Usage based insurance (UBI) is becoming more popular with insurers, fleet managers and drivers as a way to lower premiums for all drivers and to price the risk of insurance more accurately. Allied Market Research predicts that the global UBI market is expected to grow at a compound annual growth rate of 36.4% from 2016 to 2022.
With this huge market opportunity, telematics companies must have a scalable and reliable solution to cater for the demand. Already, in the UK alone, more than 750,000 UBI policies have been issued while, in the US, approximately 20% of all vehicle insurers will offer UBI within the next five years, according to the National Association of Insurance Commissioners.
The market is, therefore, at a tipping point. IoT Now interviewed Paul Tarsey, the IoT development manager for EMEA at Aeris, to understand how UBI is developing and what’s needed to push uptake further.
IoT Now: What are the key drivers for UBI? Who benefits most, the insurers, fleet managers or the drivers?
Paul Tarsey: Usage based insurance needs to benefit all parties to maximise the uptake. Drivers benefit by having their premiums directly correlated to their driving behaviour and associated risk, rather than by traditional insurance demographics such as age or miles travelled. A safer driving style leads to more affordable premiums and lower maintenance costs.
The insurer is arguably the largest beneficiary. Having greater insight into their customers’ driving behaviour ensures they can identify those policy holders who pose the greatest risk and take proactive action. This could be through driver coaching, raising premiums, or even cancelling policies. Managing these risks, allows an insurance provider to improve operational processes and ultimately increase profitability. In the instance of an accident, insurers can manage the entire process more efficiently, whether that is by estimating the likely cost of a repair from impact data, determining if a repair is viable and what type of recovery vehicle to send, to predicting if an injury is likely in the case of a claim.
Fleet managers can also utilise UBI to keep vehicles on the road for longer. Predicting when maintenance is due and when is the least disruptive time to carry this out. Fleet managers get great insight into their fleets remotely, identifying drivers who drive too aggressively; increasing the chances of an accident, inflating maintenance and insurance costs and reducing fuel economy. You could even argue a negative impact to the wider business or brand if branded vehicles are synonymous with poor driving practices.
IoT Now: Accurate driver behaviour data is clearly vital for UBI, but what are the challenges of ensuring UBI data is always available?
PT: The majority of UBI devices either rely on a direct GSM connection, a Bluetooth connection into the customer’s mobile phone, or are delivered via an app and the sensors embedded in the customer’s phone. In the case of the app, this is great from a capex point of view, with no hardware cost or install costs, however the system is open to abuse, whereby drivers don’t enable the app if they’re in a rush and know their driving may drag down their driver score, or even claim to be passengers rather than drivers.
We see the greatest adoption in devices with a standalone communications method, in these cases network availability is king. No, or poor network coverage may result in driver data being lost, leading to scoring inaccuracies and increasing risk to the insurer. This is why we’ve seen the rapid adoption of highly available, non-steered roaming solutions such as those delivered by Aeris. Insurance companies simply cannot take the risk a single network or steered solution brings.
IoT Now: Is UBI a retrofit or could vehicle OEMs (original equipment manufacturers) embed UBI technology?
PT: UBI has traditionally been retrofitted as part of an insurance sale, taking the form of a plug-in solution, for example via the OBDII (on-board diagnostics) port, or a black box wired directly to the car’s battery. However, increasingly we are seeing OEMs embed this technology directly into the car at point of manufacture. Many have seen this as a way for OEMs to entice young drivers into new vehicles, providing a single monthly finance price that includes the car, insurance, tax and servicing.
IoT Now: To what extent is the ecosystem around UBI still immature?
PT: A possible sticking point holding back the adoption of UBI is the standardisation of driver scoring. At present, it is near impossible for drivers to take scores earned with one provider and use this to get discounted rates with a new provider.
Insurers still have a part to play in developing their processes to utilise UBI data. This data can be used to estimate claim costs, determining if a vehicle should be repaired or scrapped, what type of recovery vehicle to send, the likelihood of injury, or even using accelerometer data to reconstruct crashes to corroborate, or disprove claims.
IoT Now: Can you give an example of successful UBI services?
PT: One company we’re working with which is unique among telematics service providers (TSPs) in designing its own on-board units as the starting point of its full service telematics offering is Redtail Telematics. The company’s devices collect precise, high quality data about how a vehicle is being driven to enable insurance partners to offer vehicle insurance based on real, rather than perceived risk. This gives Redtail incredible flexibility in how it delivers tailored solutions to its customers.
