Usage-based auto insurance could account for 20% of auto policies in 5 years

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Consumer interest in usage-based auto insurance (UBI) is surging with more consumers willing to let insurers monitor their driving habits with a telematics gadget in exchange for potential savings on their car insurance, according to a new survey by Towers Watson.

Robin Harbage

Robin Harbage

In fact, 79% of respondents say they would either buy such a policy or were willing to consider the concept; that number rose to 89% if insurers could be guaranteed drivers’ premiums would not rise. The survey found interest in UBI programs was greatest among drivers in the 18- to 34-year-old age group, of which 66% said they would definitely or probably purchase a UBI policy.

Beyond pricing advantages, the survey also measured consumers’ interest in valued-added services that can also be enabled by the technology. Approximately 72% of people interested in UBI said they would be willing to pay for additional services such as vehicle theft tracking (83% interested), automated emergency response (82%) and vehicle wellness reports (79%).

Progressive’s Snapshot UBI device.

Progressive’s Snapshot UBI device.

“Consumers’ interest in UBI-related value-added services presents a great opportunity for insurance companies,” said Robin Harbage, global lead for Towers Watson’s UBI practice and DriveAbility service offering. “Insurers can begin thinking about de-commoditizing their products by incorporating these services into their UBI offering. They can really cater their products to the very specific needs of the market, and if done effectively, it will lead to growth and higher retention levels.”

In fact, interest is so strong in UBI that, according to the National Association of Insurance Commissioners, “Many industry experts predict that UBI is poised for rapid growth in the U.S., with 20% of all vehicle insurance in the U.S. expected to incorporate some form of UBI within five years.” The association noted that growth is being spurred by technological advances that continue to improve the cost, convenience and effectiveness of telematics devices.

Progressive Insurance, which provides the Snapshot device, offers its UBI service in about 25 and 30 states. Meanwhile, Allstate, Esurance and The Hartford have various technologies they are using but in a smaller number of states. State Farm is working with the existing diagnostic technology maintained by different auto manufacturers to receive data.

One Response

  1. Deanna Walker Says:

    The finding that many are willing to consider Usage Based Insurance if their premium will not rise I think is quite indicative of the general ignorance that drivers have about rate variation in the marketplace and pricing in general. Many drivers make the false assumption that attempting to pursue a discount through a telematic system from their current insurer will lead to the best deal. The fact is of course that even the best UBI premium reduction can be far exceeded by switching to a carrier with a better conventional rate for the driver’s profile. The predicted rise in UBI might reflect the market share of the majors offering telematics, combined with this consumer ignorance. I agree with Mr. Harbage that the value-added services side is a real opportunity to sell UBI, even to those that are more market savvy.

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