- Where Insurance & Technology Meet

New Telematics/UBI Research Highlights Opportunities, Challenges for Insurers, Brokers

New research from Strategy Meets Action (SMA) highlights opportunities and challenges for insurers and intermediaries as they consider how to align telematics and usage-based insurance (UBI) with their strategies.  SMA is clear on one point:  telematics technology and UBI are disruptive forces which will impact the personal automobile insurance market over the next decade.

SMA surveyed over 200 insurance participants in Q4 2012, of which 111 were insurance company professionals (including some Canadians). This was supplemented by interviews with selected insurers.  SMA intendeds to release several reports as a result of the research, the first of which, “Telematics/Usage-Based Insurance: A Catalyst for Change”, focuses on the current state of the market, where the market seems to be going, and what actions practitioners should consider.  The report is available for purchase on the SMA website.

We won’t try to summarize the report  Rather, we’d like to focus on a few elements that have been overlooked in the general conversation to date.  And we’d like your thoughts on where this goes from here.

Customer Awareness and Adoption

The report notes that,  “(g)eneral customer awareness is very low right now and is probably the main impediment to UBI growth in the market today.”  This is likely due to the low penetration rate to date (the report estimates 1% of the vehicles in the US are insured with UBI schemes).  However, those customers who have had exposure to UBI,  have had positive experiences and are satisfied with how the programs handle issues such as privacy.

SMA feels that once the awareness issues are handled, there will be substantial growth in the market, and will be led by consumers who will benefit from UBI plans.  Conversely, drivers who do not wish to share their driving behaviour will seek out non-UBI insurers.  According to SMA, this could create an adverse selection scenario for non-UBI insurers.  (We commented on this in a blog post in January 2012.)


At present, there are  a few market leaders (e.g., Progressive) , with a number of other carriers introducing UBI in small pilot initiatives.  Based on the research conducted, SMA feels that from now to 2020, there will be a steady uptake.  A significant portion of the insurers surveyed believe that 50% of the market will have a telematics/UBI component by the end of the period.

Some portion of this growth will come from new entrants specializing in UBI-only offerings directed at specific market segments. (See our post in November 2012 examples.)  With a singular focus, these insurers would have additonal competitive advantages: “such companies could have the luxury of scrapping most of what is inside existing rate algorithms, reducing traditional underwriting costs, and perhaps radically reducing the time associated with quoting and issuing policies.”


SMA notes that the majority of telematics/UBI offerings have been through the direct channel to date.  SMA believes that this will continue, since “the highest probability of being attracted to UBI offerings, and perhaps the highest profit potential, are young drivers. …  (which) is also the segment of the market that is most responsive to direct marketing.”    Moreover, according to SMA, independent distribution carriers “face the added challenges of educating, training, and motivating their distribution force, a distribution force that has historically shown itself to be slow to accept change.”

However, SMA also notes that some independents will see telematics/UBI as another opportunity for customer contact and education.  Back in April 2012, we blogged on this, citing a few brokers in the UK who were focusing on helping thier customers understand the benefits and limitations of telematics/UBI offerings.


SMA, as is its wont, provided a ‘Call to Action’ following the analysis of its research.  There are a number of good recommendations, one of which stands out to us.  Telematics/UBI is not a programme that can be implemented without substantial preparation and analysis.  There will be changes to marketing, channel strategies, underwriting, claims, etc.  Systems changes will be non-trivial in most instances.

On this basis, SMA concludes the report with this suggestion: “Even though the issues and implementations are complex, it is time to begin investing in understanding the market, developing strategies, and deciding on market entry approach and timing.”

What do you think?

We agree.  Now we’d like your thoughts.  Do you agree that 50%v of market will be UBI by 2020?  Does Canada have specific nuances?  Is a telematics/UBI offiering on the horizon for you?


Blair Currie

The highlights of the Strategy Meets Action Report are interesting. That said, I wanted to provide a point of view a few of the questions you raise.


I think it’s entirely possible that half of all auto insurance will be telematics based, but for different reasons outlined in this post. This is due largely to 50% of motor vehicles being equipped with built-in telematics units vs. the plugged-in devices that dominate North American UBI programs and brought-in (mobile phone) devices that are favoured in Europe today.

Currently only about 10% of the world’s cars are equipped with modern tech. As consumers hold onto those vehicles for an average of about 10 years in Canada, it will be 10 years before the current stock of vehicles turn over. By 2020 there will be well more than 50% if motor vehicles connected and automotive manufacturers will either offer insurance in conjunction with auto insurance companies when the vehicles are sold at the dealership (it will be one application to purchase) or the automotive companies will offer this alone.


