?
- Can the company use the data against me?
A survey of US-based consumers conducted by Towers Watson1 found these attitudes towards UBI:
- 28% worry the devices will damage their vehicles
- 38% worry data will be used to invalidate a claim
- 42% worry about driving being monitored and recorded
- 49% worry about rising premiums
So what should companies do to alleviate these concerns and generate interest in their UBI program?
Best Practices For Improving Customer Acquisition for UBI Programs
The UBI offering must be broad, transparent, and flexible. Here are some specific ideas that will help get your UBI program off the ground and running successfully.
Try Before You Buy
Enable customers to make an informed decision based on a trial. One approach is to provide a UBI application through smart phone devices, which can be used free of cost. These applications simulate actual driving conditions and showcase the benefits they’d receive if they opt to sign up for UBI. This allows customers the opportunity to utilize UBI once they feel comfortable and appreciate the cost savings and value-add provided.
Another major purpose it serves is removing much skepticism on the program and remove unknown from the users
A study commissioned by LexisNexis and conducted by Lynx Research of 2,072 consumers aged 21-74 that were insured drivers and policy decision makers, found that 61 percent of those surveyed were more likely to accept telematics after a trial period of 3 months. 72 percent of drivers were more likely to accept if an insurer offered an automatic discount of 10 percent for the first 6 months. 2
Provide a What-if Analysis tool, which includes all the parameters affecting a customer’s driving and score. This tool may help demystify the unknowns by utilizing the company’s scoring model to project the effect of different driving behaviors on the insurance cost. Individuals are able to better understand their own driving behavior to understand how the UBI program can benefit them.
Value Added Services (VAS)
Customers don’t just pay for the discount, but for the value they are getting. Mapping user behavior data with external factors for better analytics could provide more useful information to the user rather than just behavior monitoring, which may create more interest in the program. The diagram below shows some potential value added services.
Currently no device can claim to be 100% accurate, which includes both OBD and mobile devices. Compensating for margins of error in the data collected could provide a better scoring model,. For example, a vehicle will be considered within the speed limit, if driving within the range of +/- 5%. Making this known to the user up-front may instill more confidence.
Minor Incident Forgiveness
Allowing the users to delete any unwanted trips could instill a perception of customer control, enabling a better user experience.
This feature would not allow the customer to delete incidents of bad driving behavior, but it could provide them the chance to remove 5% of their journeys.
Being crystal clear at the outset what parameters may affect their driving scores enables users to make informed decision. This is in addition to providing a legal disclaimer that assures customers that their data won’t be used against them and will not be shared with government agencies, like the DMV. UBI privacy rules are still being defined but, Insurance carriers should follow some basic rules, like clearly defining what information could be shared, with whom it can shared, and then getting acceptance from the customer before sharing.
Allow Both OBD and Smartphone Devices
This provides more flexibility to the customer. Although smartphones are not preferred devices (as they may not be accurate and also have issues like the usage period, etc.), they can still be provided to customers as a means to estimate their savings based on their driving behavior
According to the LexisNexis/Lynx Research study, one in every three consumers finds the idea appealing and is likely to use a personal smartphone to collect and transmit telematics data.
Instead of just providing cost savings,, programs could have a built-in social/gaming rewards program, that might include: liking, providing badges, star ratings, etc. This type of engagement keeps the customer motivated to continue participating in the program.
Investing in your agent is one of the major criteria for success, as they may not readily adapt to changes and technology, without the proper training. Agents are crucial, as they are the first customer touch point and represent the first opportunity to broaden awareness of your UBI offering with customers.
The industry is changing, and UBI is becoming mainstream in the insurance industry. The success of a UBI program relies on consumer perception of the program and adoption; these best practices should be used as guidelines for customer acquisition in your UBI program. When done right, UBI programs have the potential to upend the Personal Auto market in much the same way as the introduction of credit scores did in personal finance.
For more information on how Saama can help your UBI program, contact us.
- “Usage Based Insurance Consumer Survey: Understanding What Customers Want”, Towers Watson, 2013.
- “LexisNexis 2013 Insurance Telematics Study”, LexisNexis Risk Solutions, 2013.