The driving habits of personal auto consumers are shaping the way carriers price coverage today. Those carriers providing usage-based insurance (UBI) options, including telematic systems or devices to monitor an insured’s driving and mileage habits, are finding increased interest from consumers thanks to driver discounts for customers willing to participate.
UBI programs have become more popular recently as big auto insurance carriers like Progressive and Safeco launch new product options. Storing, analyzing and monitoring the data has also become a big business with companies like Hughes Telematics and Towers Watson providing insurers with access to the technology they need to track this information.
“I can’t get through a week without having two or three more insurers asking to get more info about usage-based insurance in general or [our program] Drive Ability,” says Robin Harbage, Towers Watson. “It is the hottest thing going on in auto insurance and everybody is realizing how it is changing insurance.”
UBI Programs Growing Nationwide
Harbage says at least 60 percent of auto insurers have a UBI system in place in at least one state, and that number is growing, which is why agents should learn about these programs.
“It is unlikely that agents won’t see at least one carrier use this in their state,” he says. “It will go from a novelty, to clients coming in and asking agents about it. We are seeing more and more of this as time goes on.”
Agents that understand UBI and the programs available can serve as a marketing advantage for interested clients.
“The argument from some consumers is this is to their advantage,” says Richard Hutchinson, usage-based insurance manager for Progressive in Mayfield, Ohio. “Customers that don’t use their car often but are in an expensive area say, ‘I’d like a more customized model.’ We do market to people in high priced insurance markets.”
Carriers are also benefitting from using UBI programs.
“Most carriers that launch these programs see their actual loss costs decrease because insureds learn to drive better,” Harbage says. “If that continues, we could see a huge adjustment in driving in general. Wouldn’t you like to be an agent saying that you are not just saving money but saving clients?”
Harbage says telematics and UBI programs are definitely not going away. “The supply of telematics devices will become ubiquitous, making the launch of usage-based insurance easier and easier,” he says.
Towers Watson launched DriveAbility in June, which provides analytical support for insurers that translates to an individual score for each vehicle. Towers Watson posts the systems insurers need to collect the data on vehicle usage and supplies insurers with scores as a way to rate customers and encourage safer driving habits. The firm also works with insurers and the telematics device manufacturer to store the data in a database so the insured access it.
Harbage says starting a UBI program is complicated, and storing and analyzing the massive amount of data could be overwhelming for an insurer.
“Getting into the market can be a bit daunting,” says Harbage. “More clients are coming to us for help.”
Hughes Telematics works with insurers to provide data through its In-Drive product, which helps carriers craft a UBI program. In-Drive provides the telematics device and data, and carriers are able to use a portion of the data collected to offer customer discounts.
“We are not in the risk calculation business but in the data business,” says Erik Berkeman, acting general manager for the In-Drive Division of Hughes Telematics. “The insurance carrier can fine tune products and procedures to go back to the consumer and offer the discount that is appropriate.”
In-Drive takes its telematics data a step further as well by monitoring how the vehicle is operating for the customer. The service does have a monthly fee because it incorporates this diagnostic data, as well as the usage-based information.
The reasons why carriers develop usage-based programs are similar — discounts, better driving habits, more accurate ratings, etc. — but how each company chooses to utilize the products and data varies widely.
Progressive’s program, SnapShot, provides a device that is installed in the insured vehicle. It accesses the car’s computer and tracks how much the insured drives, how they drive and what time of day they drive, and collects other information such as the vehicle identification number (VIN) and the odometer reading.
The device must be plugged in for a full six month policy period and insureds can receive a discount after 30 days, once the the device collects enough data to establish an individual, customized discount. Discounts range from zero to 30 percent with the typical discount being about 10 to 15 percent.
“At the end of the day, it is a far better model for establishing individual risk than using historical predictive models that are based on prior data from insurance models,” says Hutchinson. “In this case, it is not up to how accurate the model is — this is actually how you drive.”
Insureds have the option to terminate the program at any time. It is currently available in 37 states and Progressive plans to be in at least 40 states by the end of the year.
Hutchinson says advances in technology over the last few years have reduced the cost, enabling the carrier to offer the program without requiring an additional premium from insureds for the device or the program.
The current marketplace has also helped motivate insureds to look into programs like this. “A lot of consumers have been having a rough time over the last several years, more so than normal, and this is a product that allows them to pay even less,” Hutchinson says.
Safeco has a UBI program that is available in most states called “Low Mileage Discount.” It offers a discount of up to 20 percent for insureds that drive less than 8,000 miles per year. The insured lets their agent know how many miles they drive and a discount is determined by that. There is no device to monitor mileage, but Safeco has a proprietary system to verify the mileage on occasion.
James Holston, product manager in Safeco’s National Product Development Group in Seattle, Wash., says that vehicles that drive less than 8,000 miles a year account for about a quarter of all vehicles in the country, which has made this a very popular program.
“In a tight economy with high gas prices, customers are looking to save money,” says Holston. “This discount is for those cars that are low mileage.”
Safeco’s Teen Safe Driver Discount is not a usage-based program but utilizes a device to track a teen’s driving habits and provides personalized feedback on how the teen is driving through a weekly report. There is a discount just for enrolling in the program, but the insurance rate is not impacted by how the vehicle is driven.
Another Safeco program, Rewind, provides instant forgiveness for an at-fault accident, ticket or other minor violation for the first policy term. The way the insured drives determines if Safeco will waive the violation permanently.
Both the Rewind and Teen Safe programs use a small device from Octo Telematics that a customer can install in their vehicle to monitor the insured’s driving habits.
Shawn Anderson, a Seattle-based innovation architect supporting Safeco Insurance, says the focus of these programs is not the technology device, but rather providing savings to insureds for participating and for driving safer.
“Safeco is not selling technology, but encouraging safer and more responsible driving behavior,” he says. “Customers want to be recognized with insurance discounts and savings.”