In 2012, an increasing number of U.S. insurers have started offering discounts for usage-based insurance (UBI) programs. These programs track individual driving habits and reward customers for good behavior. The trend shows no signs of slowing down, and several U.K. insurance companies are taking it one step further, using smartphone apps to track consumers’ driving habits.
The technology hasn’t come to the U.S. yet, but experts say it’s the inevitable the wave of the future for American car insurance consumers.
In August 2012, British auto insurer Aviva started offering a driving behavior app called RateMyDrive, which could earn consumers premium discounts of up to 20 percent. The app uses smartphone technology such as GPS to monitor a how quickly a driver speeds up, how quickly he or she slows down, his or her braking habits, and how fast he or she turns corners. The data then is turned into a score that helps determine a driver's premiums.
“This is definitely a glimpse into the future of what’s going to be available here in the U.S.,” says Steve McKay, CEO of DriveFactor, a Virginia company that specializes in telematics technology, which allows the recording of drivers' data “I would say you’re going to see U.S. companies doing the same thing in the first quarter of (2013). Maybe even sooner.”
Why the U.S. lags
Until now, usage-based insurance programs in the U.S. have relied primarily on in-car devices to keep track of individual driver habits.
Since April 2012, Progressive has offered its Snapshot program nationwide. Drivers who sign up for Snapshot receive a small wireless device that plugs into the diagnostic port of a car and captures how, when and how much they drive, potentially resulting in discounts of up to 30 percent.
In 2011, The Hartford introduced TrueLane, which uses an in-car device to gather data about driving behavior. The data then is sent to The Hartford for analysis and could result in a premium discount of 5 percent to 25 percent. Insurers like Allstate, Liberty Mutual and GMAC also offer pay-as-you-drive programs, but each depends on in-car technology rather than a smartphone app.
Industry experts have several theories about why the U.S. market has been slow to adopt smartphone technology for usage-based insurance plans.
Fear of Big Brother
“It’s certainly not the technology holding it back in the U.S.,” says David Eads, founder of consulting firm Mobile Strategy Partners LLC.
Eads thinks Americans don’t want insurers looking over their shoulders.
“Monitoring through an onboard device is one thing, but monitoring your driving habits through your cellphone may feel a little too intrusive,” Eads says.
Phones can be disabled
Unlike an onboard device, drivers can choose to shut off their smartphones or forget to turn them on, resulting in a loss of important data.
“That’s a significant hurdle,” says Dave Ferrick, executive vice president of insurance telematics technologies for Agero Inc., which offers auto-tracking technologies for several auto insurers.
In theory, you could turn off your phone, speed to your destination, turn your phone on again and your insurer never would know, Ferrick says.
U.S. vs. Europe
Mike Woods, director of new and emerging technology for automotive website Edmunds.com, says the U.S. has a highly conservative regulatory market. Moreover, it’s a much larger market than the United Kingdom's. Both of these factors, Woods says, have been barriers to this technology.
“Major U.S. insurers have many, many times the number of policyholders that a company in England does, which means the number of apps and the amount of data collection is just more challenging to roll out,” Woods says.
McKay says the U.S. insurance market is regulated on a state-by-state basis, which tends to slow the rollout of innovations – unlike in Europe, where changes can take place much faster.
Despite all the hurdles, smartphone apps that track our driving habits should be available in the U.S. by the end of 2013, says Eli Lehrer, president of the nonprofit R Street Institute think tank.
“The smartphone has everything an insurer could want,” Lehrer says. “It has a GPS, it tracks speed and movement, and it can gather real-time data for insurers.”
The upside — for insurers and consumers alike — is just too potentially great to ignore. Here are two reasons why.
1. It’s cheaper.
In-car devices like the ones used by Progressive and The Hartford are relatively expensive for insurers to ship to customers. If policyholders were able to simply download a cellphone app, this cost no longer would be a concern for insurers, says Stephen Packard, director of insurance strategies and consulting practices at consulting giant Deloitte. The savings, he says, eventually could be passed down to consumers.
Smartphones are becoming more and more widely used, which means more and more insurance consumers have them in their pockets, Packard says. They also eliminate logistical issues such as sending the in-car device and monitoring the results.
2. There's no learning curve.
According to McKay, mobile pay-as-you-go programs can be rolled out much faster than programs using in-car devices.
“With an onboard device, you need to get it to your customers and then you have to teach them how to use it, which can make things sluggish,” McKay says. “You don’t have that problem with mobile devices, and I think that’s what’s eventually going to make this technology so successful in insurance.”