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Is UBI Trapped in a Cul-de-sac?

After a tire-burning leap out of the starting gate, the smoke is clearing around UBI in Canada and it’s looking like it might have been steered into a dead-end. Is it stuck, or will it one day find the open road?

Let me know what you think.

Assume a killer app …

At an automotive telematics conference in Detroit in 2008 the talk was all about finding the ‘killer app’ that would make the extraordinary technology being showcased at the conference sensible from a business perspective. The only insurer presenting at the conference was American UBI pioneer, Progressive, and although it had a successful UBI program, what it offered was far from the ‘killer app’ the OEMs and various technology companies were seeking.

In Ontario, Aviva was running its pilot UBI program. The Ontario regulator had given Aviva the green light to offer the program on a voluntary basis to drivers, also mandating that it must be a discount-only model and that no explicit program costs could be passed along to policyholders.

And time passed …

Seven years later, there are half a dozen or so UBI programs in Canada, most of them discount-only models with program costs being absorbed by the insurer. Industrial Alliance’s Mobiliz product in Quebec is the only program actively trying to leverage the full potential of UBI as a digital-era rating tool; the other programs are largely undifferentiated offerings that mainly seek s a marketing tool.

These programs are dangled as carrots to entice low risk prospects or retain existing low risk clients. There is a lot of talk about enhancing UBI offerings with value-added services and attempts to justify programs with high-minded talk about helping policyholders or their teenaged offspring become better drivers. The sad truth is that the real potential of UBI will not be realized as long as it remains trapped in the present cul-de-sac of over-regulation and high cost.

It’s all marketing now

At the recent Insurance Telematics conference in Toronto there was considerable interest in the viability of using mobile devices as a means of reducing costs and tacit admission that it was all about marketing – one panel even touched on the strategic merits of cannibalizing an existing book of business to ensure the success of fledgling UBI programs. It’s hard to believe that when UBI was first imagined this was the intended outcome.

Can we regroup?

UBI has the potential to transform the analysis and pricing of auto risk and facilitate an equitable redistribution of premium that reflects the full range of driving behaviour and the contextual spectrum across which policyholders operate their vehicles. It means that insurance could be billed like a utility with the amount paid varying relative to how, when, where, and by whom the vehicle is operated. Surely, if all insurers wanted was a means to attract and retain quality business they would have picked something less costly and complicated than UBI.

Integral to the success of the year-old iPhone in 2008 was the growing universe of apps available through the Apple App Store. Today, Smartphone market penetration in Canada exceeds 55% and consumer adoption and use of mobile apps is ever growing. There is no one ‘killer app’ in the Smartphone world, but the collective utility that multiple apps provide to users is ‘killer’. Cars are becoming connected – telematics is the automotive equivalent of the Smartphone, providing a platform for delivering collective utility to consumers and a means for transforming the business models of both public and private sector service providers.

What’s the Plan?

Two things must happen for UBI to fulfill its potential:

  • governments and regulatory bodies need to get out of the way (see Quebec) and allow insurers to surcharge as well as discount and construct business models that work for themselves and their policyholders; and
  • insurers need to stop thinking that UBI is the ‘killer app’ for telematics and start forming alliances with other telematics-enabled services to drive down platform costs and increase adoption rates.

What do you think?

3 Comments

Blair Currie

The biggest stumbling block to UBI is the price of data, which is another way of saying the business model for telematics.

While there is growing evidence that telematics data provides greater insight and intelligence when pricing risk, and different data than is collected by traditional rating variables, the cost of this data is too high at this time – especially for insurers whose profitability is challenged by a product that is legislated and after being required to drop the price of that product by 15%. There is not enough funds to fuel telematics, remain competitive, overhaul policy, claims and billings systems etc..

That said, there are three or four strategies to mitigate the price of data. The first is as you mentioned, and that’s to form alliances to provide more uses for the data e.g., creating valuable services for the policyholders and insurers. As a connected car company this is at our foundation and we think success will come from those companies that offer the best in-vehicle experiences to drivers and passengers.

The second is to use the data and/or telematics devices more deeply in the organization. This could be to reduce claims costs by speedy reaction to first notice of loss (FNOL) and through behavior modification. It can also mean using the data for other purposes e.g., speeding data for life insurance, time the vehicle is parked at the home or farm for property insurance.

Another way is to consider the ROI from a different perspective. A good example of this is young driving programs that actually save lives. The insurance payout for a fatality is huge and preventing one fatality or serious injury can fund a number of thousands of telematics enrollments. I’ve yet to see someone factor this type of benefit into a business model for telematics but it’s an obvious answer

What we’re seeing in the market is insurance companies looking to mobile data solutions to save costs – despite lower quality of data vis a vis OBDII or embedded systems. While costs are driving this option forward, insurers know there’s a trade-off to be made with data quality. For example is phone tethered to the driver or passenger? What happens if the phone runs out of battery or is deliberately turned off? What happens if you change cars or get on a street car? What happens to the harsh acceleration event that happened because I let the car drop between the front seats of the vehicle. Quality will prevail over time. And the OBDII solution offers higher quality data than the embedded solutions and much higher quality over mobile solutions. It’s important not to get distracted by tactics vs. strategy.

That said we are covering off all bases with the IMS DriveSync platform that accepts data from all types of vehicle enablers – plugged in , bolted in , build in, or brought in. And we can blend it with contextual data. More than this we’re helping a number of insurers with the very business models to help get telematics moving.

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J. Golobic

I suspect that like OS/2 vs NT, Beta vs VHS and so many other challenges – the easier/cheaper solution wil win and Google will find another way to target their ads. Obvious is – You don’t have to be the best to succeed.

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[…] Colin Wright is a proponent of UBI and has consulted on UBI preparedness. Colin has extensive experience in financial services, including managing business analytics units for two leading insurers. He holds an MBA from York University’s Schulich School of Business. Colin currently works at Audatex as an industry expert on the product management team. Read more recent blog posts from Colin here. […]

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