Insurance is changing. Usage based insurance (UBI) is rewarding safe drivers, under a method, where insurance costs relate to the kind of car driven, the time and distance driven, how someone drives and where they drive.
Also, “pay as you drive” (PAYD) bases premiums on number of miles driven, while “pay how you drive” (PHYD) looks at driving style; there is also “manage how you drive” (MHYD), which uses driver feedback. More companies will be offering telematics and UBI programs to include individual driving habits in risk assessment and pricing. Three of the largest U.S. car insurance companies will introduce telematics programs early this year, as well, according to Deloitte. As part of this, telematics lets sensors in cars, applications or a smartphone collect data on a driver’s habits.
In fact, over half of the insurers in the United States and the United Kingdom now offer insurance telematics In the United States, Progressive offers a Snapshot solution, and while it’s offering a discount-only model now, it could offer more services in the future. Progressive may want to partner with original equipment manufacturers and get data from built-in devices.
Also in the United States, State Farm’s “Drive Safe & Save” program employs an “In-Drive” device, which is plugged into the vehicle’s OBD2 port and collects data. State Farm offers drivers a discount of up to 50 percent, reevaluated every six months. It is based on driving habits, miles driven, age of driver, driver’s occupation and where they live. Coaching to improve driving habits is offered for a small fee, and information is given about vehicle maintenance, teen-agers driving and assistance if the car gets stolen.
Ford has partnered with State Farm to enable UBI through SYNC, while GM’s OnStar can connect cars to UBI via GMAC. OEMs and insurers will be sharing data, too.
UBI is found in the United Kingdom, as the UK’s Autocar launched Autocar Start, a package that includes a new car with insurance telematics and professional instruction. Autocar Start provides a car, 40 hours of driving instruction from the Mercedes-Benz Driving Academy and usage-based insurance from Carrot. Targeting younger drivers, it will cost $450/month over three years.
Looking ahead, discounts will be important.
“The essential value proposition for the next three to five years will be the discount,” Praveen Chandrasekar, program manager for telematics and infotainment research at Frost & Sullivan (News - Alert), said in a recent statement carried by Telematics Update.
“In five or ten years, all insurers will have dynamic driving data, so all will be able to offer discounts,” George Ayres, vice president of global sales for Verizon (News - Alert) Telematics, added in a statement to Telematics Update. “There will be no more asymmetry in terms of what they know about customers, so price alone won’t be as effective [for acquiring and retaining customers]. …The insurers who are out front on this idea are realizing [that soon] all will [have to] start to provide much wider breadth of services to keep those captured through price.”
Ayres says customers are interested in and willing to pay for value-added services, given the aftermarket. Already, companies are selling aftermarket devices to manage teen-age driving, vehicle maintenance and emergency assistance. Value-added services provided via a telematics device can be deployed on vehicles with an OBD2 port, “so a family could actually operate the same system on all their cars and be eligible for a discount on their insurance premium,” Ayres said.
Looking ahead, motorists will have more options for their insurance – and how they drive will be a key factor in risk assessment.