Sometimes it is difficult to believe that vehicle telematics for usage-based insurance is 20 years old. While the likes of Norwich Union and Progressive began planning and piloting long ago, most of the real activity in the market has taken place over the last few years. SMA’s recently released research report: Telematics in P&C Insurance: The Need to Move Beyond Pricing, profiles the state of the UBI market in North America, with a special emphasis on data and how that translates into value propositions.
As the report title suggests, the North American market tends to be stuck in neutral, focusing primarily on offering premium discounts to policyholders that exhibit certain driving behaviors, as tracked by the telematics device. While there are isolated instances of insurers that have gone beyond pricing, the majority of the programs in the market and the pilots underway concentrate on attracting customers through discounts (which are often substantial). In other markets, notably Italy, Brazil, South Africa, and the U.K., other value propositions are already in the market, including safety advice, theft deterrence and concierge services.
See also: Telematics: No Longer Just For Cars
In theory, there should be a clear market advantage to insurers that can more precisely determine the risk characteristics for a customer and price accordingly, grabbing market share while maintaining profitability in the process. However, in many cases it has not been quite that simple. Once you get beyond the Progressives and Allstates of the insurance world, which have collected data from billions of telematics miles, most of the remaining companies lack the historical data to satisfy actuaries in pricing and profitability. And customer adoption has not been as rapid as expected, either.
Still, the move movement toward an increasing usage of UBI programs continues, with almost three in five insurers that write vehicle insurance either having programs in the market or plans to do so in the next few years.
The SMA research confirms that primary data sources are used for pricing, but also identifies other types of data that are being collected and could be used for future value propositions. For example, most insurers with UBI programs are collecting data on location, routes driven, vehicle diagnostics and other information. There are a wide range of new services that insurers might offer to both personal and commercial lines customers based on this data, like those already offered in other countries. And the beauty of many of the offerings that go beyond pricing is that insurers will be able to test propositions in the market without requiring regulatory approval.