The need for auto insurers to offer a usage-based insurance (UBI) program is well known. According to the Ptolemus Consulting Group, companies that implement a UBI program experience a five percent reduction in average loss ratios. It is no wonder that most of the leading US insurers already have, or are actively piloting, a program.
The need for a UBI program is obvious but that doesn’t mean it’s always easy. In our work helping insurers to implement UBI, we often hear about the internal barriers they face when building a program. The most challenging of these barriers are program cost, program profitability, and integration.
Program costs
We regularly run into insurers who are worried about the potentially significant telematics device cost for a UBI program. Fortunately, there are a broad range of devices that collect and transmit telematics data, ranging from mobile phone apps to professionally installed black box devices. As with any decision, choosing the best device for your program is a tradeoff: more expensive devices have more capabilities – such as the ability to integrate with your car and collect crash-related or vehicle health data – while less expensive devices are less accurate and may collect only basic driving data. A UBI program’s value is not tied to the device it uses to collect data, but rather to the data itself. Whatever your requirements, the right telematics service provider will be able to find a solution that fits your cost constraints and meets your data needs. Talk to stakeholders in your claims and risk management departments to determine minimum data requirements before making a decision.
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Another way to address the device cost issue is to build internal buy-in through a pilot program. A pilot can test out different device capabilities and costs, and help you decide which device is best for your final program. Using a more advanced device can help you build support for your program; for example, some OBD-II devices can collect crash data that your claims department can then use to fill claims more efficiently and effectively. Once key decision-makers in risk management, claims and data management understand the value of a UBI program, device cost should be less of an issue.
Beyond device costs, program logistics and analysis costs can also present a significant issue. For instance, if you are using an OBD-II device to collect policyholder data, you will need to ship the device to customers and collect devices once they have completed the program. Packaging, shipping and return, along with administrative costs, can balloon and bring down program profitability. Telematics services providers, like Octo, can help you avoid many of these program costs by including such services in your partnership.