Is the Smartphone the ‘Killer App’? Many people active in the UBI ecosphere believe that the smartphone will eventually not only carry much of this new technology, but will also be the ‘killer app’ to take UBI to mass market.
One reason is that almost everyone already as a smartphone, making the transition to UBI much easier for the consumer, and eliminating the cost for the insurer of putting a device in the car.
In the LexisNexis survey, more than one of three respondents said they would be interested in a mobile UBI solution, and nearly three of four thought a smartphone would make UBI easier to use. These are significant results in view of the fact there has been no marketing regarding what the solution has to offer.
Currently, opinion is divided just how central to the UBI solution the phone will be. This ambivalence reflects the even split in the advantages and disadvantages the smartphone has for UBI. As Heffernan puts it, “The smartphone provides cost advantages for the carrier, but there is a difference in the quality of data it provides from that of other devices.”
However, he is bullish about the eventual importance of the smartphone in UBI. “Insurers competing in this space will be using smartphones for UBI in the future, absolutely,” he says.
Progressive’s David Pratt sees the smartphone as a potentially important driver for UBI growth. “The key is making [UBI] easier to use over time, for example, with the use of mobile phone technology,” he says. “If you could use your smartphone, we’d be getting even more people to UBI.”
Progressive is trying to find a way to prove that data gathered by a smartphone is accurate enough to use in telematics auto insurance, Pratt says.
However, Nino Tarantino, CEO of Octo North America, is less enthusiastic. “The smartphone will be part of UBI, but not crucial, because there will always have to be some device in the car,” he says.
Instead, he sees the phone as potential UBI marketing solution, the so-called Try Before You Buy (TBYB) approach. “Our insurers want to use it as a marketing tool,” he explains. “They will tell the customer, you use it for a few weeks. Then you will learn that you are a great driver and now we will send you a device. And you get a discount of 5%.”
The LexisNexis study found that consumers would definitely be open to such an approach. In that survey, 61% of respondents said they would be “more likely” to try UBI if they were given a three-month trial period; and 72% said they would try UBI if they were given an automatic discount of 10% for the first six months.
In Tarantino’s view, the smartphone has still another role to play in UBI, to transfer data from an in-car Dongle device. In this solution, an inexpensive OBD2 device communicates data via the smartphone. However, he believes the more advantageous business model is a wireless device that can send data at any time directly to the service center, enabling such services as roadside assistance and crash claims management.
The Value of Value-Added Services
Tarantino believes that, while discounts are crucial in attracting consumers to UBI, value-added services will be just as important, not only to retain them, but also in providing benefits for both customers and insurers.
“There are two critical moments in the relationship between an insurer and his customer: the first six months, when the premium pricing is established, and when there is a crash,” he says.
Having a device in the car that provides real-time data about the circumstances of the accident provides benefits to both sides. Octo is currently running trials using an OBD2 device for crash claims management.
This and other value-added services, such as remote diagnostics and maintenance, “provide incentives to the driver to keep the device in the car,” Tarantino says.
Following a crash, for instance, the insurer can send the car to the garage where it is cheapest to repair. The device would also allow the driver to arrange maintenance with the dealership. Octo plans to launch these services by the end of 2014, Tarantino says.
Cyril Zeller, vice president of Global Telematics at Telit Communications, compares offering UBI without value-added services to using a normalcell phone instead of a smartphone.
“We’re asking people to buy into a program that has a connected device with only one service,” he says. “This is an opportunity for the policyholder to use the [UBI] platform to get more out of it, such as roadside assistance, real-time gas prices and traffic information. In fact, any information or service that is relevant to a driver.”
In this business model, the consumer could get additional value out of his UBI policy and insurers would be able to offer them easily since the basic hardware, such as the device and a SIM card, are already in place.
“Insurance companies should go all the way, and not stop halfway,” Zeller declares, and he suggests that consumers, used to the services offered by their smartphones may feel a little deprived if they are not offered more by their UBI product.
“It will feel odd for consumers that this [UBI] device can only do one thing, because they are used to something else from the device they have in their pockets,” he says.
Adding services would also offer insurers the opportunity to personalize their solution, Zeller notes. “If I’m in New York City, I’d be very interested in real-time traffic information. If I’m in North Dakota, I couldn’t care less.”
