Mobile Reduces Telematics Barriers

Imagine the underwriting and rating accuracy made possible by intelligence. Instead of relying on outdated pricing models based on insured age, gender, marital status, education, geographical location and vehicle model, what if you knew more about every driver? What if you were able to discern ...

• The exact mileage on your insured's odometer

• The actual garaging address and if it was different than that listed in the application for insurance

• Your insured's typical driving times and locations

Of course, for auto insurers who have already embraced usage-based insurance (UBI) these feats are possible, albeit expensive and cumbersome. In the traditional UBI model, carriers use an on-board diagnostic device (OBD) to track driver behavior. Unfortunately, the traditional model is far from perfect. Carriers have quickly learned that OBDs are expensive and burdensome – requiring inventory management, customer fulfillment and replacement due to wear and tear. In addition to the cost of the OBD device, there are costs involved with transmitting and translating the data into meaningful intelligence.

Jake Diner, Driveway

And the biggest barrier of all is driver engagement. The bottom line is that drivers don't want to plug OBD devices into their vehicles. They don't want to crawl under their dashboards for installation, and any mechanic will tell you that an OBD device can monkey with the electronics system of the car because OBD devices plug into the vehicle's CAN bus which is intended for short-term diagnostic and troubleshooting purposes, not for continuous vehicle tracking.

[Internet of Things Coming to Insurance]

Furthermore, OBD devices cannot be used at all in electric or hybrid vehicles and they don't work with the entire Jeep vehicle line-up, which means that a carrier using OBD-based UBI cannot offer their program to a certain percentage of their driving audience.

The Friendly Driving Companion Made Possible by the Mobile Revolution

Fortunately, the next-generation of UBI is here, made possible by the almighty smartphone. Mobile UBI can help insurers develop more accurate risk profiles and more closely match rates charged to the individual risk insured.

According to comScore data, U.S. smartphone penetration is approaching the next major milestone threshold – 70% market penetration. For the three month period ending March 2014, a staggering 166 million people in the U.S. owned smartphones. That amounts to a 68.8% mobile market penetration.

If you think about your own smartphone usage, you know that wherever you go, the smartphone is in tow. The smartphone is like a friendly driving companion – able to observe what happens in the car, and provide transparent feedback. For the first time, the driver can understand exactly what is being measured and what factors will be used to determine insurance rates.

The best part? When the right UBI app is downloaded, the smartphone is automatically equipped to gather driving intelligence seamlessly without the need for driver interaction or any additional equipment.

According to Deloitte, three of the largest national auto insurance companies are planning to introduce UBI programs nationwide in 2014. However, with the mobile revolution, the UBI sandbox is no longer reserved for large carriers with big budgets. Small and regional carriers can now afford to get into the game, and according to consumer research they probably should.

In a 2013 Towers Watson survey, 79% of respondents indicated they would either buy a usage-based-insurance (UBI) policy or consider the concept, and if insurers would guarantee drivers' premiums would not rise, that percentage increased to 89%. Interest in UBI programs was highest among drivers under age 34. Notably, 60% of those interested in UBI programs said they would be willing to change their driving behavior. This was highest among younger drivers (76%), who represent the largest risk segment.

With mobile technology, the barriers to UBI entry are melting away. Combine that with broad consumer interest, the undeniable underwriting and rating advantages made possible by greater intelligence, and the marketing advantage of offering a UBI product, there's no reason to wait. The time for UBI is now. Lead or get left behind.

About the author: Jake Diner is the co-founder and CEO of Driveway Software. Driveway is a, smartphone-deployed, cloud-based technology that provides auto insurers with comprehensive insured driving data for better pricing intelligence.