Today, the world of telematics and usage-based insurance is no longer a novel idea. When first introduced into the industry more than two decades ago, the value offering was simple: have your driving behaviors (then tracked by combined GPS and cellular technologies) help dictate your insurance premium and subsequently earn discounts for sharing the information and for adopting or applying safer practices behind the wheel.
Over time, more data points around speeding, braking, distance traveled, time of day, etc., were introduced alongside more standardized rating factors around age, gender, type of car and residence.
Many of those foundational elements are still present and are guiding factors in today’s usage-based insurance (UBI) landscape.
Usage-based insurance is often seen as a way to help parents with new teenage drivers save on insurance. But even drivers who do not have teenagers see the potential money-saving benefits of pay-as-you-drive insurance.
As the industry matures, we find that the landscape and overall consumer offering have changed to the point where we are no longer living in a discount world. Technology is evolving – onboard auto technology can provide crash notifications, stolen vehicle tracking and more.
Wider adoption of technology could provide drivers and insurance companies with enormous benefits.
However, many car owners are wary of installing hardware devices and downloading apps.
In a recent internal consumer-focused study conducted by LexisNexis Risk Solutions, we examined the motivating factors, barriers and opportunities for the industry going forward. We looked at ways to alleviate consumers’ concerns about onboard tech.
Let’s dive into that study and several others LexisNexis has done on the subject in years past.
UBI adoption continues to grow
When looking at the state of the industry – even 10 years ago – in 2013, only about a third (37%) of consumers surveyed were aware of usage-based insurance. Fast forward to 2022 and we found that almost nine in 10 consumers (86%) surveyed were aware of UBI.
When the concept of UBI programs was launched, most insurers were exclusively marketing UBI programs as a way consumers could save on their auto insurance premiums.
But as awareness and familiarity of UBI has grown, so has the value of UBI program benefits beyond lower insurance rates. Nearly all consumers surveyed (88%) feel using driving data to determine auto insurance rates is similar or fairer compared to how insurance companies determine rates today.
Almost 50% of respondents noted they found value in seven or more aspects of UBI, including eligibility for lower insurance rates, the ability to monitor teen driving behavior, automatic insurance notifications if involved in an accident and leveraging vehicle data toward an insurance claim, with the top aspect being financial savings. While discounts are still the primary driver, insurers are no longer just operating in a discount world.
While awareness is critical, program enrollment is a true barometer of UBI influx into the market. Following a similar positive trajectory, consumers who were either offered or inquired about a UBI program and subsequently enrolled — which is key — has increased from 49% in 2016 to a considerable 63% in 2022.
While this may be partly due to the market’s maturity and economic conditions, raising awareness and the ultimate adoption is hard proof that UBI programs are gaining traction. Things are looking good.
Understanding the barriers to UBI adoption
As we’ve noted, increased awareness and enrollment are two critical factors in determining the success of UBI adoption.
However, as important as seeing that 63% enroll in a program, it is equally important to understand the motivations behind why 37% chose not to enroll and why 26% of consumers who enrolled in a pay-as-you-drive program dropped out before completing the registration process. The issue of enrollment drop-outs has been a longstanding problem that doesn’t go away. Even outside of telematics, any app or registration process that requires extra action creates a chance to lose the consumer at each additional step.
Interestingly, consumers who did not enroll in a UBI program when offered and consumers who did enroll but did not complete their enrollment process shared similar barrier reasons.
Here’s what we found:
- More than half (52%) of consumers surveyed said they were reluctant to install a device or set up an app.
- A notable portion of consumers who did not enroll cited the discount as not worth enrolling (45%). While once nearly the sole driver of UBI enrollment, this suggests that additional/alternative benefits will be required to maximize consumer engagement in UBI programs.
Creating value beyond discounts – the connected car
Again, better insurance rates have been the key element of UBI’s value proposition, but what happens when that’s not enough?
The modern consumer experience has shifted. Consumers want ease of enrollment and implementation along with ease of engagement, and again, this sentiment applies well beyond the world of insurance.
Thankfully, in the case of modern UBI offerings, connected car telematics programs through automakers can offer consumers the benefits without having to insert a device or download a new app.
In this instance we define connected car and telematics programs by the following from our “Driver’s Mindset Study”: “Any vehicle equipped to connect to a wireless network is considered a connected car. Automakers use two kinds of systems to enable connectivity, embedded and tethered. Both systems have the ability to collect and transmit data, Drivers do not need cars with embedded connectivity to leverage their telematics data.”
By sharing your driving behavior data, you can take advantage of brand-specific benefits and features like automatic crash notification, stolen vehicle assistance, location-based services and diagnostics.
Using connected car telematics data, insurance carriers get access to scalable and normalized driving behavior attributes or scores that are readily available when an insurance company wants to provide a quote. This can help their risk assessment and can help them offer the personalization expected from most shoppers today.
For consumers, connected car data can help make their driving behavior data portable, allowing them to use driving and vehicle data when shopping for auto insurance with any insurer.
Like the ability to maintain a mobile number when switching service providers, we expect the same sentiment around telematics data from connected cars to take off for the auto insurance industry.
So, what does this all mean?
To help continue the evolution and capitalize on growing consumer awareness of telematics, insurance carriers and even automakers can play a prominent role in helping their customers understand the opportunities available.
While we may no longer live in a discount world, this new environment could usher in a new era of excitement and value for all.
Marc Gordan is head of global telematics strategy and development for LexisNexis Risk Solutions. In this role, he is responsible for the product strategy roadmap related to connected car, usage-based insurance and telematics offerings for LexisNexis Risk Solutions and the team of professionals taking products from initial idea to execution.
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