Report: Usage-Based Car Insurance Awareness, Appeal Growing

Consumer awareness of usage-based auto insurance (UBI) has swelled in recent years alongside UBI programs’ growing appeal among eager drivers who want discounts on auto insurance coverage, according to a recent LexisNexis survey.

UBI programs, powered by an information technology called telematics, use a device plugged into a vehicle to record driving data that can include how far the vehicle goes, times of day it is driven and motorists’ various habits like how often they speed and hard they brake.

That data is collected as information that car insurers can use to determine a driver’s eligibility for discounts and drivers can use to track their own driving habits online, often in near real-time.

Several major insurers currently offer UBI programs that advertise premium discounts ranging from 10 percent to 50 percent.

The survey, called the 2013 LexisNexis Insurance Telematics Survey, was conducted by independent research firm Lynx Research Consulting through polls of more than 2,000 insured drivers across the U.S. between the ages of 21 and 74 years old.

Telematics ‘Grown Significantly,’ but ‘Still a Relatively New Concept’

The survey’s most significant finding was a surge in consumer awareness of UBI in recent years. The 36 percent of those surveyed in the 2013 report who said that they are aware of UBI is more than triple the 10 percent that said the same in 2010.

The most recent survey also found that nearly half of consumers “like the concept” of UBI and telematics.

Michael Barry, spokesman for the Insurance Information Institute (III), said he was “not surprised” by the report’s findings about the spotlight on UBI.

“A number of auto insurers have heavily promoted their usage-based insurance policies in states where they’re selling them, so the general public is becoming aware of this technology,” he told Online Auto Insurance News (OAIN).

According to the report, awareness is unlikely to wane since UBI programs are most popular among younger drivers. Using several factors, including telematics awareness, telematics interest and smartphone ownership, the study identified drivers between 21 years old and 34 years old as the “sweet spot” that are the “best initial targets for a UBI program.”

The #1 Driver: Discounts

So what is it that’s driving drivers to UBI programs?

The survey found that the prospect of discounts is the leading incentive for a consumer to enroll in a UBI program, with half of those surveyed saying they would likely enroll for a 10 percent discount and 36 percent saying they would switch carriers for a 10 percent discount.

Other enticements would make a UBI program more savory to consumers, according to the report, which found that 72 percent of those surveyed were more likely to accept telematics if a car insurer guaranteed a 10-percent discount after a policyholder’s first six months as a UBI participant.

Also, 61 percent of those surveyed were more likely to accept telematics if they were offered a three-month trial enrollment period in a UBI program.

A vast majority of consumers also said they were be more interested in a UBI program if they could opt out without penalty, control the data that goes to their insurer and make sure that data is “saved for a short time.”

But perhaps most intriguing element of UBI is its potential to be a gamechanger in a marketplace where unique offerings and discounts can be the most effective bait for insurers trying to pry away customers from competitors.

A spring survey released by J.D. Power and Associates on the shopping habits of auto insurance consumers found that the percentage of shoppers who ended up switching insurers had risen compared to the previous year, hitting a record high of 45 percent.

“This industry has witnessed fewer customers shopping, but those who are shopping are serious about switching insurers,” Jeremy Bowler, J.D. Power’s senior director of the global insurance practice, said in a statement.

According to the LexisNexis survey, a third of those surveyed said that they “would consider changing carriers for UBI.”

With nearly 4 out of every 5 consumers saying they were aware of Progressive and associated it with UBI, the direct-to-consumer insurer’s Snapshot program proved to be a leader in public awareness.

Eight percent of those surveyed said they associated UBI with Allstate, which offers the Drivewise program, while 6 percent said the same about State Farm’s Drive Safe and Save program.

Insurers Still Working on UBI Awareness, Popularity

Even though the survey showed that 1 in every 3 consumers is aware of UBI, it also showed that a sizable 1 out of every 4 was “not aware,” while almost 2 out of every 5 responded that they “don’t know.”

A meager 3 percent said they were aware of and used UBI.

That so many consumers are still in the dark about UBI encapsulates the problem Progressive CEO Glenn Renwick recently told investors the company has encountered while trying to popularize its Snapshot program.

Progressive embarked on a new marketing campaign for Snapshot this year called Rate Suckers. Despite the campaign, the company is still “trying to find the message that actually moves the needle,” said Renwick, who added that company surveys showed that around 40 percent of prospective Snapshot participants replied that there was “no way in hell” that they would enroll.

Renwick said that the car insurer is still “body-punching” to pin down the most effective advertising cocktail that would attract more consumers to Snapshot, which had been the most widely available UBI product from a major car insurer before other insurers began major expansions of their UBI offerings.

“Intellectually, I kind of go, ‘why wouldn’t 100 percent of people take that option?’” Renwick said in the conference call last week.

