A new survey shows most consumers—79 percent—are willing to consider the concept of usage-based insurance (UBI), and if insurers can guarantee that premiums would not increase, 89 percent report they would give UBI a try.
“UBI is a value-added service and consumers want that,” says Len Llaguno, a consultant for global professional services company Towers Watson, which conducted the survey.
Towers Watson believes the survey results are a clear indication that UBI is gaining momentum in the marketplace, with more consumers willing to let insurers monitor their driving habits with a telematics device in exchange for potential savings on their car insurance.
The survey shows interest in UBI programs is highest among younger drivers (18- to 34-year-olds) with approximately two-thirds of that age group (66 percent) responding that they would definitely or probably purchase a UBI policy. Roughly half (54 percent) of the participants who drive every day showed a strong interest in UBI.
But while this survey shows that many consumer seem willing to take the plunge, Progressive CEO Glenn M. Renwick last month related the challenges the insurer has had getting customers to embrace its UBI product, Snapshot.
During a conference call on the insurer's second-quarter results, Renwick said, “I will tell you that getting consumers to engage in a product that, for the most part, they were never asked to engage in...it’s a bigger burden than, I think, intellectually, many of us might have assumed.”
He cited a survey Progressive conducted among consumers—although he noted the figures were dated—showing that just 30 percent were interested in the product, while 40 percent were not. The remaining 30 percent said they needed to know more.
But Renwick did say he believes there's a "latent demand out there" that can be tapped if the insurer can find the right combination of messages. "We’re going to keep going," he said, "And this is a battle worth winning."
Despite the issues that Renwick cites, Progressive remains the market leader in UBI and is recognized as such by more consumers than any of its major rivals in the personal auto line--State Farm, Allstate, and Geico.
"The others are slowly getting into the game," says Llaguno. "Progressive was first, but there are opportunities for the others to meet the needs of the product market."
Robin Harbage, global lead for Towers Watson’s UBI and DriveAbility service offering, notes that consumer adoption of UBI has been slow despite many major insurers offering such products.
Given the recent Towers Watson survey results though, Harbage adds, “Consumers are now becoming more familiar with UBI, and they like what they see. They are beginning to realize their data can actually be helpful while lowering their monthly premiums. Drivers’ views on UBI are rapidly evolving—they are embracing the technology and making it part of their driving experience.”
Sixty percent of those interested in UBI programs report they would be willing to change their driving behavior. This was highest among younger drivers (76 percent), who represent the largest risk segment. When asked how they might change their driving behavior if a UBI device were to be installed in their car, respondents listed sticking to the speed limit (71 percent), keeping a safer distance from other vehicles (52 percent) and driving more considerately (49 percent) as the leading adjustments.
“Clearly, there is an appetite for behavioral change features,” said Harbage. “The next big step for insurers to capitalize on this knowledge is to better understand consumers’ driving behaviors so they can subsequently develop an effective way for delivering timely and relevant feedback to the insured. This could very well have a big impact on the riskiest driver set, resulting in safer roads for everyone.”
Llaguno points out there is still work to be done to determine what makes a good driver or a bad driver. The traditional ways—moving violations and accidents—are not necessarily the way insurers will underwrite UBI policies.
”There is work to be done coaching drivers,” he says. “The findings suggest there is a higher potential for that.”
The survey looked beyond pricing benefits associated with UBI products to gauge consumers’ interest in various value-added services that can be enabled by the technology underlying UBI devices. Drivers indicated a telling interest in a number of these services, and 72 percent of those interested in UBI said they would be willing to pay for them. Drivers showed most interest in vehicle theft tracking (83 percent), automated emergency response (82 percent) and vehicle wellness reports (79 percent).
“Consumers’ interest in UBI-related value-added services presents a great opportunity for insurance companies,” said Harbage. “Insurers can begin thinking about de-commoditizing their products by incorporating these services into their UBI offering. They can really cater their products to the specific needs of the market, and if done effectively, it will lead to growth and higher retention levels.”
Consumers had the chance to voice their concerns about UBI programs. Their biggest worry had to do with money, as nearly half (49 percent) are worried their premiums would increase. Other concerns related to privacy, such as insurers sharing consumer data (41 percent), fears that insurers will monitor and track driving destinations (42 percent), and apprehensions about insurers using data to invalidate claims (38 percent).
“These are understandable but not material enough to prevent further UBI adoption,” says Harbage. “In fact, these concerns actually create possibilities for insurers to design better UBI products.”