If it's possible to illustrate the term "usage-based insurance," the picture is probably of a small plastic device that plugs into a car's OBD-II port and transmits data to insurance companies. But even though component costs for these dongles are coming down, the model is still problematic, some industry players contend. Smartphone-based solutions are most commonly identified as the next step.
"As a consumer, my personal preference is that I'd rather have it on a smartphone," Esurance's UBI product manager Jon Inquimboy said in a panel discussion. "It's a pain to install an OBD device, and it's more than expected when I'm purchasing an insurance policy."
But installation isn't the only barrier insurers see. The Hartford innovation manager Steven Fernandes said in the same panel that insurance companies need to offer more than just a discount to customers in order to encourage adoption. Smartphones offer a much more vibrant opportunity to interact with customers than the OBD devices, Fernandes explained.
"We are using pricing as a way of acquiring customers, but I see a role for telematics in making the customer safer and lowering the cost of insurance for everyone," he says. "With smartphones, that's a new element that's being introduced, the customer will look at us and say, 'What else can I get?' Maybe roadside assistance or marketing services that are location-based."
Some vendors see the writing on the wall and are preparing smartphone-based turnkey usage-based insurance platforms. Driveway Software is a new entrant to the UBI market, but its driving performance app already has 150,000 subscribers. CEO Jake Diner says that the data the company has collected from those users has allowed it to build a platform competitive with any OBD-based system without the costs associated with device manufacturing or distribution.
"We believe that the nonstandard carriers will be the first to jump in on it -- they're more price-sensitive than everyone else," Diner says. "Then the midsize carriers in general. For them, it's easier to integrate into the systems, they have a shorter chain of command."
A common misconception is that smartphone driving data isn't as good or valuable as OBD-II data. Not so, says DriveFactor CTO Mack Fraser. DriveFactor provides turnkey UBI through several kinds of hardware: OBD-II, smartphone, and even a 12-volt device that is powered by a car's cigarette lighter.
"It's just a different algorithm" to tune out some of the "noise" of a device not secured in the car, Fraser says. "It takes some additional analytics, but when OBD devices came out, they had the same issues."
Rather, what's really holding back full-bore smartphone usage-based insurance adoption is the simple fact that it's not in the car 24/7/365. But insurers might have to discover a way to adapt their programs to that fact if momentum behind OBD-based programs continues to be somewhat tepid.