U.S. Drivers Comfortable With Usage-Based Auto Insurance
ARLINGTON, VA, September 3, 2014 — Automobile drivers across the U.S. are becoming increasingly comfortable with usage-based auto insurance (UBI) programs, which allow auto insurers to monitor policyholders’ driving habits with a telematics device in exchange for potential insurance premium savings. The number of consumers who have, or had, a UBI policy in the past 17 months has nearly doubled, from 4.5% in February 2013 to 8.5% in July 2014, according to a new UBI consumer survey by global professional services company Towers Watson (NYSE, NASDAQ: TW).
“Clearly, UBI continues to gain steam in the marketplace, and our survey results support this trend,” said Robin Harbage, global lead for Towers Watson’s UBI practice and DriveAbility® service offering. “Today, all 50 states have four or more personal auto UBI programs implemented.”
Most (79%) of the 1,000 respondents surveyed said they either would buy a UBI policy or are willing to consider the concept, and if insurers guarantee drivers’ premiums would not rise, that percentage increased to 88%. These percentages are virtually unchanged from the prior survey.
While the interest level remains stable, consumers’ privacy concerns about UBI have generally decreased over the last year and a half. Just over one-third (35%) of respondents indicated unease concerning insurers monitoring their driving destinations, compared to 42% from last year’s survey.
“The high level of interest and decreasing consumer concerns suggest the UBI value proposition is resonating with consumers,” said Harbage. “They are becoming more and more familiar with UBI, and like what they see. They are learning UBI can offer many benefits, including lower monthly premiums, which outweigh their privacy concerns.”
Nearly half (48%) of consumers still feel unease about potential higher premiums due to UBI. This continues to reinforce popular decisions to offer only discounts — not surcharges — based on UBI data. “Insurers realize consumer concerns related to premium increases can have a dramatic impact on take-up rates for UBI. In the short term, most (if not all) companies in the U.S. have decided to eliminate this risk by promising not to surcharge based on driving behavior,” said Harbage.
Nearly all UBI programs in the U.S. use OBD II devices, a small device that plugs into a port under the dash of your car, to monitor and collect driving data. However, consumers also expressed a willingness to use their smartphones to monitor their driving habits. Eighty percent of smartphone owners believe it’s acceptable to download UBI applications onto their smartphones to track their driving, though over one-third (36%) of the survey participants do not currently own a smartphone.
“Smartphone implementations of UBI are very appealing to many insurance companies because they don’t require as much up-front cost as purchasing OBD II devices. But they also come with challenges. We have not yet seen a smartphone solution gain widespread adoption in the U.S.,” said Len Llaguno, senior consultant at Towers Watson. “There is a tremendous opportunity for insurers that can figure this out.”
Consumers expressed some of their preferences for smartphone apps with features such as automatically recording all driving experience in the insured vehicle, confirmation of the driving journey’s accuracy upon conclusion and periodically providing their odometer reading.
“Ensuring you are collecting all of an insureds’ driving experiences is a key challenge with smartphone-based programs. It is good to see a high percentage willing to confirm the accuracy, but it remains to be seen whether drivers will reliably and consistently do it,” said Llaguno.
By far, the biggest issue with smartphone apps relates to battery usage. Only 39% said a noticeable drain on battery life that impacts daily usage would be acceptable. Consumers do recognize some drain on battery life is necessary, with 76% saying a modest drain that doesn’t impact daily usage would be acceptable. Data usage is also a concern. “It’s clear smartphone apps haven’t solved all of the issues related to collecting accurate and sufficient vehicle operation data, and will face consumer challenges in the marketplace,” said Llaguno.
About Towers Watson
Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management. Towers Watson has more than 14,000 associates around the world and is located on the web at towerswatson.com.