(Image credit: Dollar Photo Club.)
The answer to the question of “When?” is now. Usage based insurance (UBI) is widely acknowledged as the auto insurance industry’s long-awaited disruptor. Consumer awareness and demand are growing; key auto industry leaders have paved the way with early adoption; and those who don’t offer UBI are beginning to suffer from adverse selection.
The question of “How?” is a bit more complex. Before insurers can proceed with UBI planning, they must choose a platform–the horse that will carry them and their policyholders into the future. Which is the right horse to bet on?
First, let’s take a closer look at the contenders:
OBD (onboard diagnostic device)-based programs, are the UBI pioneers. OBD UBI is also known as black box UBI because OBD-based programs require little black boxes to be plugged in under a vehicle’s dash.
However, being first to arrive doesn’t necessarily make you best. UBI programs with OBD platforms have been plagued with high rollout and implementation costs, making it impossible to realize planned return on investment.
Insurers have to pay for the devices at a cost of up to $200 each. They then have to warehouse their OBD inventory and ship the devices to policyholders. Plus, some carriers report that only 60 percent of shipped devices are installed.
Policyholders who actually install their OBD devices have mixed experiences. At best, they set them and forget them. At worst, OBD devices scratch a driver’s knees, interfere with a vehicle’s electrical system or drain the vehicle’s battery. The OBD device was originally developed to be temporarily plugged into a vehicle’s CAN (controller area network) bus to troubleshoot mechanical issues. It generally works great for that intended purpose. It does not work quite as well for its newly adopted purpose of tracking driver behavior on a continual basis.
Mobile UBI programs represent the next-generation solution. With mobile UBI, the driver downloads a smartphone app that monitors driving behavior and then transfers data to the cloud. As with all new technology, mobile UBI had some early hiccups. The first apps on the market drained smartphone batteries; required fixed positions or phone charging during operation; and required policyholders to press “start/stop” to track every trip.
Those problems are now history. The most accomplished apps now have very minimal battery overhead and have no special requirements. Policyholders can operate their smartphones as usual with no charging, fixed position or “start/stop” needed. And, the startup equipment costs are nonexistent. Policyholders simply download the free branded apps from the app store, virtually eliminating the upfront equipment costs for insurers.
Which horse will get you to the finish line faster?
Now that you’re acquainted with the horses, let’s look at how OBD and Mobile stack up when it comes to UBI program goals:
If you’re looking for a high performance platform with the agility to easily adapt and scale and the technology to take you into the future, the better bet is on mobile UBI. If the prize on the other side of the finish line includes competitive advantages such as increased fraud detection; better customer loyalty; and lower loss ratios, mobile UBI is the superior horse.
Where will you place your bet?