Yesterday I said buh-bye to UBI car insurance. UBI is the acronym given by the insurance industry to the service based on a tracking device being installed in the insured driver’s car. It stands for usage-based insurance.
I had been a State Farm customer for approximately 15 years. And my participation in State Farm’s UBI program ought to have cemented our relationship. Instead, the UBI program was irrelevant.
This powerful new customer connection – UBI - did not lead to a change in how State Farm interacted with me. And that failure is just one of many reasons UBI insurance is struggling to achieve wider traction.
Progressive was the pioneer of UBI insurance and its Snapshot modules have been installed (temporarily) in more than a million vehicles for the purposes of determining an optimized insurance rate based on driving behavior. The program was conceived to:
1) Provide a more accurate calculation of risk
2) Provide a conditional manner for insuring high-risk drivers
3) Attract and poach low-risk drivers from competitors
4) Reduce customer churn
5) Lower the costs associated with claims management*
6) Speed up claims*
*These aims are not served by Progressive's Snapshot
In the U.S., as in my case, the customer-facing purpose of UBI insurance is to get a deeper insurance discount. Most programs – currently offered by dozens of insurance companies around the U.S. – offer a 5% upfront signing discount with potential discounts of as much as 30% on premiums. Those discounts are based on driving behavior scores which are derived from devices affixed to the driver’s vehicle. There are also smartphone-based solutions.
As I discovered, bigger discounts are available simply by changing insurance carrier. Conventional insurance programs with features such as Liberty Mutual’s “accident forgiveness” and Nationwide’s “vanishing deductible” resonate more powerfully, especially since they tend to be uniformly offered throughout the U.S.
I participated in State Farm’s Drive Safe and Save program for the past year. I have written and spoken about my experience frequently. I left the State Farm program because Liberty Mutual – approaching me as a result of my ownership of a BMW – offered to insure my car and my wife’s car at approximately 50% of the rate I was paying State Farm.
This is no reflection on the UBI program offered by State Farm. The UBI device from State Farm (which I will now have to mail back) worked just fine, the consumer portal worked just fine, the annual discount seemed generous ($200+), and the added value services worked as promised. And I had no complaints about my State Farm agent, with whom I now have a strong relationship.
In fact, I would have signed up for Liberty Mutual’s Right Track UBI program if it were available in Virginia, which it is not. It is available in 22 other states.
In the end, the conventional policy from Liberty Mutual represented too good of an offer to pass up. The sticking point, in retrospect, appears to have been an accident/claim from three years ago, the details of which beyond the amount (~$2,000) I can no longer remember. That accident is still within the three-year window that is keeping my State Farm rate in an unacceptable range.
But the bigger issue is the lack of transparency in the insurance industry. And that lack of transparency extends not only to the driver/customer, but also to the broker. This is where the industry needs to be rewired.
My State Farm agent noted that most of what goes on in State Farm’s underwriting black box is completely opaque to him. He is aware that factors affecting rates are changing on a daily basis, affecting the quotes he is giving, but he does not understand why and he has no visibility to when.
In his immortal words: “Everything is being thrown at me except what I need.”
So State Farm failed me and is failing its own agents.
State Farm had a privileged relationship with me that is now lost. The company had a module in my car that was reporting on my driving behavior – speed, time of day, acceleration, turns, and amount – whenever I or my wife drove our vehicles.
The information was shared with me on a portal with some limited interactive capabilities. State Farm also had a mobile app, though I never successfully used this.
The presence of the Drive Safe & Save device in my car opened a door for State Farm to fundamentally alter the consumer-insurer relationship. State Farm could have:
1) Advised me as to how to improve my driving and thereby increase my discount.
2) Compared my driving to the aggregated driving behavior of other drivers.
3) Offered me rewards for better driving.
4) Notified me of negative factors – tickets, accidents – impacting my rate.
Needless to say, State Farm did not do any of this. It was a missed opportunity. But that failure was felt by my agent as well.
I would have benefited from a graphic on my bill or Web portal indicating when particular accidents or infractions might expire from my underwriting score. My agent, too, could benefit from notifications regarding scoring updates impacting his customers.
A driver’s given rate might change on a daily basis, according to my agent, though he has no way of easily seeing that. Can you imagine your auto insurance agent calling you to let you know your rate had gone down? That is a relationship changer.
(The Liberty Mutual agent was able to call up the Clue Report to access my claims history. The State Farm agent could only refer to my file – he did not have access to the same resources as the Liberty Mutual Agent.)
Consumers are entitled to see what factors are affecting their rate. Driving history, credit record, and location are the main factors, but there are others. Just as consumers can access their credit reports, their driving history should be integrated into their insurance portals and bills. I felt a little strange that I had to ask my broker about my own driving history. If this information is publicly available insurance companies should help to make it more accessible to consumers.
Full disclosure of the factors, if not the balancing of those factors, should be required and might contribute to creating a higher degree of customer trust. But the industry won’t be able to fix this trust factor until agents are treated better.
Car insurance providers such as State Farm and Allstate employ upwards of 15,000 independent agents interacting with customers on a daily basis. These agents should have customer dashboards to alert them to driving-related events that will impact their customers’ rates, and they should also have live feeds to alert them to changes in rating criteria that impact customers’ current rates.
For the most part, insurance agents are flying blind. This blindness contributes to the lack of consumer trust and undermines the ability of the industry to adopt new technology, such as telematics, for tracking customers and delivering a service based on a more accurately calculated risk assessment.
And make no mistake, the adoption of telematics will require trust.
The game is changing to one of connected drivers. It isn’t enough to have customers plug in a box and get a 5% discount – especially if they can save more by switching providers. A new connection calls for a new paradigm of customer engagement. State Farm missed the connection.
I agreed to take my State Farm agent’s call in December when my three-year-old accident will no longer mar my driving record and my discount. We’ll see if State Farm can re-connect.
Please join me @ Insurance Telematics Sept. 3-4 at the Radisson Blu in Chicago - http://tinyurl.com/cpw8mz4