Usage-based insurance: Navigating the future of auto insurance

Katie DeGraaf (Towers Watson) explains Usage Based Insurance to attendees.
Katie DeGraaf (Towers Watson) explains Usage Based Insurance to attendees.

Katie DeGraaf, from Towers Watson, a global consulting firm that advises more than three-quarters of the world’s leading insurers, enthralled participants with her presentation on how technology can be used to help consumers and insurers.

UBI defined
Ms. DeGraaf jumped right in with defining usage-based insurance (UBI) and pointed out UBI is focused on personal auto insurance at this time. UBI is a complex, big-data program that provides real-time information by integrating technology within a vehicle to monitor actual driving practices. Most common data gathered includes mileage, acceleration, braking, lane-changing practices, global positioning and road conditions.

Data is gathered and sent to insurance companies or third-party providers. Those entities will provide information back to the driver (or policy owner) demonstrating actual behaviors or to insurer for calculations of actual mileage and driving behaviors. The data can be used to determine better or more accurate pricing, guide behavior modification, provide emergency response and road side assistance, vehicle theft prevention. In addition, UBI can provide tracking information, vehicle maintenance reporting, green driving efficiency data and fuel management information, and some concierge services—door locking, location services and directions. UBI can even help make driving conditions safer—by locating unsafe areas and advocating for improvement. What’s not to like?

Insurance industry usage
DeGraaf noted the insurance industry is embracing use of UBI, and usage is growing.  To date, 49 states use four or more UBI programs.  However, differences in programs exist, by state and insurer.  Although large insurers have shown an interest, smaller and regional insurers are embracing UBI at different levels.  Market leaders are focused on discount, but others are using it as a value-added tool, for example:

  • Progressive’s voluntary Snapshot program is a market leader, and is price or discount-oriented.
  • State Farm bundles services and allows the insurer to purchase the package at a range of cost for services.

The future
In the future, family safety and teen driving are both anticipated to become hot topics—UBI can provide families with the opportunity to use geo-fencing and speeding information for modeling teen behaviors.  It’s anticipated implementation will provide tailored packaging or bundling for the family of the insured, and self-selected by the consumer.

Currently, good-or-interested-in-improving drivers are the drivers showing the most interest in this data. These drivers are receiving discounts of 25-50 percent and, equally important, insurers are seeing reduction of claims of up to 50 percent by those using UBI (commercial drivers have even better claims frequency decrease of up to 90 percent).

DeGraaf explains how consumers have reacted to Usage Based Insurance.
DeGraaf explains how consumers have reacted to Usage Based Insurance.

Consumer reactions
Insurance companies and regulators want to implement that which is attractive to consumers. DeGraaf shared consumer reaction to UBI. Surveys show:
• Within the U.S., at least 50 percent of consumers would be interested in UBI, and 79 percent are interested in getting more information.
• Younger people are interested
• Newer car owners are more interested
• Consumers showing an interested in true behavior change registered a 60 percent interest rate.

However, some concerns also surfaced:
• More than 40 percent are worried about insurance cost increasing, even though UBI is used for discounts at this time;
• Privacy considerations—can be generally handled by providing short-term implementation, or the ability to turn off at will;
• Claims consideration—consumers are concerned that UBI data will override what they are saying happened. To date, the UBI data has confirmed that which individuals are saying (in one case even provided an alibi for a crime).

DeGraaf believes UBI is the way of the future as the benefits are clear to insurers and consumers. Ultimately, UBI will not only help navigate the future—using it will help get us all there safely.

Click here to view DeGraaf’s presentation

Katie DeGraaf
Towers Watson
71 S. Wacker, Suite 2600
Chicago, IL  60451

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