UBI Adoption Grows as Drivers Seek Relief from Post-Pandemic Rate Increases

Look for high premiums to move the UBI adoption needle but with cautious optimism in the short run and more emphasis on choice in the longer term.

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The headlines are filled with a variety of 2023 predictions for the P&C Insurance industry with differing opinions about which might prove to be the most reliable. The when, how and how much are always elusive for forecasters. But one unarguable trend is ongoing increases in auto insurance premiums.

Auto insurance exists to reduce uncertain financial risks for consumers and make accidental losses manageable. Auto insurance also serves to fund repairs and replacement along with medical and legal expenses associated with accidents. As such, it’s not surprising that inflationary pressures are one of the primary forces contributing to increased loss costs across the board. Consequently, auto insurance premiums increased dramatically throughout 2022 and are expected to jump another 8 percent in 2023 on average and serve as a catalyst for more shopping and greater adoption of usage- and behavioral-based insurance.

Inflation Hits Insurance Hard

Collision repair costs are in the crosshairs of the lingering supply chain breakdown  as body shops deal with lingering pandemic-era shut-down backlogs. Replacement part delays, parts price increases, longer repair cycles, and higher labor rates are all in play. Additionally, new and used cars have remained in short supply sustaining high replacement costs during a total loss. Adding to all of this, repair technicians are in short supply leaving operators no choice but to boost compensation.

Nearly a quarter of American drivers spend more than 15 percent of their take-home pay on car payments. About two-thirds said the cost of owning a car forced them to cut spending in other areas in 2022. A quarter said they cut back on groceries, while nearly a third spent less on family vacations. According to the 2023 State of the American Driver Report by Jerry, a quarter of drivers reduced coverage in order to lower premiums, yet 63 percent did not take action to shop for better deals. Although online auto insurance shopping is more accessible than ever before, the act of switching is daunting and uncomfortable for most consumers. However, things are now changing—and quickly. According to a recent joint JD Power/Transunion report, Q4 2022 shopping for auto insurance is now at an all-time high in the more than two years. The challenge for insurers is how to help consumers find the best deals and help them switch confidently. After all, deciphering all of the different coverages, limits and other variables is not easily understood by the average consumer. Introducing a telematics, UBI (usage-based insurance) program adds to the choices, options and cost considerations.

Usage-Based Insurance

The entire concept of UBI is to create fairness and enable more personalized premiums where actual driving behavior is scored and applied to the individual driver. UBI is good for insurers by attracting better drivers, monitoring specific driving behaviors, and rewarding the best drivers. The benefit for drivers is that those willing to share their information and qualify as safe drivers can benefit by paying less. Other benefits include an element of driver coaching along with other safety features such as roadside service and crash detection, perhaps most attractive to parents of youthful drivers.

UBI has grown from a long period of single digit adoption to upwards of 60 percent of new auto policies written in the last 2-3 years among leading insurers.  Nevertheless, much of those adoption rates are via direct channels which tend to be relatively small when comparing agent distribution channels which account for the majority of new sales. In other words, a relatively small percentage of drivers actively participate in UBI.

Carriers have proven hesitant to lean on their independent agents to promote telematics, particularly for existing policyholders. Driver privacy, app adoption, the risk of increased premium, and lacking consumer awareness are often cited as the main hurdles despite initial discount offers upwards of 30 to 40 percent on premiums. Either way, the ongoing rise in premiums should push even more adoption as policyholders seek relief and shop more.

Alternatives and Connected Cars

However, telematics has yet to enable a one-size-fits-all solution. Although some customers may be inclined to use an apps or dongles to track their driving, a good majority of users have chosen to forego any discount in exchange for personal privacy or “being tracked” by their insurer. This led to an opportunity for insurers to embrace alternatives to traditional telematics programs that would allow those who are more privacy-focused to participate and benefit.

Alternatives include mileage self-reporting by app-based odometer image capture and verification. As an example, Ownli is a free consumer data monetization platform designed to give customers agency over their data; how it’s collected, shared, used and rewarded. Although mileage information is available for insurers to acquire in the marketplace via Carfax, Lexis Nexis and others, the opportunity to capture such data are few and far between, such as at time of an oil change service. And therefore, there are gaps while the consumer is out of the loop.

Connected car telematics, while not new, continues to grow as newer model years are equipped with connectivity systems allowing internet access. The terms and conditions at time of new car purchase give consumers options for driver data sharing which are linked to conveniences like Apple CarPlay, remote engine start, locator service (ever misplace where you parked?), emergency services, wi-fi hotspot, and more. In other words, like many “free” smartphone apps, your data is exchanged in order to have access. Reject the terms and conditions—no access.

Insurers, car manufacturers, and data providers have gradually and cautiously moved closer through insurance partnerships and data sharing. The pathway has been arduous with differing objectives and barriers to collaborate remaining in the forefront. The “many to many” ratio of numerous insurers to numerous car manufacturers is most obviously followed by differing data by vehicle model, ongoing tension of who owns “the data” and mismatched repair objectives can get in the way. Credit to those insurer/OEM partnership breakthroughs in the market, typically available in select states.  Ford and Toyota have partnered with several insurers, including Nationwide for connected car insurance and GM OnStar launched their own insurance brand, underwritten by American Family as just two examples.

The future of connected telematics will likely evolve around driver privacy, program awareness and choice when it comes to how driving behavior data is being used and distributed.  Today, much of the data is passed without the driver’s awareness or through broad acceptance of terms and conditions. Offering options tied to tangible, well-articulated benefits for sharing data may just boost the twin objectives of more personalized rates and greater consumer protection. So, look for high premiums to move the UBI adoption needle but with cautious optimism in the short run and more emphasis on choice in the longer term.

OCTO Telematics Partners with Ford Motor Company

Nationwide Partners with Toyota on Insurance Featuring Telematics Solution

Alan Demers and Stephen Applebaum // Alan Demers, President of InsurTech Consulting, provides strategic development, subject matter expertise and advisory services. Former executive with over 30 years of insurance claim experience, Demers collaborates in the forefront of InsurTech, partnering with insurance leaders, InsurTech start-ups, service providers and investors to modernize insurance. As Vice President, Claims Innovation at Nationwide, Demers conceptualized a vision and roadmap to build Claims of the Future, focused on automating and digitizing claims experiences, progressing from inception through prototype testing. He served as a founding member of the Corporate Innovation Council and played a key leadership role in establishing goals, best practices and building an innovative culture at Nationwide. ... Stephen Applebaum, Managing Partner, Insurance Solutions Group, is a subject matter expert and thought leader providing consulting, advisory, research and strategic M&A services to participants across the entire North American property/casualty insurance ecosystem. He will be chairing the Auto Insurance USA industry conference on April 16-17, 2020 in Chicago presented by Insurance Nexus/Reuters Events which focuses on the impact of emerging technologies and changing consumer behavior on the broad connected automotive, insurance, claims, information, services and repair ecosystem. Applebaum is also a Senior Advisor to Waller Helms Advisors (WHA) an investment banking boutique firm focused on the crossroads of the insurance, healthcare and investment services sectors and a frequent chairman, guest speaker and panelist at insurance industry conferences and contributor to major insurance industry publications and has a passion for coaching, mentoring, business process innovation and constructive transformation, applying disruptive technology, and managing organizational change in the North American property/casualty insurance industry and trading partner communities. He can be reached at Stephen.Applebaum@gmail.com

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