Usage-Based Auto Insurance Set to Drastically Change the Industry

By David O'Bryan, Standard Lines Account Executive, State Auto Insurance

Originally published on LinkedIn.

With auto loss costs skyrocketing, usage-based auto insurance is about to completely change the marketplace, and significantly alter the way insurance carriers are able to price products, incentivize better driving behavior, resolve claims, and interact with customers. Usage-based auto insurance uses an in-car device (typically a dongle) or phone app to gather driver data such as speed, braking, acceleration, time of day and mileage. Forms of the technology have been around for more than a decade, with adoption rates climbing steadily in just the past few years. A recent article on PropertyCasualty360 estimated that between 10 and 20 percent of drivers already utilize some form of UBI auto insurance policy. That number is about to explode – by 2020 an estimated 70 to 80 percent of drivers will be utilizing telematics.

Customers are quickly adapting to the future of auto insurance. Data giant Willis Towers Watson recently did a survey and found 81% of customers would consider letting an insurance carrier collect their driving data in exchange for customized insurance and better pricing. As the entire industry prioritizes tackling distracted driving, usage-based insurance telematics programs – along with the valued consultation of an independent agent (we’ll get to that in a minute) – can completely revolutionize auto insurance and upend traditional pricing models. Put simply, UBI telematics will reward good drivers with better rates, encourage better driving habits and behaviors, and put pressure on unsafe drivers to make a choice: continue driving poorly and pay more for insurance, or become better and more conscientious behind the wheel and reap the reward of lower premiums.

What is State Auto doing?

State Auto Insurance has recently begun a multi-faceted approach to tackling distracted driving and entering the UBI telematics market. First, we’re raising awareness on distracted driving through marketing campaigns and social media – and through constant discussion with our independent agency partners. State Auto CEO, Mike LaRocco, has been quoted in numerous media outlets recently (notably a February article in The Wall Street Journal) discussing distracted driving, which he calls “an epidemic issue for this country.”

On the product side, State Auto is one of the first independent agency carriers to offer a telematics option – State Auto Safety 360℠. Safety 360℠ has all the components of a standard UBI auto policy – we collect driving data every time the vehicle is in use, and through that mountain of data we compute a driver score, basically a scoreboard for how that customer performs behind the wheel. Customers who sign up for Safety 360℠ get an up-front 10% discount per vehicle, with the potential to earn up to a 50% discount at renewal for the best drivers.

Early stats on Safety 360℠ have been extremely encouraging, with agents signing up more new customers every week. More than 70% of participants are on track to earn a steeper discount based off their driving performance, and more than 10% are trending towards earning the maximum 50% discount. Best of all though, Safety 360℠ customers are buying into the new model for auto insurance. They’re becoming better drivers, monitoring their performance, interacting with their phones less while driving…and they’re telling their friends, family, and co-workers about usage-based insurance.

Unique opportunity for Independent Agents

The coming wave of usage-based auto insurance presents a significant and unique opportunity for independent agents. Currently, 72% of auto insurance policies in the United State are with just 10 companies, most of which are either direct writers (like Geico) or captive agencies (like State Farm). While auto rates were very stable in the 10+ years before late 2015, the big national writers who spend upwards of a billion dollars a year on TV ads gobbled up more and more of market share. The result is, today, with rates exploding and set to go up even more, the overwhelming majority of consumers 1) haven’t shopped their insurance in many years, if ever, and 2) have never experienced doing business with an independent agency.

Independent agents offer customers what they currently do not get on the captive/direct market: options. Along with being able to shop to multiple insurance carriers, independent agents overall have broader insurance knowledge, the ability to sell more lines of coverage, and, most importantly, access to exclusive products like telematics programs and usage-based insurance policies.

For independent agents, the opportunity on telematics is right here, right now. Independent agents must become experts in usage-based auto insurance, and on which carriers are offering telematics programs and what those programs entail. Independent agents are uniquely positioned to be the biggest and best resource for customers looking for different solutions as auto rates under traditional pricing models explode 10-20% a year over the next 3 to 5 years.

I’m proud to get to work with so many fantastic independent agency partners in my home state of Kentucky. Usage-based insurance is a win for every party involved in the insurance transaction – consumers get better rates for being better drivers; insurance carriers are able to price their products better as loss costs decrease, and independent agents win more business and are able to help more people in their local communities. Usage-based insurance and telematics programs are here and here to stay. It’s time for us all to get on board.

State Auto’s Safety 360℠ telematics product is currently available in 6 states (Ohio, Indiana, Illinois, Wisconsin, Colorado and Arizona) and will be offered in all states where State Auto operates by the end of this year. For more information, click here.