Redtail was first founded to explore the potential of GPS technology – turning location and accelerometer data into meaningful insight for consumers, fleet managers, automotive OEMs and the insurance industry. Today, Redtail is a full-service telematics solutions provider that delivers raw or managed data, including fleet management data and driver scoring apps, for Android and iOS devices.
Where Aeris came in was with our global support of major cellular technology standards, such as GSM, CDMA and LTE. Aeris delivers a flexible solution that was tailored to perfectly fit Redtail’s business model, increasing data transmission reliability, driving efficiencies and enabling expansion across the globe. To that end and after rigorous initial testing, Redtail found that Aeris was the perfect fit, our non-steered roaming SIM meant in the event of a network outage they could simply connect to another network and carry on passing data. With 100% focus on IoT the support process was tailored to their application, with near-real time data available via API integration to the Aeris owned core infrastructure.
Redtail has been able to tap into new markets within the automotive insurance industry. The quality and accuracy of the data captured by Redtail devices – thanks to the connectivity flexibility of Aeris SIMs – provides more insights than ever before. Not only does this level of connectivity allow Redtail to collect data on performance, it also unlocks a supportive capability for OEMs, making service more relevant and reassuring.
This level of connectivity means Redtail can provide accurate insights that help inform insurers of driver risk. The data can be used retrospectively to determine premium costs via behaviour across a six-month period, or to intervene, helping to identify where a driver could pose a risk and coach them towards better driving habits and, ultimately, improving road safety.
Redtail is now in position to meet the growing demand for UBI because it can provide its insurance customers with reliable connectivity for data transmission, regardless of their location and without the fear of a damaging network outage. This growing demand within telematics-based UBI is not isolated to UK or US markets. The Aeris carrier-agnostic solution has allowed Redtail to unlock UBI potential in other markets, such as North Africa and Asia Pacific.
IoT Now: Do you see UBI uptake as being driven by fleet managers or consumers and drivers?
PT: I think both will be key contributors to the adoption of UBI. Fleet managers have growing costs associated with keeping vehicles on the road and will be under increasing pressure to reduce these and become more efficient. At the moment, hardware costs tend to limit the adoption of UBI from older drivers because their premiums are not high enough to justify the investment in UBI or hardware costs.
I think OEMs’ adoption will help accelerate the adoption in this older demographic of those aged more than 25. As the costs of UBI can be wrapped into the purchase price of the car or as part of a wider service, such as infotainment or maintenance, it becomes more appealing. However, this also hinges on the interoperability of driver scoring between insurers.
As the cost of claims and cars are growing, the risks associated with more inexperienced drivers continues to be among the greatest to insurers, I therefore see young drivers continuing to be a key demographic for insurance providers deploying UBI. Young drivers are also more willing to share data and will continue to grow this industry. Finally, as OEMs start to target younger drivers with all-inclusive bundles this will help UBI grow.
Everybody has to benefit in this whole scheme. If consumers don’t benefit, they’ll just go with standard insurance. If insurers don’t benefit, there’s no incentive to invest in the technology.
IoT Now: What is Aeris’ role in supporting UBI uptake and roll-out?
PT: Traditionally, TSPs have worked directly with MNOs, however we see a definitive shift towards those with more specialised IoT experience and capabilities. As the prices are becoming more commoditised it becomes more about the services a provider can deliver, which is where Aeris clearly differentiates.
Aeris delivers a single global solution to its customers, allowing access to an array of networks on a reliability driven basis across more than 180 countries. Devices are able to switch carriers in the event of a network outage to deliver outstanding service to the end customer. Furthermore, as TSPs look to expand across multiple geographies they’re able to streamline their manufacturing and logistics processes, as well as manage their global deployment via a single, highly reliable, point of reference.
As the cost of data continues to drop, support is key to allow TSPs to be agile and remain ahead of the curve in an ever-competitive market. Dedicated, IoT specific support allows issues to be identified and resolved before they become critical. With the Aeris business being 100% IoT focused, it is not an afterthought that is sometimes the case with those who’s key revenues are delivered via consumer products that are voice and data focused.
Flexibility and agility also plays a vital role, we’ve found the average insurance policy lasts for about eight months, traditional MNO models dictate a minimum 12 month contract, this misalignment adds unnecessary costs and makes the proposition less attractive to end users. Aeris could deliver the flexibility to test at point of manufacturer and deploy in the field with the ability to cancel as needed to match business requirements. Ultimately, Aeris understands that in order for us to be successful we have to enable our customers to be successful first.