1. Top 10 UBI Myths
Insurance Telematics
ExecuSummit
May 2011
Dave Huber
2. Top 10 UBI Myths
1. Just plug it into the 5. It takes lots of data
OBD port 6. You need GPS
2. You need to start with
7. Patents donʼt matter
a pilot
8. You can wait
3. Itʼs all about the device
4. Itʼs all about reducing 9. Privacy is a roadblock
crashes 10. Itʼs too expensive
3. Myth #1
Just plug it into the OBD port
UBI economics depend on self-installed telematics
OBD data loggers arenʼt all the same
Not all data loggers reliably collect data (typically speed) from
all cars with OBD ports
OBD protocols can vary even among year & trim for certain
makes and models and CAN hasnʼt necessarily solved all the
problems
Diesels and hybrids can be problematic
The location of the OBD port in some cars makes it impractical
to plug in a data logger
Expect 80% of new business vehicles to be eligible
The best vendors have developed a list of ineligible YMMs
4. Myth #2
You need to start with a pilot
Beware of pilots -- they slow you down
So many of the insurers investigating UBI fall into the trap of “piloting”
without clear objectives
There are better ways to answer questions about device reliability,
data capture & transmission and customer interest than through a pilot
You also donʼt need pilots to do customer research and test marketing
messages
Pilots are good for simulating conditions for a rollout
Theyʼre also helpful if funding is in question and you need to
directionally prove the business case
The insurers already in production love it when they hear competitors
are piloting because it means their UBI advantage will last even longer
5. Myth #3
Itʼs all about the device
Thereʼs a lot more to UBI programs than the hardware
Self-installed OBD data loggers have become plentiful (see Myth #1
as a reminder about data loggers)
Vehicle eligibility and T&Cʼs need to be clear to potential customers
and to agents and call center reps selling the product
Donʼt overlook training especially if selling through the agent channel
Fulfillment, support processes and systems arenʼt typically core
competencies but are critical for successful UBI
Integration with legacy systems can be an uphill battle
Getting data for reporting can be like pulling teeth if not fully integrated
into the policy system and backend systems
UBI customers expect a well designed web UI
If approached as an R&D effort, be prepared for push-back from the
traditional product development area(s) who will feel threatened
6. Myth #4
Itʼs all about reducing crashes
A lotʼs been written about the impact UBI will have on crash
frequency
Thereʼs evidence that UBI programs, through coaching, web &
text alerts and even what-if tools that allow customers to model
safe driving behaviors, can reduce frequency
Itʼs not just fewer crashes that drive a lower loss ratio
Self-selection exposes lower pure premium risks
The uniqueness of UBI attracts more new business at lower
acquisition costs
UBI pricing ensures improved retention
Mix improvements contribute to average written premium
increases even after participation incentives and renewal
discounts
7. Myth #5
It takes lots of driving data
Granted more data is better than no data, but too much data can kill a UBI
program
Mileage (albeit self-reported mileage) filings are plentiful and can be used to
get started
DOIs are generally accommodating when you file discounts
Your claims systems know when accidents happen; overlay VMT data to get
time of day and day of week relativities and youʼll have the beginnings of a low
risk - high risk miles matrix
Several consortiums are attempting to short-cut the data gathering process; if
successful, participation could turn your 5k ECYs into 50k ECYs
Youʼll need to make a number of decisions about data: what data gets
collected, sample rate, what gets stored onboard the device, what gets
transmitted, how it gets transmitted, how often it gets transmitted, where it gets
transmitted, what gets presented on the web, how often you get the data from
the vendor (if you use a vendor) for policy setup, discount processing and
actuarial analysis
Donʼt be fooled by thinking a pilot is a data gathering exercise
8. Myth #6
You need GPS
Well CA says you canʼt have it
Plus you avoid the Big Brother discussion if you leave off GPS
Data loggers without GPS are less expensive
Time-stamped speed from the OBD port can produce plenty of
actuarially rich data to keep the analysts and pricers busy
From OBD, you can get speed, mileage, duration and trips all
by date, time, ranges and changes
Clustering and profiling can give you patterns, profiles and
even scores
What you miss without GPS are things like road type, territory,
relative speed, geofencing and breadcrumbing
9. Myth #7
Patents donʼt matter
Despite all thatʼs been written, U.S. insurers havenʼt paid
attention nor do they have a strategy to combat
competitive IP
Thereʼs more to know than just the Progressive patents
Mr. Perez and Mr. Nowotarski continue to comment on IP
affecting UBI
Avoid retrospective pricing
And hope the OBD scan tool manufacturers dust off their
technical documentation from the early ʻ90s
10. Myth #8
You can wait
Like credit, the early adopters are enjoying the advantages of
self-selection and eventually the benefits of adverse selection
The sooner you start, the faster youʼll learn and the more
driving data youʼll collect
Sophisticated UBI pricing will come incrementally
If you arenʼt offering mileage discounts today it will be a long
time before you can price based on braking, commuting and/or
the number of trips taken after midnight
If the marketʼs hardening, drivers looking to prove they deserve
a lower rate are going to be shopping for UBI
And remember, donʼt fall in love with pilots -- they slow you
down
11. Myth #9
Privacy is a roadblock
Privacy is the primary concern of privacy advocates
Big Brother is not spending all his time worried about UBI
Privacy concerns can be minimized by:
Keeping UBI programs voluntary
Making the data transparent - customers need to know whatʼs being
collected and exactly how it will affect their rates
Using the web to show customers their data and discounts
Not using the data to settle claims unless specified by the customer
Allowing customers to own the data
Insurers offering UBI products today have not suffered because
of privacy issues
In fact UBI demand typically out paces the availability of
telematics devices (especially supply-constrained OBD data
loggers)
12. Myth #10
Itʼs too expensive
How is it that UBI can be profitable by giving away a telematics
device, incurring fulfillment & data costs and giving discounts
on top?
The early adopters hope the rest of the industry keeps asking
that question over and over again
UBI is a strategic investment
Costs are coming down because of technology advancements
and improvements in the business model
Todayʼs costs are more than offset by expected increases in
quotes, conversion, awp, mix and retention as well as
decreases in frequency
The cost of NOT doing UBI will be very expensive