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?