12 things you need to get right to succeed in UBI
In the last few weeks, three Fortune 500 organisations came to us and said: “2014 is the year of telematics for us. We will be launching a major initiative”.
As we constantly talk to insurers about their experience in building Usage based Insurance (UBI) programmes. Some stories and lessons seem to crop up more often than others. Here is a non-exhaustive countdown of some of the critical elements of a successful UBI product launch.
1- Start by defining the critical problem you want to solve. Use your telematics strategy to solve this problem, not simply as your sales strategy.
Telematics Insurance can attract new types of drivers or give you access to new types of risk segments. It can also be used to combat fraud or to raise premiums. With the right communication and follow up, a UBI programme can even modify driver behaviour. Choose your own brand of “bad driver” cliché and cover it!
2- Define your differentiator vis-a-vis your competition, and if you are first mover, vis-a-vis your potential customers.
Whether it is privacy like in the recent Sparkasse Direkt in Germany launch or a clever and personal communication style, your programme will need to stand out in increasingly competitive markets or stand up to consumer scrutiny in new markets.
3- Partner for success: Understand UBI as one of the many connected vehicle services.
The type of partners and channels to markets are much wider than installer, telematics device provider and service providers. From integrators and wireless operators to leasing companies and local governments, there is a plethora of players involved in UBI projects you can learn from.
4- Choose whether or not you need a TSP; then realise that you do.
Most insurers still need to launch their telematics programme. Go-at-it-alone trials have often failed for a wide range of reasons. Experienced TSPs will bring technology and financial solutions as well as local market knowledge in exchange for a varying degree of control over the offer.
5- Choose the right TSP based on the right questions.
Shiny websites and promises don’t usually guarantee service standards. The type and quality of the data, the experience and long-term stability, the ability to scale rapidly, the control of the logistics and all other operational factors, all count as much as a sound and proven business case.
6- Don’t let the device blind you to the real issues.
If the blackbox is keeping you awake at night, ask your actuary how he is planning to use accelerometer data to price dangerous behaviour. UBI propositions do not depend on the type/quality of data or device to succeed as much as they depend on the programme’s ability to model risky behaviour, predict losses and set insurance premiums.
7- Choose carefully between PAYD (Pay As You Drive) and PHYD (Pay How You Drive)
While the PAYD model might appear at first as a safer option, its initial capital investment is very similar to PHYD, but its returns are limited. In most markets, the UBI gains are not only in positive selection and retention but also in the savings on claims frequency and gravity that result from behaviour changes.
8- Get full management buy-in. Half-hearted approaches have historically not produced less risky UBI market entrance.
Unipol designed its UBI model to suit its home market perfectly. As the Italian market is strongly affected by fraud and a high level of vehicle theft, in 2003 Unipol launched a professionally installed black box that can assist in stolen vehicle recovery and offer crash analysis capability to fight against fraud with FNOL.
Despite its complexity at the time, the project was backed by the company’s CEO all along, and Unipol now has more than 800,000 telematics customers in Italy.
9- Become a true Insurance Service Provider: Mix carrot, stick and simplicity, then communicate before during and after.
Before they sign: Explain the concept clearly. Make it unequivocal that there is a box involved. Choose rating criteria that drivers understand and can influence; for example, curfews are clearly out.
Throughout the policy: A simple website does not suffice. Weekly communication with drivers about driving behaviour as well as driving tips and incentives have been demonstrated to dramatically affect their risk level, and by that, the overall claims ratio.
After an accident: UBI can save lives, but a small crash is also an opportunity to demonstrate the quality of your service to the third party involved.
10- The premium discount model is not the only model.
Discounts won’t apply in all markets, nor in all segments. Incentives to drive better have to be adapted nationally and per segment. 40-year-old drivers will care less about a 5% discount and more about free eCall or fuel discounts.
11- Show your box: make it an advantage, not a burden!
Numerous insurance firms have wrongly assumed that tracking customers’ behaviour would be the best way to ruin their reputation. As a result, they have done everything to hide the fact that telematics requires a connected device!
Successful insurers, such as Unipol and Progressive, have done exactly the opposite. At the end of the day, the box is like a thermometer; it measures customers’ driving habits, and safe drivers will actually be happy that their good driving skills and attitude are recognised.
12- Think Smartphone
Not many insurers have launched pure smartphone-based UBI programmes, but all the top tier carriers are looking into it. Start your research now – or ask us.
Feel free to comment below and add your own “must do’s”
For more details on how to achieve the above, have a look at the UBI study, and if 2014 is also the year for you to “become serious about telematics”, contact us!