Fear and Loathing in Car Insurance

The only thing worse than your car insurance company ripping you off, is your car insurance company telling you how to drive. But what if your car insurance company is ripping you off AND telling you how to drive?

State Farm actually did that to me last year with its DriveSafe&Save usage-based insurance (UBI) program. I drove safe, but did not save.

Now the UBI virus threatens to pervade certain segments of the industry as Verisk Analytics has introduced its Verisk Telematics Safety Scoring driver discount program, now approved for insurance underwriting purposes in 41 states. The Verisk driver scoring system is meant to provide a rating model for insurers that share their proprietary loss results with Verisk.

The program reportedly tracks each trip to identify risky driving behavior, such as speeding, fast braking, and cornering. Policyholders can access the results of their driving evaluation on Driving DNA, a Verisk portal.

In seeking to provide a turnkey solution for personal lines and commercial insurance companies lacking the resources to build their own data models Verisk is not only commoditizing the UBI proposition but is also dumbing it down – eliminating differentiating factors such as mileage, vehicle weight and driving context. The Verisk proposition, like most current UBI programs based on apps or installed devices, is akin to driving around with a blind backseat driver constantly complaining about your driving without being able to see the driving context.

A competing offering from a company alled ATG Risk Solutions, launching next month, intends to not only refresh its data more frequently than Verisk but will also take additional driving factors into account including SIC codes (for commercial vehicles), miles driven, roadway context, vehicle weight and territory of operation. ATG intends to fill in the missing information in something closer to real-time while allowing its insurance company clients to set their own rates using ATG data.

I am not sympathetic to the UBI crowd, in spite of the fact that it offers a means of overcoming existing discriminatory elements within current underwriting models – particularly credit scores. UBI has its own shortcomings. For example, UBI is associated with the onerous “tracking” label and the privacy invasion thereby implied. Current offerings have also failed to universally deliver a discount to program participants.

For UBI auto insurance to succeed a few things need to occur:

• Improved transparency and data access
• Improved standardization of data
• Available portability of data (to another carrier)
• Improved pricing – UBI should always be the cheapest offer per carrier
• Customer control – ability to turn the device or app off

Of course, carriers must also come to grips with creating driver rewards that might influence changes/improvements in driving behavior. The broad assumption is that the majority of drivers are incapable of changing their behavior. This appears to be the assumption behind Progressive Insurance’s Snapshot program which does not continue monitoring the vehicle/driver after the trial period.

The real deal breaker, though, is the inability of any of the current offerings to take into account driving context. ATG’s stated intention to take into account driving context could be a game changer. Normally capturing context is only possible for commercial operators that use dash cams.

ATG may finally get the model right with its UBI data clearinghouse launch next month. But after my experience with State Farm it will be a while before I plug in another carrier’s device in my car.