Global Study on UBI Car Insurance Eyes U.S. Growth Potential

Color legend denotes numbers of UBI trials and programs per country. Listed companies have active UBI programs in those respective countries. Source: Ptolemus

A global consultancy firm’s recent study of usage-based auto insurance (UBI) said that markets are springing up everywhere worldwide, but the U.S. holds the highest number of UBI policies thanks to the growth of programs from the nation’s biggest car insurance companies.

UBI policies use driving data to analyze statistics like how far a motorist drives or how hard they apply their brakes. Basing policy prices and auto coverage discounts on that data is increasingly popular among both insurers and consumers, according to Ptolemus, which released its study last month.

Ptolemus estimated that there are 2.5 million UBI policies in the U.S. and 2 million in Europe.

Thomas Hallauer, the firm’s marketing and research director, told Online Auto Insurance News (OAIN) that “three power forces” drive figures in the U.S.: Progressive, State Farm and Allstate, which all have expanded UBI programs in recent years. The insurers’ programs are called Snapshot, Drive Safe & Save, and Drivewise, respectively.

“Insurers are choosing to enter the era of Big Data in motor insurance, rather than rely on outdated underwriting practices,” Ptolemus said in a statement. “This has led to a flurry of activity.”

The Biggest Stateside Players

Drivewise availability has spread across a number of states throughout 2013, with Allstate also equipping the UBI program with an accompanying smartphone application on its way to availability in most of the insurer’s nationwide marketplace.

An Allstate subsidiary, Esurance, is also slated to expand its UBI program, called DriveSense.

State Farm has expanded availability of Drive Safe & Save, which operates on several different platforms including OnStar.

But it has been Progressive that has been the leader in the UBI market, making inroads more than a decade ago and popularizing its latest UBI offering, called Snapshot, according to Ptolemus.

Ptolemus said its latest data from Progressive shows 1.4 million Snapshot customers.

Progressive’s early start in the UBI market gives it “first entrant advantage,” according to Hallauer, “which means its offering is mature and based on trials and errors from the past.”

“It means Progressive has more behavior data than any other insurance on the market,” he told OAIN. “It is a critical advantage from an actuarial standpoint.”

Hallauer said the insurer has some other distinct advantages, the least of which isn’t a tight fist with its marketing expenditures.

The hundreds of millions of advertising dollars poured into its brand helps Progressive “ensure [that] people understand UBI and link the concept first to Snapshot,” he said.

But rapid development of UBI technology means it’s now available both to “insurance start-ups” as well as “larger, innovative companies,” the study said.

In the U.S., Sprint offers an “end-to-end” UBI suite that it says is for insurers that lack the means to develop UBI technology on their own.

It’s that kind of “low-cost, turn-key” solution, as Sprint calls its Integrated Insurance Solutions (IIS) platform, which has opened doors in car insurance marketplace.

“UBI will be used as a formidable recipe to break against established players and win profitable customers,” Ptolemus said. “We also expect new players to seize the telematic opportunity as a way to enter the motor market.”

Firm Interviews Snapshot Manager on Future of Program, UBI

The firm interviewed several insurance company executives for its study, including Dave Pratt, general manager for UBI at Progressive.

According to Pratt, the number of Progressive customers “opting for Snapshot” has increased 40 percent between August 2012 and August 2013.

By the end of the second quarter of 2013, Snapshot-ers represented $1.7 billion in premiums, an increase of 70 percent compared to the preceding 12 months, Pratt said in the August interview.

Still, Pratt demurred from calling Snapshot a “mainstream” choice for policyholders, instead saying that “it has been and still is an optional program.”

Although 1 out of every 3 “people now opt for Snapshot,” he said, market research has shown that a substantial portion of consumers have some unbending attitudes that keep them at arm’s length from UBI programs.

Progressive CEO Glenn Renwick has cited similar figures when speaking with investors about obstacles the insurer has faced in popularizing Snapshot.

“It’s interesting,” Pratt told Ptolemus. “We have done market research and what we hear is that about a third of the population really don’t want to participate. They are genuinely concerned about their privacy and don’t want an insurance company to know much about their driving behaviors.”

Nevertheless, Snapshot has been, as Renwick has called it, a “game changer” in the insurance market that has upended several industry business models. One of them involves traditional car insurance agents, who have trailed more direct channels like the internet in Snapshot policy sales.

“Snapshot represents an extra step that the local agent has to take in the sales process,” Pratt said. “[I] think it has been an obstacle for some of the agents.”

Interviewer Frederic Bruneteau, a managing director at Ptolemus, suggested that Snapshot has changed the nature of relationships between customers and their agents, the latter of whom “do not control the price anymore” because the web-based dashboard “is now a direct link between the driver and its insurance.”

A study from consultancy firm McKinsey and Co., released this summer, said that agents will have to be disciplined in several channels of communication to reach and retain the modern-day customer.

Other car insurance products, like Quantum 2.0 from car insurance carrier Travelers, seek to re-empower independent agents with services like auto insurance rate comparisons that have recently been more popular on direct channels.

For now, agents should make the most of their face-to-face relationship with customers when proposing Snapshot, according to Pratt.

“There’s usually more opportunity to explain [UBI] better,” he said, adding that agents should be attracted to promoting Snapshot because participants who earn discounts have ultimately stayed with the insurer longer than non-Snapshot users.

Progressive has no plans in “the near-term” to expand Snapshot globally because the insurer lacks “broad international operations,” Pratt said.

Pratt also said that Progressive has no immediate plans to introduce data collection via smartphones instead of the current in-car device that Snapshot-ers have to plug into their vehicle, though the insurer introduced an iPhone application this past March that tracks driving habits “almost like a game.”

An Eye to the World

It may be big money that is attracting such intense activity around UBI.

According to Ptolemus, UBI vehicle policies represent $4.7 billion in premiums worldwide. But there’s still room for growth, with that figure representing just a 0.6 percent share of the global car insurance market.

While UBI discounts have been the biggest lure for consumers in programs like Snapshot, they are “not equally as attractive for all segments, geographies and third parties,” according to Hallauer.

Europe-based companies like Octo and Cobra focus their UBI programs “more on long-term services such as safety and theft prevention.”

“The choice of business models for UBI is widening,” he told OAIN. “[Car] manufacturers, leasing companies and car clubs are entering the market with very different propositions.”

The “booming” growth in North America “is also coming from Canada,” Hallauer said.

In addition, UBI-related trials are occurring in India and China, despite both having “low premium levels” and “regulation issues” in China, according to Hallauer.

According to Ptolemus, UBI will “reach 100 million vehicles by 2020 with market growth increasingly led by the U.S.”

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for and the Desert Dispatch and was the editor in chief of the Guardian (the twice-weekly newspaper at the University of California, San Diego) before coming to Online Auto Insurance News.

No comments yet.

Comment on this article