Progressive declined comment through a spokesman.

Consumers have had reservations about how insurers would use telematics data. The LexisNexis survey revisited those concerns, finding that “consumers are less comfortable with information-sharing than three years ago.”

Thirty-five percent of consumers are uncomfortable with a UBI program sharing pre-crash data that could be used to determine fault, up from 25 percent in 2010, according to the survey.

In addition, 40 percent of consumers are uncomfortable with smartphone GPS technology providing location information and 48 percent were uncomfortable with a UBI program sharing driving data, the latter representing a 2-percent uptick since 2010.

But privacy concerns aren’t stopping everybody.

Justin Herndon, an Allstate spokesman, said that the company’s research on its customers show that about a third of them who ink new policies with Allstate enroll in Drivewise if it’s available in their state.

Herndon told OAIN that he recalled that figure “being somewhere in the teens range” last year. Other customer research found that more than half of consumers are likely to enroll in a UBI program with their next new vehicle purchase.

“[Drivewise] is definitely growing in popularity and a lot of that is familiarity,” he said. “More and more people know now that Drivewise can provide them feedback on driving so that they can earn savings.”

Herndon declined to comment on the LexisNexis survey.

UBI Availability Expands as Technology Enhanced

Allstate will expand statewide availability of Drivewise in upcoming weeks, according to Herndon. The program is currently available to policyholders in 20 states after adding 10 states since April.

Drivewise should be available in the majority of states by the end of 2013, he told OAIN.

“I would say we’re in a period of aggressive expansion,” said Herndon.

Allstate isn’t alone.

Progressive, which offers Snapshot in 43 states, recently announced a licensing deal that grants rights to intellectual property behind the UBI program to USAA, an insurer that mainly writes policies for military servicemembers and their families. Under the deal, USAA will be allowed to begin using the technology in April 2015.

State Farm grew the availability of Drive Safe & Save across more than a dozen states since last December. It is currently available in all states except North Carolina and Rhode Island. The car insurer, the largest in the U.S., is also developing a driver-behavior application for smartphones that would allow drivers to monitor their habits in near real-time.

But Herndon said that Allstate’s priority with Drivewise is its value to motorists and potential to improve safety. According to Herndon, those priorities overshadow concerns about how Drivewise stacks up against competitors.

“Our focus is on what the customers need,” he told OAIN. “It’s not a matter of us getting more people or to be in more states because we, ultimately, want to create a more self-aware driver. Our theory now is that it’s all about safety.”

‘Ubiquitous’ Smartphones Mean a Mobile Future

The LexisNexis survey also charted the future of telematics, predicting that mobile UBI would be the next step in putting driver information “at your fingertips—anywhere, anytime.” That next step could already be here because of smartphones that are “ubiquitous.”

“Consumers don’t leave home without it,” according to the survey, which found that 1 in 3 consumers are interested in mobile UBI.

Nearly 3 out of every 4 consumers surveyed believed that a mobile UBI program would be an easier or similar version to use compared to the original product.

Consumers also found exciting potential in mobile UBI, saying that the features they would find most interesting in a mobile UBI program includes:

  • Tracking and recovery of stolen vehicles
  • Automatic emergency crash response
  • Emergency roadside assistance
  • Real-time traffic updates
  • Fuel efficiency updates
  • Maintenance alerts and diagnostics

Ash Hassib, senior vice president of auto insurance at LexisNexis, said that consumers are linking the mainstream popularity of both UBI and smartphones.

“For insurers, this creates an opportunity to offer programs that fit consumers’ lifestyles such as smartphone use, value-added services based on their interests and capture important information to gauge future driver risk,” he said.

Herndon said that real-time tracking of driving data is available through a Drivewise mobile app, adding that customers have shown major interest in feedback features that promote safety and better habits behind the wheel.

Such features have proved popular for parents who are introducing their teenager to driving, he said.

“If a parent can get feedback on their teen’s driving, it not only improves that teens’ driving but can help parents start conversations about what’s safe and what’s not,” he told OAIN.

According to Herndon, the ability to track driving habits through telematics promotes traffic safety among motorists and benefits the entire industry.

“More safe drivers out there means fewer accidents and fewer claims, and that means lower costs for insurers and better prices for customers,” he said.

Barry agreed with the sentiment, saying that he thinks it’s a safe bet that, at least in the industry, everyone knows about UBI because of the impact it has on underwriting practices.

“I think it is safe to say that everyone in the auto insurance industry is aware of usage-based policies, and how the technology behind it has the potential to improve dramatically insurers’ ability to underwrite auto insurance,” he said.

With UBI being a common term in the insurance industry, carriers are focusing on boosting awareness among their customers.

About Charles Nguyen
Charles Nguyen is an enterprising journalist who reported for Patch.com 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.

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