Canada certainly does have specific cultural, economic and regulatory nuances, which differ from either the United States or Europe, when it comes to UBI. The cultural differences are related largely to our conservative nature to wait until our neighbours south of the border or across the pond have refined a technology and Moore’s law has kicked in to a point where UBI can be profitable.

The economics are also more difficult in Canada because the costs of business tend to be higher. For example we pay the highest wireless rates in the developed world, if not the world itself. Also our logistics pricing is higher than our neighbours, meaning that UBI programs are more expensive in Canada. That said insurance premiums are much higher and on a proportionate basis can bear these different costs.


This question is obviously directed to insurance companies. While as a Canadian Telematics Services Provider we cannot address this directly we are receiving a growing number of requests for telematics programs. It’s clearly coming for leading Canadian insurance carriers and we’re now preparing for significant growth on our home turf.


As a marketer, awareness and understanding are significant reasons why growth has not accelerated. That said Progressive has spent many hundreds of millions of dollars (the US insurance industry spent $5.7 billion in advertising in 2011) to pave the road for Usage based insurance. Customers in Canada have started to ask whether a Progressive-like program is available in Canada.

That said, awareness, understanding, consideration and purchase intent could easily be sparked in Canada because the high absolute and relative cost of insurance is a large issue. For Governments it is a possible vote gathering issue and for Regulators it plays into their mandate to provide options to Canadians.

So it is conceivable that the “Awareness issue” could be reduced with both a Government and Industry sponsored campaign. I think the Canadian media would be very interested in this.

In my opinion a brave insurance company could also do well with a strong communications campaign but with a very differentiated product.


I think this positive experience is due to two factors. The first is that UBI can be self-selecting in that good drivers will naturally sign up to get discounts. So the lower price is very satisfying.

The other issue is that Progressive and some of the other players guarantee that the price will not increase in the short term. Again the idea that you can pay a lower price helps ensure that UBI is a positive experience. The question is then whether UBI in Canada will follow this model as well or is there a chance that prices could also increase with UBI?


Privacy is an important issue and if good safeguards are in place, then I think this will not be a barrier to adoption. But privacy controls must be in place.

That said, privacy can somewhat of a “Red Herring” with Usage based insurance and perhaps the industry should address this as part of an overall UBI education program. Insurance in general is about pooling risks which to an extend means that each of us surrenders a little bit of privacy by sharing data so that we avoid a catastrophic payout.

Net net, I think that some education needs to be done on both the safeguards in place and the need to surrender a bit of privacy to reduce individual risks.


I think that existing insurance companies will find it difficult to scrap existing models; rather, they will gradually learn to work with all the various data points – time of day, speeding, harsh braking, harsh acceleration, geo-fences etc – that a telematics solution provides.

That said I also think there is a place for both a non-actuarial score for existing P&C companies and for new entrants. At IMS we offer a non-actuarial score to help provide a measure on consumer behaviour until such time as an insurance company wants to blend our behavioural data with their proxy data.

We are also talking with one company that wants to start a program with behavioural scores alone.


With experience in dealing with 8 of the top 25 US auto insurance companies we see that direct channels and brokers have their relative advantages. The direct channels can have more control but the brokers can be very entrepreneurial.

What I think matters is how UBI can be used to build and strengthen the relationship with consumers. For this direct channels and agents/brokers tend to appeal to different segments so each has its respective advantages.


Finally I could agree more about the need to prepare long in advance to run a successful UBI program. While senior management of many insurance companies may push for the fast roll-out of a UBI program there are many barriers to overcome and the time to go through a proper vetting of partners, the procurement process, legal documents etc. take longer than one would expect.

It requires significant preparation, which is why we’ve structured our products as end-to-end solutions that take care of the numerous pain points such as the need to outsource all the IT and Systems Integration.

In the end it pays to turn to an experienced solutions provider. BlogEditor

Blair’s comments are insightful, as usual. We just want to clarify one item.

Blair writes: “I think it’s entirely possible that half of all auto insurance will be telematics based, but for different reasons outlined in this post. This is due largely to 50% of motor vehicles being equipped with built-in telematics units …”

The SMA report did note that the proliferation of OEM telematics devices will likely facilitate implementation of UBI programs.

This is one of several items we weren’t able to highlight in our short blog post.


Comments are closed.