Jan Stojaspal reports on the first day of Insurance Telematics USA 2013, Telematics Update's largest ever conference devoted to insurance telematics.
The consumer interest is there, so are the enabling technologies – from tracking hardware to sophisticated data analytics. Still, that’s hardly enough to guarantee a successful launch of a usage-based insurance (UBI) product. These are some of the key takeaways from day one of Insurance Telematics USA 2013, a two-day Telematics Update conference devoted to insurance telematics in North America.
“With this industry, everything is moving so fast,” said Pete Frey, product program manager, American Family Insurance, during a panel discussion called dedicated to business modeling. “You hear everybody saying, ‘If you don’t get into it, you are going to lose out.’ The challenge is that, at every turn, there is something new out there. … It’s sometimes very difficult to keep up. Customers are changing just as quickly. The best thing to do when putting a [business] model together is to know that it’s going to [have to] adapt.”
There are serious pitfalls at virtually every step of the way, from senior-level decisions about market entry strategy to specific choices of tracking hardware. What’s more, in a segment this new, there are rarely clear-cut answers and little to go on in terms of proven concepts. But for those who don’t mind learning through trial and error, the space is wide open, and, in many ways, it gives insurers an unprecedented flexibility to highly tailor solutions to customer niches.
Although still in its infancy, the potential of UBI is huge. ABI Research projects that 107 million customers globally will be under UBI programs by 2018. In the United States, 20% of all vehicles are expected to be rated on UBI over the next five years, another survey suggests. And despite ongoing privacy concerns, 50% of Americans are interested in UBI and additional 29% are “maybe” interested, according to Towers Watson. What’s more, an additional 10% could become interested if convinced that UBI carries no risk of one being surcharged for bad driving.
Do's and don'ts
Here is some of the advice given during day one’s 19 sessions, more than half of which focused around data collection, management and analysis, and UBI business models.
Avoid “widget paralysis,” said Robin Harbage, director of Towers Watson, pointing to a huge proliferation of telematics vendors, who, in North America, alone, number around 300. “As insurers, your first task is to understand what you want to do with UBI. … At the end of the day, it really is about the customer. As you design these programs, rather than thinking about the widgets, think about the value you can bring to the customer.”
Be careful not to get caught up in the industry’s “talk and buzz,” said American Family Insurance’s Frey. “Pick a model and figure out how it wraps around your company’s fabric. Your customers have a relationship with you in some shape or form. Start with that. You don’t want to be somebody you don’t want to be.”
Expect insurance data to get a whole lot bigger, said David Lukens, director of telematics, LexisNexis. According to him, a telematics policy results in 256 times more data than a traditional insurance policy, creating challenges for both data storage and analysis. Whereas a traditional policy requires some three megabytes of storage per year, a telematics solution takes up almost 800 megabytes just to store the data, and four to eight times as much to do the necessary data scrubbing, enhancements with auxiliary data and, ultimately, analysis.
What’s more, this data comes into the system 24/7, 365 days a year. According to Lukens, this typically leads to the question of how much data one should keep. “My answer is, ‘Keep everything,’” he said during a session called “Data: Replacing hurdles with competitive advantage.” “Keep that data flowing as long as you can – people change over time, driving habits change over time. Keep it for at least seven years.”
With a lot of the discussion focusing on value-added services, it is very important to know not only what to include, but also what to leave out, said Frank Palmer, vice president for underwriting, Plymouth Rock. For example, Progressive, the most successful UBI insurer in the United States with more than 1.2 million “Snapshot” policies in force, is also the most barebones. According to David Pratt, Progressive’s general manager for usage-based insurance, Snapshot is built around just three basic metrics: how you drive, how much and when. This makes it both cheap to implement and easy to explain to prospective customers.
For others like StateFarm, value-added services are an important differentiator, and there is a lot to choose from – from safety features (emergency response, roadside assistance, stolen vehicle recovery) to green driving and fuel management to concierge services. But one should exercise restraint, Palmer said. “Customers don’t necessarily like their insurance company, so there is a lot of [talk] here about how do I engage more with the customers, how do I go after them, how do I interact with them more. And the insight might be they might not want you to interact with them. It’s kind of like you are at a dance, you got all of the pretty people of the opposite sex over there, and they might not want you to come talk to them.”
Understanding UBI customer
A big part of the trial and error process is understanding how customers respond to UBI. “There is long-term potential here, but it is going to be achievable only if we understand how customers are responding to UBI,” said Roosevelt Mosley, principal and consulting actuary, Pinnacle Actuarial Resources. And it’s important to keep in mind that it’s a process that may never provide all the answers. Glenn Renwick, Progressive’s CEO and president, acknowledged as much during an early August conference call with analysts. “I will tell you that getting consumers to engage in a product that, for the most part, they were never asked to engage in ... it’s a bigger burden than, I think, intellectually, many of us might have assumed,” he said.
Still, despite all the difficulty, it is possible to get UBI right. “To get it right, start with strategy, avoid widget paralysis, choose the right technology partner that can scale and adapt,” advised Tower Watson’s Harbage. Plymouth Rock’s Palmer agreed. “Having a strategy is better than having no strategy,” he said. “Robin [Harbage] talked about the widget paralysis. I am more worried about the product design paralysis. There are so many options, and new ones are coming every day. So, at some point, you have to say, ‘Here are the options I want to roll out with first.’ [And] roll those out.”
Jan Stojaspal is the editor of Telematics Update.
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For our coverage of Insurance Telematics Europe 2013, see Insurance Telematics Europe: Day One, Video: Making driving scores cool to young drivers, Video: Holistic approach to insurance telematics, Video: Insurance telematics and the young U.K. driver, Video: Insurance telematics and real-time driver feedback, Video: The tipping point for insurance telematics in Europe, Video: Getting insurance telematics right, Video: Learning to walk before running with insurance telematics, Video: Insurance telematics and the smartphone and Video: Insurance telematics and the customer-centric approach.
For all the latest telematics trends, check out Telematics Brazil & LATAM 2013 on Sept. 11-12 in Sao Paulo, Brazil, Telematics Japan/China 2013 on Oct. 8-10 in Tokyo, Telematics Munich 2013 on Nov. 11-12 in Munich, Germany, Telematics for Fleet Management USA 2013 on Nov. 20-21 in Atlanta, Georgia, and Content and Apps for Automotive USA 2013 on Dec. 11-12 in San Francisco.
For exclusive telematics business analysis and insight, check out TU’s reports: Telematics Connectivity Strategies Report 2013, The Automotive HMI Report 2013, Insurance Telematics Report 2013 and Fleet & Asset Management Report 2012.