Where’s the ROI in UBI?

Pat Speer
Insurance Experts' Forum, October 29, 2013

Depending on which report you read, somewhere between 3 million and 5 million drivers are now taking advantage of telematics-fueled usage-based insurance (UBI) programs worldwide. Aite Group believes that the larger figure includes commercial lines, so on a global scale the UBI market has remained relatively small and undeveloped. Aite Group estimates that by the end of this year, 75 P&C carriers (out of a universe of 3,500) will have launched UBI pilots in the United States.

This relatively unimpressive number is about to change, however, as advancements in telematics technologies, along with an approximate 80 percent drop in hardware costs, ratchet up the industry’s interest in UBI. Consider that automakers will have added 1 billion new cars on roads around the world by 2023, about 150 million of them in the United States alone. These cars will be outfitted with a variety of standard telematics technologies, creating a consumer expectation and an opportunity for insurers that want to get in the UBI game. The vendor community is anxious to be included in the playbook, too. Aite Group estimates that more than 250 vendors are champing at the bit for their share of the UBI market.

Even the traditional private passenger auto insurance model, in which “safe” drivers end up subsidizing “riskier” drivers, is being challenged with the promise of improved underwriting via the use of additional risk classifications and rating based on actual driving behavior (versus proxies).

Yet with all the hype surrounding UBI, some P&C insurers are scratching their heads, wondering what all the fuss is about. At a recent panel discussion held as part of the Insurance Telematics USA 2013 conference, an insurer responded to a question concerning UBI ROI, stating “I’ll believe it when I see it.” This comment is not surprising in light of the industry’s risk-averse culture; after all, the hallmark of the industry’s financial accomplishments has been its successful “risk in moderation” approach.

True, there are not a lot of hard numbers to report related to Tier-1 or Tier-2 carriers’ ROI. Not yet, anyway. Based on ongoing research, we can report impressive soft metrics, such as customer satisfaction, stickiness, brand recognition, establishment of trust, and the opportunity to engage online with the customer continually and on the customer’s terms.

Insurers on the fence about whether to include UBI in their personal lines auto products should also consider what their customers want. Overall consumer awareness and acceptance of pay-as-you-drive insurance is growing. Previous Aite Group research holds that 56 percent of North American consumers surveyed would be interested in saving costs via discounts based on allowing carriers to monitor their driving.

Can those auto insurers who choose to wait for solid ROI figures afford to put caution ahead of a forward-thinking UBI strategy? As these cautionary insurers take time to consider their UBI value proposition and its predicted ROI, their early adopter competitors offering UBI will attract the better drivers, leaving behind a weak-looking risk pool, along with the dregs of mispriced or under-priced risks.

This blog has been reprinted with permission from Aite Group.

Pat Speer is an analyst in Aite Group’s insurance practice.

Readers are encouraged to respond to Pat Speer using the “Add Your Comments” box below. She also can be reached at

The opinions of bloggers on do not necessarily reflect those of Insurance Networking News.

Comments (2)

Jake, I'm not convinced that UBI adoption is slowing, rather, it's nascent as insurers try to educate customers on the primary benefits of such a program (i.e., discounts). Carriers' cost and scalability challenges notwithstanding, they face a host of other issues, such as the type of usage-based insurance program to offer (pay as you drive versus pay how you drive) and the best possible device/application option. For example, our research shows that even though telematics device costs have dropped from an estimated US$400 five years ago to between US$75 and US$150 today, this doesn't necessarily mean devices (versus smartphone apps) are the optimal choice. Let's face it: Insurers that opt to offer UBI have an opportunity to profit from enhanced rating accuracy and engage with their customers in ways never before considered. But it will be the customers that decide what they want and how they want it.

Posted by: PATRICIA S | November 7, 2013 11:49 AM

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in your mind what are biggest factors slowing UBI adoption? From what we hear it is primarily the cost and lack of scalability to enable UBI program. When I think about it - sending a device to the customer, asking him/her to plug it in, and paying the cost for wireless data transmission are the most obvious barriers. There are others making it even more expensive or cumbersome, but at the end of the day - if the customer (driver) is asking for it - insurers must comply....

Posted by: Jake Diner | November 6, 2013 8:10 PM

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