Usage-Based Insurance Overcoming Privacy Concerns, Gaining Traction

September 5, 2014

Consumers as well as commercial fleet managers are becoming more accepting of usage-based insurance (UBI) in which a telematics device is used to track driving behavior as safety and savings benefits appear to be trumping concerns over privacy.

Personal auto drivers are beginning to appreciate the safety benefits associated with telematics in addition to the savings of UBI programs, while commercial fleet managers are interested primarily in price cuts.

According to the 2014 LexisNexis Insurance Telematics Study, commercial fleet managers are nearly as aware of UBI as consumers, at 25 percent and 38 percent awareness, respectively.

A new Towers Watson survey tracks with the LexisNexis results, finding that U.S. auto drivers are becoming increasingly comfortable with UBI. In this survey, privacy concerns have substantially declined as UBI programs have become more common.

While insurance rate discounts continue to be the number one driver in UBI adoption, more consumers are now viewing telematics as a legitimate car safety feature, LexisNexis found.

Findings by LexisNexis showing the increasing importance of safety services among consumers include:

  • Interest in teen tracking or parents knowing how their child drives has increased by 12 percent since 2013
  • Forty-five percent of those surveyed are more likely to adopt UBI to get information on how others in their household are driving
  • Interest in safety features, such as emergency roadside assistance, automatic emergency crash response and stolen vehicle tracking and recovery has increased by 6 percent since 2013

Consumers’ comfort level with sharing personal UBI driving data is increasing. In fact, the consumer comfort level with sharing individual UBI driving data (35 percent) is comparable to their level of comfort for sharing online banking data (36 percent), search data (29 percent) and social media personal information (27 percent).

“Smart devices, smartphones and smart cars are converging to create what should be a smart insurance choice for safe drivers and their insurers,” said Ellen Carney, principal analyst, Forrester.

Making the Economics of Telematics Work for Insurers

Given that with UBI customers pay lower premiums and improve their driving, while insurers attract safer and lower-risk drivers, it is “surprising” how few U.S. consumers have actually bought UBI, Carney said.

But that may be changing.

“Our study has found some of the traditional barriers are beginning to subside, such as the difficulty to use and the fear that insurance companies will have too much personal information,” said Ash Hassib, senior vice president and general manager, Auto and Home Insurance, LexisNexis. “This shift shows us that consumers are becoming more trusting of telematics, and therefore more likely to adopt.”

Similar to basic UBI, interest in mobile UBI is also growing with an increase from 29 percent in 2013 to 34 percent in 2014, according tot LexisNexis, and smartphone penetration among enrolled drivers is expected to be high.

Most U.S. UBI programs use a small device (OBD II) that plugs into a port under the dash of a car. Once installed, it collects driving data. That technology could change over time, however, based upon consumer interest. Towers Watson said that 80 percent of smartphone owners said they’d be O.K. with the idea of downloading UBI apps on their devices in order to monitor their driving.

“Smartphone implementations of UBI are very appealing to many insurance companies because they don’t require as much up-front cost as purchasing OBD II devices,” Towers Watson senior consultant Len Llaguno said in a statement. “There is tremendous opportunity for insurers that can figure this out.”

Fleet Managers

LexisNexis found that cost savings is the number one factor in fleet managers’ decision to incorporate UBI into their small commercial fleet. Despite significantly less insurer marketing for UBI in this space, small business awareness of UBI is relatively strong at 25 percent.

“Two-thirds of small fleet managers shop for insurance every two years or more,” said Ernie Feirer, vice president and general manager, Commercial Insurance, LexisNexis. “These fleet managers are looking for ways to save money and our study shows 27 percent of them would sign up for a UBI program. This leaves a lot of room for growth and a huge opportunity for carriers offering UBI.”

LexisNexis findings showcasing how commercial fleet managers are adopting UBI to save money include:

  • Saving money on commercial auto insurance is extremely important to three-fourths of fleet managers
  • Seventy-two percent of fleet managers are more likely to enroll in usage-based insurance under a 3 month trial

Small fleet managers also value services such as stolen vehicle tracking, fuel consumption/efficiency updates and automatic emergency crash response according to additional findings from the survey. Commercial fleet managers are also receptive to mobile UBI technology and 73 percent of small fleet drivers have smartphones.

Towers Watson

Usage of UBI is growing. Whereas in February 2013, just 4.5 percent of consumers either had a UBI policy in force or did at some point in the previous 17 months, that figure had doubled to 8.5 percent as of July 2014, the Towers Watson survey revealed.

What’s more, nearly 80 percent of the 1,000 respondents who participated in the survey said they’d buy a UBI policy or would at least consider one. Interestingly, that number rises to 88 percent if insurers can ensure that drivers who do this won’t face higher premiums. Towers Watson said the percentages are unchanged from the company’s previous survey.

Still, 35 percent of respondents said they were uneasy about a UBI policy because of consumer privacy concerns. Even so, that’s down from 42 percent in last year’s survey, Towers Watson noted.

Robin Harbage, global lead for Towers Watson’s UBI practice and the company’s DriveAbility service offering, said the survey shows UBI interest continues to gain steam in the marketplace.

“Today, all 50 states have four or more personal auto UBI programs implemented,” Harbage said, noting its increasing availability appears to be helping consumers to grow more accustomed to the idea of UBI technology and its everyday use.

Nearly half of consumers who responded to the survey, said, however, that they’d be uneasy about facing higher premiums due to UBI programs. Harbage said that the results support the continued practice among most insurers of offering discounts, rather than surcharges, based on what UBI data tells them.

Related Articles:

Researchers Question Privacy of Usage-Based Auto Insurance
Usage-Based Auto Insurance on Road to Becoming Standard Offering

Topics Carriers USA Auto

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