Usage-Based Insurance: 5 Reasons This Is the Year
2. The Consumer Is Getting More Comfortable With Sharing Information
While there is a vocal subset of consumers who are uncomfortable with the concept of turning their driving data over to insurance companies, there are just as many who are using services such as Foursquare to report their locations, Nike+ to log their jogs and CouchSurfing to find travel options.
But as willing as consumers are to open up their personal lives, there must be a clear benefit to doing so, says Jon Inquimboy, associate product manager for San Francisco-based Esurance ($872 million in 2011 premium). "With any new technology, it takes time for it to become entrenched, so as more customers become familiar with the idea of data sharing, much like how consumers have become more comfortable sharing things on Facebook, it will grow," he says of usage-based insurance. "Customers are interested in having a little more control over their insurance."
Privacy and security are paramount in building a trusted usage-based insurance brand, Inquimboy stresses — not to mention getting regulatory approval. Esurance, which is testing a program in Arizona featuring a device from Towers Watson, draws on its experience as an Internet company in managing data, according to Inquimboy.
"States are concerned about their constituents, and privacy and security is always a concern for the majority of the population," he says. "As insurance companies file our programs we'll find out what data we can and can't use. We've dealt with a lot of electronic data for some time, and it's definitely one of our core values to maintain privacy and security for our customers."
3. Vendors Are Doing the Hard Work So You Don't Have To
But as big as the potential market is, insurance technologists, actuaries and product developers have enough on their plates without having to take on the additional stress of developing devices and rating and underwriting rules for usage-based insurance programs. Fortunately, they're not the only ones who have a business opportunity here. The list of vendors that are developing soup-to-nuts telematics platforms — including devices; data transmission, security and collection; and analytics — is growing almost daily.
Richmond, Va.-based DriveFactor joins the aforementioned Hughes Telematics and Towers Watson in offering a packaged usage-based insurance program. The value for insurers, according to DriveFactor CEO Steve McKay, who worked at Progressive and CapitalOne before founding the company, is similar to that of outsourced mobile development: Using a company that devotes all of its resources to adapting to changes in the telematics and usage-based insurance markets means insurers don't have to — especially smaller insurers that need to have options to compete with their larger competitors.
"Whether you're $25 million in premium or $1 billion, technology product management is a demanding profession. It's not something that you ought to be doing part time," McKay says. "But for usage-based insurance, there's a real incentive to go big, and that's really sensitive to hardware costs, which are sensitive to volume."
Though DriveFactor has developed and offers an on-board device which uses GPS, gyroscopes and magnometers to gather data, rather than talking to the car's computer — McKay also sees the industry moving more toward technology platforms that are built into cars, so the device isn't central to the company's strategy; rather, it's focusing more on working with insurers on the data transmission and analytics required to accurately price programs.
"It's hard to imagine a future in which everyone has a different device," McKay says. "There's a future when every car that comes off the assembly line has an Internet connection and a platform for development. If someone's already invested in the technology to get the data, though, they're in a much better position."
Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio
Tweet This