How the top auto insurers tackle telematics in 2021

Usage-based insurance is a quarter-century year old concept in auto insurance… and what a quarter century it’s been. Over the years, the digital technology required to more closely tie auto insurance rates to driving habits has improved. Early implementations in the UK required modifications to the vehicle to install, suppressing the potential customer base and also lacking sustainability. Plug-in devices brought set-it-and-forget-it convenience, but required a manufacturing and delivery supply chain.

Today, most usage-based insurance launches depend on the ubiquitous smartphone, pocket-sized computing power that has saturated the market. In addition, automakers are rolling cars out with increasingly powerful and user-friendly computing systems installed, allowing API-based integration with the insurance industry.

Lower-friction technology is only part of the battle. Recent S&P research found that only 9% of insurance policyholders were using their UBI mobile app. Insurers also need to sell customers on the value of using UBI technology. For years, raw discounts were the customer-acquisition tool of choice, but that still presented an adverse selection problem: If all the best drivers switched to UBI for the discount, the remaining group would have to see rates rise -- a PR disaster waiting to happen.

The COVID-19 pandemic, however, has changed the calculus on driving for many across the country. Transition to working from home has led people to wonder: "Can I pay less for my car insurance because I’m driving less, and exposing myself to less risk on the roads?" This concept surfaced in reporting over the pandemic fallout era with companies from USAA to Allstate reporting higher take-up of UBI, especially by new customers.

Digital Insurance set out to ask the top auto insurance companies (according to NAIC market share data) to take stock of their current UBI offerings, and find out how that’s translating into an install base. Following is the information we gathered through our outreach. -- Nathan Golia