Clearly audible amid the buzz surrounding UBI in Canada is the expectation that it will be effective in changing driver behaviour, i.e., it will help drivers improve their skills. This is exciting because a corollary of improved skill is reduced loss costs making changing driver behaviour an important selling point for insurers contemplating a push into UBI.
During a recent webinar a case was presented that examined data collected from three drivers whose performance was nominally similar but whose skills, on closer examination, differed considerably. The key takeaway being that the granularity of telematics data and the application of powerful analytical tools make it possible to identify these differences and leverage them to predict losses and properly price risk.
Research has consistently shown that when presented with the concept of UBI and the idea that adopting it could yield them a monetary benefit with no downside risk, many drivers express interest in the product. Interest is typically reported as ranging from one to two thirds of respondents with the top third very interested and the bottom third not at all. Half or more of those drivers who are very interested in UBI are also reported to be willing to change their behaviour.
Putting the Brakes on Expectations
The apparent alignment between what the technology can deliver and emerging consumer acceptance, even preference, seems very promising. But, perhaps there’s cause for gentle application of the brakes on the ‘changing driver behaviour’ bandwagon, at least with respect to programs that seek to attract the soft target of cautious, identifiably low-risk, drivers. There are a number of reasons this might be prudent.
- Progressive Insurance first offered a UBI product in 1999 and has gathered data from more than one million cars and over nine billion miles, or fourteen and a half billion kilometres, of driving. It now captures only six months of data from its Snapshot policyholders before a renewal discount is set. Why has the company with the most experience gathering and analyzing multi-dimensional UBI data chosen to limit the number of data points it uses to assess policyholders’ driving performance? Could it be that Progressive has learned that driver behaviour doesn’t change much over time?
- Most new UBI programs target good drivers whose driving habits are likely to yield a discount for the policyholder. This subset of drivers is not a representative sample of the whole driving population and so the models of good driving behaviour likely suffer from sample bias. Will this approach lead to a comprehensive understanding of driver behaviour and what is needed to modify that behaviour?
- Behaviour change is probably best achieved with strong incentives, intense and frequent engagement, and immediacy in terms of realizing the promised benefits. Industrial Alliance’s Mobiliz is a good example. Can other programs, designed around casual engagement, periodic contact, and once-yearly realization of benefits, precipitate meaningful changes in behaviour?
UBI is in its infancy in Canada and much remains to be learned. Improving driver skill and road safety generally are laudable goals but perhaps for now should be treated as peripheral benefits rather than as program objectives or key selling points. UBI has massive potential to reshape the auto insurance landscape but it needs broad application to do so and narrowly delivering its benefit to an already low-risk group under the guise of improving driver behaviour will not adequately leverage its potential.
For a more in-depth examination of the topic, go to corner2.ca and download Corner Two Consulting’s white paper, Changing Driver Behaviour – Can UBI Deliver?
Colin Wright ([email protected]) is a proponent of UBI and Principal of Corner Two Consulting, which focuses on UBI preparedness. Colin has extensive experience in financial services, including managing business analytics units for two leading insurers and managing Aviva Canada’s Autograph UBI pilot from 2008 to 2010. He holds an MBA from York University’s Schulich School of Business.
