December 05, 2013

By now, a clear model has emerged for telematics-powered usage-based insurance programs in the US: A policyholder is given a device that plugs into the OBD-II port on their car and their insurer uses certain data points -- braking, speed, acceleration and sharp turns being the most popular -- to determine their eligibility for a discount on their base rate. But the worlds of technology and user expectation change rapidly, and there are newer initiatives that offer a look into potential futures for the product.

MetroMile is a startup insurer that offers only telematics-based policies, and recently launched in a new state: Washington. But the company isn't looking at how well you drive, says CEO Steve Pretre. Instead, its target market is urban drivers who don't take their car out as often or as long as average drivers.

"We're takng a lot of the traditional rating factors -- years of experience, demographics, vehicle, limits -- and allowing people to pay a variable amount based on their driving habits," Pretre explains. "We aren't being 'big brother' and taking a judgmental approach about how they're driving -- we are clearly avoiding using those factors in our data collection."

Less-optimal drivers can still be identified through traditional rating factors, Pretre points out. By incentivizing their customers to not drive as much, he says, they're reducing the risk of driving overall.

"When it comes down it, to the amount of miles you're driving is a very heavy factor in the risk you're creating -- If you're out driving, you're more of a risk to be in an accident," he says. "Our customers in particular are driving a lot less. The car is largely sitting at home during the week."

Getting verifiable miles-driven data has been a challenge for insurers, which has forced them traditionally to overestimate that on-road time and pass on that cost to the customer, Pretre adds. With the data MetroMile collects, the total cost of ownership for auto insurance drops, making it much more attractive for light drivers to have their own vehicle.

"The insurance cost can be more than 50% of a cost of operating a car, but if you look at the data about two-thirds of people are driving less than the national average. A small amount of people are driving a lot more and pulling up that average," he says. "So we want to make people more aware of the miles they're driving. Then they start making different types of tradeoffs, like, 'I'm going to ride my bike or take the train to work.'"

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So any ancillary data collected by MetroMile's on-board device plays to that side and attempts to lower the total cost of ownership for a vehicle in other ways as well, like tire pressure, fuel efficiency, and even traffic monitoring.

"It's things like, 'Did you realize that if you left a few minutes earlier every day, you would get their faster and use less gas,'" he says. "We try to make that overall customer experience for people something that is very different than what they expect to get from an insurance company."

Reward mechanism

Offering a discount for good driving practices is a key part of encouraging telematics adoption. But Direct Insurance isn't offering straight-up premium discounts with its new telematics app, powered by DriveFactor. The company, which has put a premium on innovation with recent text-messaging and kiosk initiatives, is combining mobile technology, social networking, and gamification in the new program.

The free DirectDrive app for iOS and Android grades users based on factors such as hard stops, accelerations, and decelerations. After logging each trip, the program calculates a user's driving score and tracks trip history over time. The app then offers the user feedback on how to improve driving. Users also can compete with other users on a DirectDrive leaderboard that ranks the top drivers in each state. As users demonstrate good driving behavior, they are awarded achievements that can be unlocked to boost leaderboard points, which can be redeemed for prizes.

"Our primary goal is to have a fun engaging experience, very social in nature," says Direct's operations solutions manager, Rick Williams. "Our marketing team got really creative with ways we could reward people, like an iPad for the best driver in the Nashville market in a given month. But it's really flexible."

While Direct sees telematics on the rise, it prefers this less formal approach to learn about the kinds of data they can get and gauge consumers' attitudes towards it before rolling out a full product, Williams adds.

"We were really not interested right now in disrupting a good performing competitive auto insurance product that we have out there," he says. "We want to understand driving behavior, but also provide an easy quote. So in terms of being ready when the marketplace moves that way and the customer wants it, this is our way to get a start.

With a customer that overindexes into mobile and smartphones specifically, providing a great mobile experience is key to Direct's value proposition, he concludes.

"We're always looking to engage with our customer. It's really part of our origins in having the local office and the agent communication with the customer. As people are moving to mobile we wanted to have that same communication link," he says. "DriveFactor was interesting for us because most of the partners we talked to wanted to use a hardware device. But the more engaging we get with the social aspect, and the more relevant the app overall, they won't just download it and forget."

ABOUT THE AUTHOR
Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, ...