The State of User Based Insurance

Last year I wrote about how the first connected car killer app was already here in the form of User-Based Insurance (UBI). As a quick reminder, UBI is when an insurance company is able to measure exactly how you drive (via telematics) and provide you an insurance policy tailored to your specific habits. Drive aggressively and pay more. Drive safely and pay less.

Since it’s been a little while, it seems like a good time to share the latest thinking in the near, medium, and long term trends of UBI.

Near Term: Consumer Comfort

In an era of major data leaks and hacks (Sony, Target, etc.), there was a legitimate concern that consumers might not be all that comfortable sharing their personal data with yet another set of corporate giants.

However, as seen in the figure below, this fear seems to be misplaced. Consumer privacy concerns around UBI have dropped to 35% from about 42%, and 80% are cool with using UBI smartphone apps.

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Source: Towers Watson 2014 UBI Consumer Survey (link)

This is clearly a good sign for UBI providers. Telling Facebook your preferences so they can serve you up better ads is one thing – it’s not like you have to buy anything Facebook shows you. But a reasonable person could have argued that telling your insurance company how you drive was another thing entirely – this will directly impact your premiums! But, perhaps this is a function of Illusory Superiority, where people believe they’re better than average and therefore feel likely to experience a premium reduction.

Medium Term: Smartphones and Frictionless Business Models

An initial problem in UBI revolved around how the insurance companies were actually going to collect the telematics data. The first series of solutions, going back a few decades, involved highly bespoke “black boxes” with a complexity and price point best suited for large automotive fleet managers. The next solution involved using a device that connects to the On-Board Diagnostics port (known as OBD-II) available in all cars after 1996, which is a much simpler/cheaper device that consumers can easily install themselves.

Now, more and more insurance companies are starting to realize that consumers already carry around a device capable of taking UBI measurements – the smartphone. A quick read of Android’s developer guide around sensors shows that smartphone have about a dozen measurement metrics built in today, many of which can be used for UBI.

The use of already-existing-practically-ubiquitous smartphones as an entry point into UBI is also enabling new business models, such Try Before You Buy (as the image below from Frost & Sullivan shows).

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Source: Frost & Sullivan (link)

Previously, consumers had to get a piece of hardware and fiddle around with it until it worked. Now, with the smartphone, it’s just another app download. “Interested in seeing how UBI would impact your premiums? Want learn how to conserve fuel while driving? Just download our app for a free trial and see what you could save!”

Long Term: The Car as the Embedded Device

While smartphones may be king for a while, most of the smart money is on the car itself becoming the hub for UBI. Large tech players such as Google and Apple, which benefit greatly from the medium term focus on smartphones, are creating their own automotive-focused Operating Systems. That’s how powerful the automotive as a connected platform can be. The image below shows this future dominance.

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Source: Ptolemus Consulting Group (link)

At a basic level, this makes a lot of sense. UBI will be better served via more sensors throughout the car capable of higher accuracy measurements, and the smartphone can only go so far. Do policy issuers want to make sure drivers properly inflate their tires? You’ll have to work with the car directly to find that out.

Personally, I feel that UBI will always be multi-model. The expansion of embedded solutions in the car will optimize both automotive interfaces and UBI use-cases. However, it seems to be that an embedded solution coupled with a smartphone app to bridge the gap between driving and non-driving times would be even more powerful.

With consumers losing their privacy concerns, smartphones offering a frictionless entry point, and the future development of highly robust embedded sensors on the horizon, it looks like everything is coming up UBI.

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