David Pratt, general manager, usage-based insurance, Progressive, on the importance to keep things simple when it comes to usage-based insurance (UBI).
Prior to his current position, Pratt held several other roles at Progressive, including marketing, product management and product development. He holds a bachelor’s degree in electrical engineering from Duke University and an MBA from Harvard Business school. He spoke to TU’s Jan Stojaspal about Progressive’s plans with Snapshot and the need for simplicity when marketing to consumers, many of whom are still wary of UBI.
The most successful UBI product in the United States is also the simplest solution on the market. How simple are we talking about?
It is pretty simple, but it has actually generated some pretty big data. All that we collect is the time [of day] and speed. A very simple data set. And then we can calculate from that how many miles you’ve driven, if you have had hard brakes or hard accelerations. There is no GPS in the device at all. We used to have accelerometer data, but we found it wasn’t adding enough value to justify the cost of having the device.
Is simplicity the ticket to UBI success then? Why have you decided to go this route as opposed to a more elaborate, complex solution?
I’m sure our product will continue to evolve. It may get more elaborate, but this simple approach is easy to explain to our employees, to our agents and to our customers who ask questions about it. And it gets us data that makes it easy to separate out the good drivers from the bad.
This ease of explaining to customers, how important is it at this stage of the game? What do you need to tell them so they get it?
It’s very important because this is a new thing that people don’t understand. Before we started advertising [Snapshot] a couple of years ago, only about 20% of [the addressable market] signed up. We’ve pushed that up to about a third, so I think building consumer understanding and educating them is important to increase the percentage of those who choose to do it. So far, that’s translated into about 1.6 million consumers who’ve given it a shot.
You’ve taken Snapshot through quite a few changes as it evolves. What were the considerations — was it too expensive and too heavy to start with?
We worked our way from a very expensive, clunky technology to something that’s relatively inexpensive and fairly easy for the customer to use. Another big innovation is building cellphone technology into the device, so all the customer has to do is plug the thing in and drive. After his trip, he comes home, and [the device] sends us the data for that trip.
Then, on the product design side, that’s where we evolved to a program that’s free. There’s no fee to participate. It’s just simple, straightforward. If you drive safely, you will get discount, which is easy to explain to people.
There has been talk about a race to the bottom with UBI. Is that something that concerns you? If the offering is solely discount-based, you can be easily displaced by somebody else with a cheaper solution. Or so the thinking goes.
Perhaps, but we have a big advantage because we have so much data. We’ve collected data on more than a million cars and have captured more than nine billion miles worth of driving. We’re optimistic that we can build very good predictive models, so at least we’ll know the right price to charge a customer, be able to offer the right discounts to safer drivers, and still be profitable.
Despite how simple the proposition is, there is still like 40% of potential customers who have said ‘never’ to UBI. Who are these people and why are you not reaching them?
I’ve seen different numbers, but typically about a third of the people say it’s a great idea. Another third says maybe. [And] there’s a third or maybe 40% who say, ‘No, I don’t want you tracking me.’ Actually, we’re more focused on the two thirds of people who are interested in it. I think there will always be a part of the population that doesn’t want to be tracked.
Finally, you said that before you started marketing Snapshot, you were reaching about 20% of the addressable market and that now you are at about a third. What is the next step?
We introduced a new ad campaign last year, and that seems to be working very well. The main point is: Why should you pay for bad drivers when there’s a way for you prove you’re a safe driver and get the savings you deserve? As we grow, more and more people are going to say that’s a good idea.
Jan Stojaspal is the executive editor of Telematics Update.
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