For Lukens of LexisNexis, this is a key benefit of UBI and value-added services, and he stresses the importance of targeting the value where it will create the biggest benefit.
“For a young driver, saving $10 on premiums is probably most important, while someone older may want to keep track of his teenage daughter when she is driving,” he says. “It is critical to make sure that the telematics program is driver-centric, that it is specific to a specific person.”
This means assessing risk correctly, accurately pricing a policy and maintaining the level of engagement for each driver. “Being able to identify the driver is very important,” he says, especially when several persons have access to the same car.
Lukens foresees a hybrid solution in which an inexpensive OBD2 device in the car will simply identify the car and its driver, “while the heavy lifting is done by the smartphone.”
That functionality will be available on the U.S. market in the near future, Lukens says.
UBI Tomorrow and the Day After
Most players in the UBI ecosphere are very bullish on the future prospects of the product in the U.S. market, no one more so than Telit’s Cyril Zeller, who flatly declares, “Standard car insurance policies are dead in the U.S. UBI will be standard in five years’ time.”
The main reason will be the discount. “You won’t have someone driving 20,000 miles paying the same as someone who drives 100,000 miles. Or a good driver paying the same as someone who drives like a maniac.”
Lukens says that some three of four insurers are now open to UBI, but there is “a lack of education” in the market regarding the product. “The industry has to do a better job of educating the consumer,” he says. “In the U.S., that job has been done mainly by Progressive.”
He sees the coming year as critical for telematics insurance. “A lot of insurance companies with decent-size beta programs are starting to ramp things up,” he says. “There will be a turning point in the next 12 to18 months.”
Roosevelt Mosley, principal and consulting actuary at Pinnacle Actuarial Resources, sees UBI reaching 20% market penetration by 2020, driven primarily by discounts.
“We’re a long way from mass adoption, so the discount is going to be the main attraction, I suspect,” he says.
According to a study he conducted with Pinnacle based on analyses of what people in the U.S. were saying in tweets on the online social networking service Twitter, consumers still have rather mixed feelings about UBI, with the negative perceptions fueled primarily by privacy concerns.
“Some people think there are significant Big Brother elements in UBI,” he explains. “They think they’re being tracked, photographed – there are lots of conspiracy theories.”
The recent controversy sparked by Edward Snowden’s revelations about the apparently unlimited data mining carried out by the National Security Agency (NSA) has made Americans even more sensitive about privacy.
“Has the NSA controversy had an effect on people? Absolutely,” Mosley says. “They are now thinking that they would not be surprised if the NSA were tracking UBI data as they are tracking other data.”
However, Mosley expects these concerns to fade gradually, as they have in the U.K. “People in the U.K. are resigned to the fact that there is no privacy,” he says. “There has been a natural acceptance of this.”
According to Mosley, another important issue insurers should keep in mind is the gap between their customers’ expectations of UBI and the reality of what they actually get. “There are always people who think they can drive better than they actually do, and who then complain about their driving scores,” Mosley says.
In addition, consumers frequently are disappointed by the amount of their UBI discount. “They’ll see an ad that says ‘up to 30% discount,’ but they don’t really see the ‘up to’ part,” Mosley says, adding: “The challenge for companies is that people aren’t going to look that hard [at the information], so they have to condense it into something that makes it easy to read but gives an accurate picture of the product.”
Despite these and other obstacles, most UBI players agree that UBI is well on its way to becoming a mass market product.
Nino Tarantino says Octo’s insurance-company clients in the U.S. and Canada are all demanding more in-car devices for their present and future policyholders. “The number of devices we are shipping monthly more than doubled between January and June,” he says. “Our customers are saying, ‘We will be like Progressive in a few years’.”
And these carriers are adding new services to their UBI solutions, such as data regarding weather and when and where the driving took place, which means that the insurers are more committed. ”They’ve seen the benefits and value of UBI,” he says. “They are training more agents in UBI and launching the product in more states.”
Tarantino says “big changes” will be coming to the space in the next few years. State Auto’s John Heffernan is just as optimistic. “There’s no doubt in my mind that this is the future of risk segmentation in auto insurance,” he says.
This is a continuation of last week's article: Bringing UBI Into the Mainstream: Part One. For more information on UBI please read Bringing UBI Into the Mainstream: Part One and Taking a Hybrid Approach to UBI Data