Gary Hallgren at AIR 2023: Usage-based insurance and the future of auto insurance

Usage-based insurance (UBI) has been a game-changer for auto insurers as the most accurate tool of driver risk to date. For years, the industry has relied on correlation versus causation in their pricing strategies. However, being married does not necessarily cause safer driving – despite the correlation.

Today, insurers can price based on drivers’ actual behaviors on the road. Does distracted driving, for example, lead to accidents? Yes.

While the idea of UBI has been around for years, it’s taken some time to make an impact as key players built up the volume of available data and fine-tuned their telematics solutions and programs. But after this year’s Auto Insurance Report (AIR) National Conference, it’s undeniable: The future of auto insurance is happening now.

3 insights: UBI as the future of auto insurance

Arity’s President Gary Hallgren took the stage at AIRNC 2023 as part of a panel to discuss UBI as the future of auto insurance, which also included:

• • Brian P. Sullivan, Sr., Editor, Auto Insurance Report newsletter; Chairman, Auto Insurance Report National Conference

• • Dan Hill, National Sales Director, CARFAX

• • Ryan McMahon, Senior Vice President of Strategy and Corporate Development, Cambridge Mobile Telematics

Here are three key insights from the session.

#1 The evolution of measuring driving behavior for UBI

OBD-II devices

UBI has come a long way since its inception. In the 2000s, the industry was using plug-in on-board diagnostics (OBD-II) devices to collect driving behavior data. While that “baby step” helped prove that use of driving data was a more accurate, predictive measure of risk, the roadblock was the limited data from those devices.

Furthermore, carriers could only accumulate data after a customer opted into a telematics program for a potentially deeper discount on their rate, and used the device for a period of time to monitor their driving behaviors.

Mobile phones, phase 1

The next iteration of UBI, collecting driving behavior data through mobile apps, initially had that same roadblock. Auto insurers could now leverage their own apps to start gathering driving behavior data – but again, it involved a months-long monitoring period which came with an unintentional dilemma: A customer could opt in with an initial incentive, only for the carrier to find out after the monitoring period whether the customer truly deserved it or not. The carrier could do one of the following:

1. Keep the inaccurate, low rate and risk higher losses

2. Adjust to an accurate, higher rate and risk losing the customer.

Any carrier would agree, neither option is ideal.

Yes, this next step in telematics brought us closer to more accurate pricing, but the adoption rate and scalability wasn’t quite there yet. Then, Arity changed the game.

Mobile phones, phase 2

Arity’s goal is to connect to every driver in the U.S., so we can generate driving data at great scale. But before we could do move towards that goal, we needed to find a way to reach every driver. Rather than limiting ourselves to insurers’ mobile apps, why not go where the connections already exist?

“We just decided, let’s go where the data is.” – Gary Hallgren, President of Arity

With this plan in mind, we started to partner with consumer mobile apps – like Life360 and GasBuddy – offering value to their end users such as crash detection or route suggestions based on weather in exchange for sharing their data. These partnerships accelerated the volume of telematics data available to insurers.

Today, Arity has the largest telematics dataset tied to insurance claims with more than 1.18 trillion miles of driving data collected to date, growing by 1.1 billion miles a day.

This strategy empowered the latest telematics innovation, Arity IQ^®, making it possible for carriers to access driving data from millions of U.S. drivers on-demand, including pulling a person’s driving score at time of quote. And with driving attributes, carriers can create their own mix for pricing, putting more emphasis on certain driving behaviors than others.

Connected car data

With the growing prevalence of connected vehicles on the roads, cars themselves will be another valuable data source for measuring driving behavior for UBI. Each sensor within a connected car transmits such rich, valuable data that mobile phone sensors simply can’t capture. For example, was the seat belt in use? Was the vehicle’s Advanced Driver Assist System (ADAS) enabled?

By combining connected car data to their data mix – which includes mobile phone, contextual, and geospatial data – insurers can now get an even more accurate picture of driver risk.

#2 More than just pricing, UBI transforms the entire customer lifecycle

A key benefit to today’s breadth and depth of telematics data is that now it can and should be used across the customer lifecycle. Insurers are no longer limited to using data just for pricing.

“Whatever you’re doing in your companies today is almost certainly not enough for tomorrow.” – Brian P. Sullivan, Sr., Editor of Auto Insurance Report newsletter; Chairman of Auto Insurance Report National Conference

Awareness and engagement

With the insights available today, auto insurance marketers can target drivers based on how, where, and when they drive to reach their most valuable customers. For instance, the lowest risk drivers on the road have a higher customer lifetime value than average and can be up to 5x more profitable. Marketers can leverage audiences based on their risk profiles, display an ad to their most desired customers, and promise a discount up front with greater confidence.

This tactic can help carriers better attract and engage customers, setting them up to win desired business at the conversion (purchase) stage of the customer lifecycle.

Retention and loyalty

These insights can also be used to encourage customers to drive safer through incentives or coaching, and the benefits are two-fold:

1. It helps with retention because insurers are engaging with customers in a more meaningful way

2. It has the potential to lower the number of claims filed due to customers’ safer driving behaviors.

“There’s nothing more fulfilling than being able to actually know your technology is literally saving lives. That is a power that’s in this community that wasn’t there before,” – Ryan McMahon, Senior Vice President of Strategy and Corporate Development of Cambridge Mobile Telematics

According to Ryan, in addition to risk scoring for insurance pricing, “behavior change” is another key staple of UBI. While being able to help someone in a crash is good, being able to actually prevent that crash is better.

Arity is a champion of that sentiment, helping carriers inspire driving behaviors that keep their customers – and the roads they drive on – safe.

#3 Enhancing the value exchange

While customer adoption of UBI has been a pain point for insurers in the past, it’s clear that drivers are getting more and more comfortable with it. Last year, the percentage of those who were offered a telematics program and opted in increased to 65%, and this can be attributed in part to enhancing “the value exchange.”

In the past, the only tangible value offered to those within a telematics program was a potential discounted rate. However, to get that benefit, customers would have to first opt into a monitoring period and allow their data to be collected. From a customer’s point of view, the effort put in versus value gained may not have seemed like a fair exchange.

Since the add-in of consumer mobile app data, insurers can now boost the value they offer. They can reduce the amount of effort it takes for a customer to opt into a telematics program with Arity IQ^®, as well as offer additional benefits such as:

• • future discounts to incentivize safer driving

• • coaching to encourage safer driving

• • enabling a helpful (and even life-saving) response to a detected crash

As Brian said at AIRNC 2023, if you’re not maximizing UBI right now, you’re just leaving money on the table. Ready to start? Check out our blog post to learn three considerations for auto insurers choosing a telematics solution to drive profitability or contact us to start a conversation.