Telematics-enabled Usage-Based Insurance (UBI) has been slow in penetrating the traditional insurance market, causing some to dismiss the approach. However, the inexorable press of time is showing the larger significance of telematics. How do you see this impacting your digital strategy?
It started out so simple…
UBI has been around since the early part of this century, but has not reached critical mass by any measure. The most common approach by insurers has been to install devices into cars, measure various driving characteristics, and adjust premiums based on the risk inherent in these data.
While this looks intriguing at a high level, the uptake has been less than enthusiastic. A 2015 report by EY noted that by 2020, global penetration could hit 15%. It is hard to get excited about a one in seven uptake after two decades of insurer investment.
A major stumbling block has been reluctance by drivers to turn over data about their driving behaviour, regardless of the potential for lowered premiums.
New customers, new requirements
However, millennials are providing a way forward for UBI. PropertyCasualty 360 recently reported on data from Neilsen that ‘upscale’ millennials – approximately 24 million consumers, or 1/3rd of the US cohort – are 79 percent more likely to participate in user-based insurance programs.
But millennials need more than promises of lower premiums. This cohort wants to be engaged on a personal basis. The authors suggest that:
By understanding various sub-segments of this group, you can begin to customize the UBI experience for dozens or even hundreds of sub groups. …
To execute on this level of personalization easily and effectively, you’ll need access to rewards providers that can seamlessly integrate with your program, allowing you to configure and manage your safe driving rewards and incentives across multiple sub-segments in numerous locations.
It’s not just the price
And that’s only the half of it. Millennials tend to live in, or close to, cities and utilize mass transit. This can mean that the car is mainly used on weekends.
The millennials are savy enough to suggest that UBI should take account for the number kilometers as well as the driving behaviour. And they know that this is not theory, as MetroMile ably demonstrates.
In other words, Millennials are looking at the insurance product not just the insurance premium.
And it’s not just auto
And this is going beyond personal driving. Writing in Forbes, Sarwant Singh, Senior Partner and head of the Automotive & Transportation practice at Frost & Sullivan, notes that telematics platforms are supporting a larger sector than UBI:
These insurance platforms will become increasingly important as we move towards a future of connected living. Insurance companies will be able to redesign policies where data from auto insurance will be an extension of home, health, life, and even pet insurance policies.
Share the economy, pass the aspirin
All of this is supporting the principles of the “sharing economy.” Writing in InsuranceThoughtLeadership, Robin Smith, Founder of the WeGoLook (which recently partnered with Crawford & Company), noted that:
As the sharing economy continues to expand, the ability to purchase insurance products on a pay-as-you-use basis will become even more important to the members of this new economy.
Which will benefit those insurers that understand pay-as-you-use, and cause headaches for insurers which do not.
I would be interested in your thoughts.