Slow UBI adopters will be left at major competitive disadvantage, report says

Usage-based auto insurance is set to become a mainstream insurance offering, and companies that are slow to adopt telematics technology and incorporate it into their products will be left at a major competitive disadvantage, suggests a new research report from Aite Group.

Seven of the 10 largest property and casualty  insurers in the world are currently offering telematics-based UBI, or have pilots going, according to the report, authored by Aite analyst Pat Speer.

That’s due, in part, to the cost of telematics technology dropping significantly — by 80% over the past five years, according to the report.

The majority of the insurers offering UBI programs are operating in Europe, with at least 56 carriers running programs there, the report suggests.

Europe is the clear UBI leader, with nearly 90 pilots in development since programs began there and almost 70 program launches, according to the report.

“Regulatory mandates continue to drive increased UBI adoption in Europe,” the report says. In Italy, for example, insured cars are now mandated to include embedded telematics devices to help detect fraudulent whiplash claims.

The European Union’s mandate for insurers to stop using gender as a rating factor has also helped drive UBI adoption, the report suggests.

In North America, that’s about 28, while in South Africa, four carriers offer UBI programs. “Together, however, this relatively small number of insurers controls more than 70% of the private passenger auto insurance market share in their respective geographies,” the report says.

In North America, adoption has been slow, the report suggests. “This sluggish uptake has its roots in the additional technology infrastructure and business capabilities required by insurers for ramp-up and fear of infringing upon patents held by the large hands of Progressive, the North American UBI leader,” Speer writes.

“Lagging education of and acceptance by Canada’s various provincial regulators and state-by-state U.S. regulators has also delayed insurers’ go-to-market strategies,” he adds.

Privacy concerns on the part of consumers is also still a barrier, although that attitude is beginning to change among young adults, according to the report.

IT requirements and the handling of the large amount of data collected through UBI programs is also a major challenge for insurers, the report notes. The most successful insurers will also “use predictive analytics on their many terabytes of driver behavioural data to understand their customers’ wants and behaviours at a granular level…” it adds.

Overall, the Aite Group argues that UBI will make up about 10% of the U.S. private passenger auto market by 2017 (currently at 1%), and 20% by 2020.

“Insurers’ organizational challenges — not external technology, regulatory, privacy or legal challenges — will be the biggest inhibitors to their UBI growth,” the report suggests. “It will pay to bring in people from other industries, like telecommunications, that have adapted to major business model disruptions from mobile technologies.”