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Producers who make the effort to understand its benefits may well find UBI to be their new best friend forever.

ISO Products Perspective

An agent's guide to UBI: Your new best friend

Usage-based insurance can save money for clients and boost agent compensation

By Isaac Wash, CPCU, and Jim Weiss, CPCU, FCAS, MAAA

A new kind of rating is quickly gaining traction with auto insurers, and producers who get up to speed with the most recent developments may find themselves at an advantage. Usage-based insurance, also known as "UBI," uses telematics technology to record information such as mileage, speeds, and times of day of operation from policyholders' vehicles. UBI is generally voluntary, and policyholders who install tracking devices in their vehicles have the opportunity to reduce their premiums.

UBI is unique because it doesn't just consider traditional rating variables, such as age, gender, or garaging address, but also the manner in which a vehicle is operated. Some are likely to find the approach to be intuitively appealing, but others may find UBI to be technologically complex. Producers who make the effort to understand its benefits may well find UBI to be their new best friend forever (BFF).

UBI and producers are natural allies. Agents and brokers might find that telematics are of particular interest to the large number of policyholders who believe they are "better than average" drivers who deserve discounts, or who are intellectually curious and want to learn more about their driving habits. In this regard, it has been reported that for one major U.S. personal auto writer, up to one in three of its direct-channel policyholders has participated in its UBI program. Conversely, without BFFs like producers, UBI may never evolve beyond present levels, and its benefits may largely go untapped. As long-time friends of UBI ourselves, we'd like to offer producers some practical information about what UBI can do and some potential "best practices" to help with implementation.

Let's start with UBI discounts. Under the recently introduced ISO multi-state program revisions, for example, potential UBI-related discounts range between 5% and 25%. Surcharges currently are nonexistent under the ISO program. To determine discounts, UBI programs typically consider multiple aspects of driving that can be divided into two categories: driving style and driving location. For driving style, we're talking about mileage, speeding, and dangerous maneuvering habits of drivers. Insurers that rate based on driving style may look at various combinations of these behaviors—some might even consider the behaviors in the context of where they happen (for instance, at intersections, near schools)—to determine a discount.

While UBI based on driving style is the norm, another approach is UBI based on driving location. To support that approach, Verisk's Telematics Suite offers a GeoMetric® rating tool, which uses auto risk information for more than 500,000 geographic subdivisions of the United States to determine the overall riskiness of insureds' routes. A related manual rule then assigns discounts at renewal to policyholders who tend to drive in safer areas than where they garage. Whatever the case may be, it's important that agents understand the way discounts are earned under a given insurer's UBI programs.

Discounts aside, some UBI program also may provide value to insureds via safety feedback that identifies areas of driving behavior that warrant improvement. This may be particularly appealing to parents with teen-aged children whose "youthful" driving style may make them more dangerous on the road. Driver feedback can be provided in many ways; a common way is via access to an online portal, accessible via Web browser or smartphone app, where drivers can view information about their driving habits. As an example, Verisk's Safety Scoring® portal gives a detailed review of driving habits. The portal shows an overall driving score, locations of risky maneuvers on a map, a trip journal, and a fuel efficiency rating.

Challenges and choices

UBI provides agents powerful tools that may be of interest to some of their customers, but it also presents unique challenges to both producers and the insurers they represent. The telematics technology required to power UBI often finds insurers fronting substantial costs, so agents may find it useful to obtain clear guidelines from their insurers with regard to enrolling insureds in UBI. This will help ensure that business objectives are accomplished. For example, a program that is intended to encourage safe driving behaviors may be most effectively marketed to drivers who have had recent accidents (and who then are, statistically speaking, more likely to have additional accidents). This approach may help a UBI program succeed financially by making safety incentives available to the individuals who are most in need of improvement. This can help insurers build a more profitable book of business, which in turn may result in higher contingent commissions for agents down the road because of a reduced number of claims.

Establishing such guidelines between agents and insurers also serves purposes beyond financial ones. Because UBI is a relatively new concept, it understandably has drawn attention from regulators and consumer advocates. So far, that attention has been mostly favorable because of the client-friendly nature of many UBI programs. However, carelessness or lack of discipline in administering the programs could easily draw unfavorable attention even to those who have the best of intentions. Appropriate underwriting and marketing guidelines should be developed to help agents avoid stepping on "land mines."

Ultimately, UBI's resonance with the public may be less dependent on guidelines than on agents' patient and empathetic dialogue with policyholders. Insureds potentially have much to gain from UBI—both financially and in terms of safety. However, insureds first must agree to the typically detailed data collection and related processes that record their driving habits. A recent ISO survey found that only about 40% of respondents were inclined to share information such as speed, acceleration, and braking (which are commonly used in UBI) with their insurance companies for the purpose of determining premiums. Such apprehension will require agents and insurers to educate policyholders about the innocuous nature of telematics and how data privacy issues are addressed.

If UBI is to achieve greater acceptance in the market (and thereby benefit agents), agents will need to be the "voice" of this new technology. Educational literature and consent forms are important, but the human touch may be more critical to building fruitful and long-lasting relationships with UBI policyholders. In this way, the feeling becomes mutual—UBI can be agents' BFF and agents in turn can be the BFF of UBI.

The authors

Isaac Wash is a business analyst II, Commercial Automobile, ISO Insurance Programs and Analytic Services. Jim Weiss is manager, Personal Automobile Actuarial, ISO Insurance Programs and Analytic Services. ISO is a member of the Verisk Insurance Solutions group at Verisk Analytics.

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