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Four Key Trends In Usage Based Insurance

Insurance telematics programs have grown at an unprecedented pace in 2015! Through supporting 14 programs in North America, we’ve observed four key trends that have emerged in the Usage Based Insurance (UBI) market.

1) Leave-In Model

Most production UBI programs use technology for a short time (typically less than 6 months) and based on the policyholder’s driving during that period, a score is derived and a discount is earned. The customer returns their device and the earned discount is applied at renewal. Outside of a discount, this approach provides little value to the policyholder and robs the insurer of valuable data. We’re noticing a trend toward companies adopting a leave-in model whereby the device remains with the customer indefinitely. Insurers are realizing how temporary programs expose them to wide swings in data associated to seasonality. Further, temporary programs do not allow the insurer the opportunity to provide desirable services and features to their policyholders.

2) Services and Features

Services and features are in demand for consumers in other markets…why not insurance? In a 2014 UBI focused study, almost 80% of respondents expressed an interest in services and features such as “theft tracking, emergency response and vehicle wellness.” To this point, with retention rates nearing 90%, insurers are seeking out different ways to keep their customers “sticky” and with good reason—long-term customers are more profitable, are more engaged, and are less expensive than acquiring new customers.

Several of the insurance companies we support are actively working to incorporate our proprietary crash and claims services into their UBI product. Crash and claims services align with the insurance promise made at policy inception. Using connected car technology and precise crash algorithms, insurance companies are immediately notified when an accident is detected. This information can be used to quickly provide benefit to the customer in the form of roadside assistance, or to arrange for a rental car, or even to notify first responders in the event of a major accident with injury. Besides providing tangible benefit to the customer, these services also help the insurer close the claim quickly and reduce loss and expense ratios.

OBD devices used in UBI programs can provide many features to customers. The device is capable of diagnosing and demystifying the mysterious check engine light typically attributed to a Diagnostic Trouble Code (which usually results in a trip to the mechanic and a $80-100 bill). Beyond vehicle diagnostics, the device can assist in tracking business mileage, keep an eye on your teen driver, and be used to locate the vehicle if stolen. Currently, Octo supports several programs that use these types of features.

3) Supplemental Data

The genesis of UBI arose from insurers seeking data sources that could be used to accurately and fairly rate their auto insurance customers based on current driving behavior, in lieu of using historical driving, claims data and other proxies. In the first iteration of UBI, speed, mileage, location, time of day and certain events did a good job of accomplishing this; however, many companies soon realized that driving behavior alone does not provide the full story. Insurers want and need contextual data. Contextual data sources such as weather, traffic density, geocode, and speed limit provide a more accurate depiction of the risk. Many of our partners benefit from supplemental data and even display them on their customer portals.

4) App as a Device and Hybrid Solutions

Who doesn’t have a smartphone? With 2016 smartphone forecasts coming in at 209 million, the answer is virtually everyone. When considering people spend more time on apps than desktop and mobile web combined, one can see consumers love a good application. Insurance companies know this to be true and have developed applications for various services such as claims reporting, policy management, and policyholder convenience. Since smartphones have embedded capabilities suitable for collecting location and event data for UBI rating (GPS, Accelerometer, gyroscope), many solutions are available in the market today, including our own OctoU.

Unfortunately, standalone apps have their limitations; they are incapable of “connecting” vehicles and many valuable vehicle performance data elements taken from the OBD (i.e. VSS, DTC codes, RPMs) are unavailable. This said, hybrid products that utilize simple OBDII dongles coupled with Bluetooth Low Energy (BLE) technology and paired to a mobile phone provide the best of both worlds –a connected car with rich vehicle data, and all the benefits of a mobile app.

Emerging trends can only be addressed if you’re working with the right partner. Contact us to discuss how we can help you meet your business needs.

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