Blair Currie, vice president of marketing at IMS, talks to Susan Kuchinskas about how the insurance telematics industry can find viable business models
If drivers around the world wonder, ‘What the heck is usage-based insurance (UBI),’ Blair Currie may be the guy to explain it. He brings to this task 25 years of experience at ad agencies and marketing departments explaining the benefits of products for Coca-Cola, Procter & Gamble and Mars. As vice president of marketing at IMS, he aims to make the solutions provider a leader in connected-car technology.
At the upcoming Insurance Telematics Conference, you're going to be talking about UBI 2.0. What's different from UBI 1.0?
UBI 1.0 is like Web 1.0: Most companies didn't make money in Web 1.0. A lot of companies had trouble finding the right business model. In Web 2.0, companies learned how to make money. This is why we think of our offerings as UBI 2.0. Insurance companies can make money with UBI.
Over the past few years, we've heard that usage-based insurance is going to take off. But it didn’t. Companies seemed to have been waiting for Moore's law to kick in, for example, bringing down material and telco costs. This did not happen because the volumes for UBI remained low. So the argument became circular, with insurance companies expecting that costs would decrease; but costs persisted, because players did not pick up the market.
That’s a key reason why there is still resistance to UBI programs. To insurance companies, UBI seems to be more of a cost than a revenue-generator. If you can say, ‘Here is a way of reducing costs and generating revenue,’ that starts to be a more approachable argument. How are we able to help our customers turn UBI into a profitable proposition? (For more on business models, see Telematics and the business case for UBI and Telematics and customized UBI business models.)
How can you?
There are a number of ways to reduce costs, drive revenue and thus improve profitability.From the cost side, perhaps a lease option, as opposed to buying the product outright, would help lower the barriers to entry. If you follow what the wireless carriers are doing, you see an interesting model to follow. When you buy your smartphone and bury the cost in the monthly [subscription], it becomes more permissible. There are also options for cheaper UBI solutions, including less complicated devices, as well as mobile technology. (For more on smartphones, see Smartphones as an incentive for insurance telematics.)
Then, from a revenue perspective, there's a piece of real estate in the UBI device that is not being fully exploited. We can help customers use this real estate to offer premium services that have value to policyholders. This can generate additional revenue. (For more on premium services, see Consumers and UBI: The power of value-added services and Telematics and UBI: How to increase consumer acceptance.)
What are the key issues insurance companies and their management are facing with UBI?
One of the biggest issues in the American auto insurance market is high churn in a market where premiums are also decreasing. How you maintain loyalty is an overriding issue. Telematics could be a way to build in a loyalty program. But this is more for programs where the device remains in the vehicle than one that is recycled through many vehicles.
That leads to a second issue, relating to the length of time a device should remain in a vehicle. Having a device that can be transferred from one vehicle to another can result in an inexpensive program. As such, it is a good model for starting with UBI. The trouble is that it only gives an impression at a specific point in time, and people are affected by a sort of placebo effect: They know device is in there and drive better, but when they take the device out, they revert back to their old behavior. Auto insurance is more than just a snapshot of drivers. It is the sum total of a driver’s complete behavior. And for that you need continuous engagement. (For more on UBI and driver behavior, see Telematics, UBI, and driver education.)
Another issue that will likely emerge from this is the active role of the driver in the UBI process. Rather than be passive in this business, drivers can be active players. They can now buy devices, put them into their cars to come up with their own data to reduce their rates, and then shop around for insurance companies. To an extent, Progressive is doing that right now, putting devices into consumers' cars and saying, ‘Come to us.’ We can also imagine one of the large insurance brokers getting into that business.
We've seen so many new UBI product announcements lately, notably Sprint's recent announcement of a turnkey solution. What kind of company is best positioned to take this to market?
There are a lot of players joining this scrum, because there are very few connected car solutions that are generating money, and UBI is one of them. It's quite promising. At this point, you find players from all parts of the spectrum entering the UBI market, from hardware players like TomTom in Europe to telecoms such as Sprint and Verizon to software and service providers like ourselves.
The automotive players are also getting into this space for many reasons. The first is that they see the potential revenue streams and readily convert their financing arms into the auto insurance businesses. They are also taking on more liability with early warning features, such as heads-up displays, and they could be subject to lawsuits if these services fail. So there is an incentive for them to be part of the auto insurance proposition and UBI. This is likely why Ford did the deal with State Farm.
Within this, there is also a race on for determining the pecking order and dominance.
If we look at the computer world as a parallel to UBI, you see an order of players, often related to the margins they can command. With computer technology, the business process consultants drive the IT consultants, who drive the software consultants, who drive the hardware consultants. A similar pattern will emerge in our industry.
Companies like IMS have a great chance to challenge the lead of the business process consultants, because we have overall expertise of the IT consultants, plus a growing number of relationships with high-level players in major auto insurance companies and because of the intelligence we gain from the data we collect. Intelligence backed by data is the ultimate threat to business process consultants—in all industries. (For more on UBI data, see Telematics and UBI: The data challenges, Telematics and the value of data and Telematics and probe data: The revenue opportunities.)
What is your opinion of data standardization? Do you think the industry needs certain recognized metrics?
Data incompatibility is another issue. You can't easily translate data from one carrier to another. An organization that is helping this is ACORD.org, the Association for Cooperative Operations Research and Development. It’s trying to set standards for insurance data. We're part of ACORD’s discussions and trying to help shape the standards. We tend to believe that the consumer or driver owns the data. And data, if it's to be of any value, needs to be transportable. Over time, you need to not be locked into one carrier. Legislation will cause that, and consumer push will require it.
What is the main thing that insurance carriers need to consider when preparing to launch UBI products?
Technology can often be very disruptive and has the potential to change entire industries. We believe that UBI, as a key source of technology, is really going to challenge the entire auto insurance landscape. IMS’s job is to help its auto insurance partners disrupt their businesses in a manner in which they win through reduced claims and which also saves the lives and property of their drivers.
Susan Kuchinskas is a regular contributor to TU.
For more on insurance telematics, see Special report: Insurance telematics.
For exclusive insurance telematics business analysis and insight, read TU’s Smart Vehicle Technology: The Future of Insurance Telematics report.