Why Usage Based Insurance is Gaining Popularity? June, 2013 BLOG POST
Game Changing Usage Based Insurance Over the past few years, however, insurance companies have started to offer more programs that change how you pay for insurance, making it more equitable based on your driving habits, and are leveraging wireless technology to do so. Pilot programs have been around for many years, but not until recently have they been successful for personal vehicles due to the high cost of technology and the requirement for professional installation of an UBI device. However, recent advances in embedded cellular technology have enabled device manufacturers to design and build devices, which are not only low-cost, but also easy to install1. While some companies - most notably Progressive in the United States and Norwich Union (now Aviva) in the U.K. introduced usage-based programs in fits and starts in the past, over the past year the landscape has changed dramatically, making it easier for insurers to rationalize rolling out telematics programs. And that has led to a competitive environment that is quickly heating up. Currently, five of the top 10 personal auto insurers in the United States have implemented usage-based insurance plans, with Progressive Insurance leading the rollout with 39 active states for its Snapshots program. Even smaller insurance companies are beginning to adopt machine-to-machine (M2M) technology to take advantage of the available driving data to evaluate policyholders and accurately charge against driving behavior. Industry experts expect that within the next four to five years, 20% of car insurance policies in the U.S., of which there are currently about 200 Mn, will incorporate some form of a usage-based model. The biggest game-changer to this end is the increased number of cars on the road with built-in connectivity. Services such as General Motor's OnStar and consumer devices such as GPS and smart phones have brought the internet on the road and mitigated the need for device development. Insurers have begun forming partnerships with auto manufacturers to facilitate data transmission. Source: www.allstatenewsroom.com
Insurers such as Progressive, Allstate, and State Farm are expanding their usage-based programs to accommodate the positive consumer response, and other insurers in the U.S. and abroad are rapidly adopting the technology. Most recently State Farm and Ford announced such a pact. Policyholders who opt into State Farm's Drive Safe & Save program and who own Ford vehicles equipped with the SYNC computing platform can upload a vehicle health report to the insurer, which will adjust the premium (only down, never up) based on how many miles the person has driven2.
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Source: LoJack Corporation
Whereas UBI programs alone were once a differentiating feature for an auto insurer, they are well on their way to becoming a standard offering. This is now forcing insurance companies to differentiate their programs through additional technologyenabled services that provide added benefits for policyholders beyond the traditional costsavings based on good driver behavior.
Security Concerns There is a concern that the popularity of UBI programs could lead to the erosion of certain privacy rights due to the information that auto insurance companies could collect regarding driving behavior. Although data privacy is a critical concern and must be managed carefully, the risks are similar to those found in any electronic exchange of data, including credit card and ATM transactions, e-mail and ecommerce, that have become a part of everyday life. Contrary to popular belief, the vast majority of UBI deployments do not include GPS location data is part of the device. Most insurers have pledged not to financially penalize policyholders based on the data collected in the event of an accident, a concern for drivers considering using an UBI device. All of these issues are important considerations when designing an UBI program, but with the current momentum of the market, it seems that the rapid uptake of this consumer-driven M2M implementation is well on its way.
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