The UBI Model: Auto Insurance for the Optimal Customer Experience
For most drivers, auto insurance is a necessary evil. They need it but would rather spend as little as possible on it. And with more Americans working from home, the demand for flexible, cost-effective alternatives is greater than ever.
One way to gain that flexibility is through telematics, and insurers are stepping up. According to Forrester, there will be a 50% growth in ownership of UBI policies in 2021. And, Novarica’s Research Council CIO Survey (2020-Q4) indicates 35% of large P&C insurers and 12% of mid-sized P&C insurers are already engaging in telematics. Yet, even more are wondering how telematics can help them attract and retain customers. The answer is usage-based insurance (UBI).
“The future of telematics isn’t just about the concept of capturing the data and offering a discount,” said Martina Conlon, EVP of Research and Consulting for Novarica, in the webinar you can view above. “It’s really about finding that combination of features and thoughtfully designed offerings to target and make an optimal customer experience.”
%
growth in UBI policy ownership in 2021, according to Forrester
%
of large P&C insurers and 12% of mid-sized P&C insurers are already engaging in telematics, according to the Novarica Research Council CIO Survey (2020-Q4)
%
growth is predicted for the global UBI market through 2026, according to the National Association of Insurance Commissioners (NAIC)
%
of policyholders report “lack of personalization” as a primary reason for leaving an insurer, according to “The Customer Compass: Navigating the Future of Insurance”
UBI gives control to the customer
One of the greatest weaknesses of traditional insurance pricing is the reliance on credit scores and basic demographic data, such as age and zip code, to determine cost. Because customers can’t control any of that data, they’re stuck with premiums that may not have anything to do with how often or how safely they drive. One way to increase customer loyalty and safe driving habits is to tie premiums to something drivers can control. That’s where UBI comes in.
At Metromile, a pay-per-mile insurance company, premiums are dependent on drivers’ use and behaviors, such as driving speed, safe lane changes, and how often drivers are behind the wheel. Through high-fidelity telematics, data is gathered during driving trips in real time and used to determine the premium.
Metromile’s Ride Along coaching program gives tips for driving more safely. It also indicates why those behaviors impact the price. In this way, the UBI model lays the groundwork for the insurance of autonomous vehicles, as we discussed in our previous blog entry.
“We see this as a continuous evolution that takes us to what autonomous vehicles will be: the ultimate safe experience of driving in the future,” said Metromile’s Chief Technology Officer Paw Andersen in a recent webinar with EIS and analyst firm Novarica. “It used to be that it was seat belts that had a real impact on safety. But today it’s lane-keeping assistance, emergency braking, all the way up to Tesla’s autopilot. We see this as a unique opportunity in the insurance industry to make pricing and product experience something that is uniquely fair and personal. We want to give the control to the consumer.”
What are the 5 UBI models for delivering personalized auto insurance?
Metromile and other insurers are setting out to prove that flexible options can create fairer and better options for everyone, but not all UBI models are the same. Most UBI models are based on a variety of factors that allow insurers to create customized auto policies, such as:
Pay-per-mile
The pay-per-mile model allows customers to pay a flat monthly fee plus a small charge per mile of use. Customers who drive only a short distance to work, or those who don’t drive every day, benefit from this type of plan because they pay primarily for the time they spend driving, when they are most likely to have an accident.
More sophisticated behavior monitoring
Proper use of behavior monitoring technology can actually lead to safer driving – and lower costs. Some of these, such as lane-keeping assistance and autopilot, can be found on newer models of many vehicles. Others, such as fast cornering and sudden braking alerts, can lead to driver education to raise awareness. Collecting broad data to better describe driving behaviors gives insurers opportunities to customize individual pricing even further.
Fractional coverage
The new insurance customer isn’t necessarily the owner or operator of the vehicle, but each pays for their part of the policy. More sophisticated UBI platforms note events, such as a change of driver, that can lead to more accurate pay-per-mile charges. The same rules will apply when it comes to autonomous vehicles, but the autonomous or autopilot component will be separate from the customer’s.
Flexible vehicle use
Many auto owners use their cars differently than they did just a year ago. Whether it’s for ride-hailing, home delivery, or private use, an insurer can offer different pricing at different times on a single policy. More sophisticated UBI systems allow usage-based insurers to accurately rate and update premium billing according to each type of use, across commercial and personal lines. In addition, with behavioral coaching, drivers can learn to become better drivers over time and even take advantage of better pricing in the future.
High-fidelity telematics
The entire program rests on high-fidelity telematics streaming continuously in real time from the vehicles. The data includes information like average speed and time per trip, as well as time of day and day of the week. With telematics, insurers can gather a complete picture of what happened and when, but drivers have to allow the data to be collected.
As Paw Andersen explains, “If you try to limit fidelity on data, you’re leaving things on the table that will limit you in the future.” In other words, collect as much detailed data as possible today in order to learn more for later.
What do insurers need to know about usage-based insurance?
Usage-based insurance (UBI) is personalized property and casualty (P&C) coverage that employs usage data to determine a policy’s cost. Auto insurance is by far the most widely adopted use case for UBI. With UBI auto coverage, how far, how well, when, and even why drivers get behind the wheel all factor into their premium cost.
How does UBI work?
In addition to collecting information on a customer’s age, location, and driving record, UBI also considers mileage, change of use, and driving habits when calculating insurance premiums. An IoT device or mobile app gathers data. Collecting such data makes it possible for insurers to price, underwrite and service drivers with UBI.
How are P&C insurers integrating UBI into their portfolio of insurance products?
Our “Customer Compass: Navigating the Future of Insurance,” a survey of more than 1,000 insurance consumers in the U.K., France, Germany, and the U.S., found that 20% of policyholders report a lack of personalization is a main reason for leaving an insurance carrier. A personalized, digital insurance platform that rates and prices risk based on an individual’s behavior, though, can help attract low-risk drivers and increase the retention of current customers.
Most UBI solutions can be integrated into existing systems through an open application program interface (API). The availability of APIs can enable insurers to analyze data and determine rates and pricing for UBI, thus expediting their digital transformation. Others will look to adopt a new and more contemporary digital insurance platform.
How is privacy maintained with UBI data collection?
Data security and privacy are important and complex topics. But at a very high level, insurers should expect the raw data from the car’s telematics or customer’s mobile app to be uploaded to a protected data management system. From there, data should be broken down, stripped of ties to personal information, and assigned internal IDs.
Why is UBI a good choice for ridesharing and autonomous vehicle coverage?
Ridesharing — also referred to as “ride-hailing” — services present a challenge for insurance carriers. With drivers moving from personal and commercial use quickly, and because limits and deductibles vary depending on the transportation network company, significant coverage gaps are a reality for drivers. More sophisticated UBI solutions track and manage coverage as drivers transition through various states, from personal use to commercial, as well as waiting for and driving to or from a pickup, for example.
Soon, autonomous vehicles will follow a similar coverage model, with the vehicle’s manufacturer accepting some liability and the owner/driver/passenger accepting the rest. More sophisticated UBI solutions will track each shift of control and assign liability and costs to the appropriate party digitally and in real time.
How does UBI impact the customer experience?
UBI gives the customer more control over their coverage and costs. In-car telematics and mobile apps can transmit data in real-time from the vehicle back to the insurer to provide an accurate picture of the driver’s actual risk. All of which streamlines underwriting and rating, accelerate claims processing and create the basis for discounted insurance coverage, personalized insurance bundling, gamification, and more. It’s no wonder the global market for UBI is expected to experience nearly 25% growth through 2026 and grow to $93 billion USD by 2026, according to the National Association of Insurance Commissioners (NAIC).