Usage-based insurance (UBI) products such as Pay How You Drive (PHYD) and Pay As You Drive (PAYD) have been in the market for quite some time now, but they have gained ground in recent years. A number of factors are accelerating adoption, such as:
- Smartphone-based offerings from leading U.S. insurers such as Progressive and State Farm
- A 2017 Italian law requiring insurance carriers to install telematics devices in all vehicles and use the data to help set premiums
Ptolemus expects UBI policies to reach 170 million drivers globally by 2025. As connected cars dominate the roads, the data they generate can take even more of the friction out of UBI models for insurers. But what do drivers think? And are they willing to share car data?
In our recent survey of European car owners, we asked a number of questions about usage-based insurance products (specifically worded as: insurance products that would provide a discount based on driving data). Our respondents’ answers provide insights into how providers might segment the market and develop compelling messaging for their offerings.
The Most Experienced Consumers Express More Interest than UBI Newbies
We weren’t too surprised to see that Italian consumers expressed significantly more interest in insurance based on driving data compared to Germans. In addition to having a telematics requirement encoded into law, the Italian insurance market has offered insurance contracts based on telematics for some time. Telematics penetration in Italy now stands at about 22%, according to the IoT Insurance Observatory.
In addition to Italians, consumers in the UK expressed relatively strong interest for discounted insurance based on driving data. These consumers were more interested in many other connected car services included in the survey. Finally, it’s worth noting that there is a sizable European population that is not interested in discounted insurance offerings, particularly in France and Germany.
UBI Offers a Compelling Value Proposition to Younger Drivers
Looking at interest in these new insurance products by age group, consumers in the 18-24 age group were more interested in discounted insurance than those in the 25-54 age group. Of course, these are the consumers who tend to pay the highest insurance premiums and have the least disposable income. Lowering their premiums could have a substantial impact on their monthly budgets.
Who’s Willing to Share Driving Data with Insurers?
When asked if they would be willing to share car data in order to get the insurance products in which they expressed interest, only 60% of European consumers said yes. The highest rate is in the mature telematics market, Italy, with the UK following close behind. The lowest rate is in Germany, where consumers are generally more cautious about data sharing.
The youngest and oldest adult car owners say yes to car data sharing more than car owners between 24 and 64. Again, these youngest consumers pay the highest premiums today. Consumers 65 and over may also be seeing their rates go up.
How Positioning UBI Benefits Motivates More Data Sharing
The findings we have discussed above came from the following two questions:
- “Below is a list of in-car apps and services that may be enabled by the sharing of data that is generated by your car… How interested are you in discounted insurance rates, based on driving data that is specific to your car?”
- “The features you said you were interested in may require your car to share data specific to you. Would you allow your cars’ data to be shared in order to get … discounted insurance rates, based on driving data that is specific to your car?”
Note that we did not quantify the benefits for our consumers.
Later in the survey, we asked a similar question a different way:
- “Which of the following would encourage you to allow more data sharing from your vehicle?” 20% cheaper car insurance was one of the options, and it elicited the most responses.
The fact that “20% cheaper car insurance” has so much more appeal than “discounted insurance based on driving data” underscores an important messaging strategy: the act of sharing data must be directly tied to a tangible benefit. LexisNexis Risk Solutions came to a similar conclusion in a study of 3,100 consumers in the UK: That consumers are more likely to buy usage-based insurance if they had a better understanding of the premium discount. Insurance providers need to frame their messaging around quantifiable savings (and what else that money can buy). While the Otonomo-SBD survey also shows the importance of transparency in motivating consumers to share data, insurance providers also need to describe what they’re doing as driver assistance and not just “driver tracking.”
Otonomo is engaged with a number of companies in the insurance industry. Reach out if you’d like us to share our ideas with you!