Dongle, smartphone and embedded – Ginny Weeks explores the best bets in the UBI battle. [Ins.Weeks.2016.09.07]

Data collection opportunities are now significantly diversified from the early days of usage-based insurance (UBI). There is little doubt that UBI is the future of car insurance but questions still loom over data technology, taking into account an array of factors from cost and privacy concerns to consumer adoption and attitudes.

From installation fees to hardware, differing investments are needed to develop a UBI product based around the dongle compared to a smartphone alternative. Does the low-price relay to return on investment?

“Part of the answer lies in what the insurer wishes to accomplish with the technology,” says Robin Harbage, director at Willis Towers Watson. “A dongle solution can be practical if the insurer finds means to utilise the technology efficiently. Dongles can provide additional value such as vehicle health reports and if they are issued in sufficient quantities, or recycled efficiently to bring down the marginal cost, then the additional value can make it a cost effective value. However, most insurers will likely gravitate to the more cost efficient technology of smartphones, so long as they are responsible for the direct collection of data.” 

Randy Carroll, CBO of ClientDesk, adds his view: “The cost of technology does play a factor when it comes to ROI. Insurers who are using UBI data are trying to offer consumers a better priced product based on more accurate variables than what has traditionally used to determine price. The cost of technology offsets a significant amount of the savings making it more difficult for consumers to adopt. As the technology advances the cost lowers and the true savings of a UBI priced product will be realised.”

“The lower price of a smartphone app-based solution competes with the higher data accuracy possible from a dongle attached to the vehicle,” says Kristin Ford-Glencross, director of brand communications at Audi of America. “As a result the ROI of smartphone solutions has been traditionally low. Between the two options, the dongle is preferred. In terms of ROI, however, the dongle presents an interesting conundrum owing to the added costs of hardware, airtime and backend systems that need to be borne by the provider and which can significantly skew their business case. Yet, dongle solutions are being offered by several insurance and wireless providers. For Audi, the customer base interested in dongle solutions is currently quite low. Several factors likely contribute to this including an unclear value proposition, data privacy concerns and concerns about attaching an unauthorised third-party device to their vehicle. The industry estimates 24-28% customers believe an aftermarket device will harm their vehicle and this percentage is likely much higher for premium brands.”

Data quality

Embedded and installed devices generate premium quality data but the smartphone commands higher engagement. Does granular data trump data generated from multiple interactions?

Carroll said: “The data that is provided by an embedded device provides a 360 degree look at the driving habits of the vehicle but having a broader view as it relates to the individual is also valuable. Technology needs to do a better job of talking to each other. When that happens the collective data will be more valuable than either on its own. Depending on how much the consumer is willing to share about themselves via the smartphone the two data sets combined could have a positive effect on rate for those willing to participate.”

Ford-Glencross agreed, saying: “At this time the industry has not proven that multiple interactions on a smartphone-based solution are able to overcome the lower data quality relative to a solution that takes data directly from the vehicle whether embedded or via a dongle. The industry also indicates that there may be higher engagement in the first instance of downloading a smartphone app but the subsequent drop-off in engagement is very significant and this needs to be factored in.”

However, Harbage takes a differing view, saying: “I don’t necessarily agree; Willis Towers Watson is seeing dramatic improvement in the quality of mobile app data, especially with regard to tethered solutions. Also a dongle solution requires the insured to install the dongle which is not a process familiar to many insurers. Most consumers are familiar with installing a mobile app and the best mobile app solutions are self-starting and stop when the vehicle is operated. Either technology can generate quality granular data to be used in predictive models.”

Hybrid system

Some would argue that the best of both worlds could be to engage with the possibilities offered by a hybrid solution which take advantage of assets offered by each solution (i.e. data quality, user engagement, ease of access).

On this Ford-Glencross said: “At this time we believe that a hybrid solution that includes dongle and embedded hardware could co-exist in the market. The embedded solution is ideal and provides the best possible data quality and higher long term engagement at a manageable cost. Vehicles with built-in connectivity that are capable of accessing vehicle data are ideally positioned here. The dongle solution is more suitable for vehicles that do not come with a factory installed connectivity box or where the connectivity is not extended to vehicle data. This would include both unequipped as well as legacy vehicles in the market that were built prior to a fully connected vehicle solution being offered.”

Harbage said: “A hybrid solution may be best simply to ‘cover the field.’  A good portion of insureds do not have smart phones. To bring them into the product, a dongle solution may be needed. Insurers will likely eventually move to a solution where data is not collected by them directly but collected by a large variety of sources via the internet of things and aggregated by specialists who are skilled at interpreting and normalising the data to make it usable for building predictive models.”

Carroll concluded: “The combination of the two data collection alternatives is rich with possibilities and challenges. With the auto product being mandatory current regulations that limit the use of lifestyle information would be challenged but like many regulations that are in place today they need to be challenged. Today's consumers are all about choice and regulations need to change to allow them to make choices.”

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