Jan Stojaspal reports on the second day of Insurance Telematics USA 2013, Telematics Update's largest ever conference devoted to insurance telematics.
While day one of Insurance Telematics USA 2013 focused on what insurers need to be doing to get their usage-based insurance (UBI) products off the ground, a big part of day two was devoted to how they could do a better job with the products they already have on the market.
The day started innocuously enough with James Bielak of the Association for Cooperative Operations Research and Development (ACORD) announcing that a consensus has been reached on a long-awaited XML-based telematics data standard and that the standard will become available as a formal release in January 2014.
But then the slicing and dicing of current UBI offerings began and, by the end of the day, covered everything from customer loyalty and value-added services to whether it is better to reward good driving with insurance premium discounts or fast-food vouchers.
George Ayres, VP of global sales, Verizon Telematics, opened the discussion during his presentation “Beyond the discount: Creating a sustainable UBI program.” Despite how new insurance telematics is, two distinct customer models have already emerged, Ayres said.
One is acquisition, which has pricing discounts at its heart and is mostly realized through temporary tracking devices like Progressive’s Snapshot. The other is loyalty and retention, and it centers around more permanent tracking solutions, value-added services and cultivating long-term relationships with customers.
While acquisition is the dominant model at the moment, largely due to the success of the no-thrills Snapshot, Ayres sees loyalty and retention eventually prevailing. “Acquisition works in the early stages of UBI,” he said. “At least in the U.S. market, a pricing discount makes a lot of sense. It’s the easiest thing to talk about in advertising. But, end of the day, we are not going to stay here very long, and so we need to [work] on the next idea.”
That next idea could well involve insurers becoming more active when it comes to delivering telematics services to drivers, instead of simply paying for collision damage and liability, particularly as automakers continue to struggle to keep up with customer demand.
“Insurers can get out in front of that and really be the primary interface that I might have with my vehicle fleet, with my family fleet, and across brands as well,” Ayres said. “Some people may not yet be sure that value-added services will actually be the way to success, but on the new car side, that’s one of the big strategies.”
Jonathan Hewett, chief marketing officer for Octo, who presented after Ayres, agreed that loyalty and retention opens up “a whole new world of opportunity for the customer and the insurer to develop propositions with the addition of other value-added services.” But he emphasized that all new additions must contribute to improving the loss ratio and increasing the top line. “My experience with technology has always been there is loads of fantastic, great ideas, but show me the money,” he said.
When thinking about building customer loyalty, it also helps to start thinking a little differently about auto insurance – less in terms of risk mitigation and more in terms of promoting safety through influencing driver behavior. This may be a subtle shift, but it helps change what is typically an adversarial relationship into something that begins to look like a partnership, several speakers said.
“We have an opportunity here,” said James Kane, president, HUB International Personal Insurance, as part of a panel discussion called “Brokers & agents: A crucial piece of the puzzle." “If we can get the details to sit down with a client and say, ‘Listen, your boneheaded 18-year-old just does not get it. [He] does not coast to a stop. He jams the brakes on, and if he continues to do that and, on average, go eight miles over the speed limit, your rate is going to go up.’ … It gives us a chance to consult and tell them what is affecting the rate, what makes it better for them. And I think that would be a real value-add.”
Lackluster, underleveraged, boring
But probably most to the point was an early afternoon panel discussion called “Changing the game through loyalty.” Panel moderator MK Marsden, SVP, client solution center, Epsilon, minced no words. “Imagine, five years ago, if we had put [together] a panel about loyalty and insurance, you would have thought we were smoking something,” she said. “But today that conversation is alive.”
Asked what they thought of the telematics industry today, three of the four panelists delivered crushing indictments.
“It’s entirely about using an aggregated driver behavior score for premium adjustment,” said David Edington, Epsilon’s SVP of client services, insurance. “Wouldn’t it be nice if we could do something else with that data to engage the consumer? And yet the pain point is that these additional services that have been created so far [are] lackluster.”
“Underleveraged,” said Kelly Hlavinka, partner, LoyaltyOne Consulting.
“Things are kind of boring right now in the world of telematics,” said Bob Zurek, SVP of products at Epsilon.
The fourth panelist, Malika Gandhi, senior manager at Deloitte Consulting, financial services, customer strategy, was more diplomatic, yet equally unimpressed with the current state of play, particularly when it comes the use of smartphones as both tracking devices and points of contact. “There is a tremendous opportunity to capitalize on the mobile revolution,” she said.
According to her, smartphones give insurers unique access to consumers, but the industry has yet to figure out “how we can use this new experiential information and create a two-way conversation between the carrier and their customers.”
Discounts versus points
According to Edington, there is, in fact, a more effective way of rewarding a customer than solely giving a discount on insurance premium. According to research his company conducted, consumer interest in participation in insurance telematics almost doubled, to reach 57%, when a 15% discount on premium for good driving was combined with rewards points that could be redeemed on things like fast food, gas or airline miles.
“It was purely additive,” Edington said. “It’s a different psychology. A premium is I am doing less of a negative. Rewards is, I am getting something for free, I am getting a reward for doing the right behavior.”
According to him, a large carrier already in the market with a device and a program would be wise to combine both approaches. A smaller mid-sized carrier would actually save money and carry less risk if it entered the market with just a rewards-based system.
Getting the rewards right can considerably boost UBI adoption rates, which, in many ways, boil down to willingness to share personal information, Hlavinka said. According to her, 78% of customers surveyed by her company don’t feel they are getting any real benefit for sharing personal information. Yet, when asked how willing they would be to share more information if they really received a compelling benefit, 67 % said they would be willing to do that.
All of this leaves only one problem: traditionally, customers have not been interested in a better and deeper relationship with their insurance company. Now insurance telematics can set up the conditions for a relationship that goes beyond that once or twice a year policy renewal or claim incident, Zurek said, adding that that is what all UBI insurers should strive for. “Just in the session before this, Nathan George [VP technology, Modus] said, ‘Whoever can offer something to the consumer that [he] will use every day will win.’”
Jan Stojaspal is the editor of Telematics Update.
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For our coverage of the first day of the conference, see Insurance Telematics USA 2013: Day One.
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.