some believe Progressive has failed to
capitalize on the secondary aspect of
what telematics has to offer—improving
the driving skills of its customers.
“Progressive is trying to find the
best driving risks, but they aren’t set up
to provide improvements in driving be-
havior,” says Karlyn Carnahan, research
director for Celent. “Some carriers that
have been going into telematics have
been focused on an opposite proposi-
tion: how to improve driving behavior,
reduce accidents, reduce claims, and
reduce the amount of premiums paid.”
Pratt disagrees with that assessment.
One of the things that excites him about
UBI is that it is new and evolving. A
couple of years ago Progressive added
an audio feedback feature so after a hard
brake the customer hears a beep.
“Getting that immediate feedback
trains drivers to be aware of situations
when they have to hit the brake hard,”
he says. “We are confident customers
have had fewer accidents because of that
feedback. If we can help people drive
safer that could be a powerful change for
the insurance business.”
A great deal of Progressive’s success
has come from its marketing efforts and
Pratt doesn’t believe that will slow down
“We need to continue our marketing
effort so consumers recognize Progressive
as the company that has Snapshot,” he says.
“We need to take advantage of the lead that
we have and the mind for insight that allows
us to stay ahead of the competition. If we
know which drivers are the safest we can
give them the best deal with Progressive.”
Slow Adoption Thus Far
A year ago there was much excitement
over Progressive’s offer to sign competitors
to licensing deals as long as the insurers
held off on implementing a UBI program until June of 2015. Richard Welch,
vice president of corporate planning for
Concord Group and a close observer of
the telematics business, expressed surprise
that more insurers didn’t take advantage of
the Progressive offer because Progressive
wasn’t charging a big price.
Patience has paid off for some,
though, as Liberty Mutual won a patent
case against Progressive in late March
that struck down three of the carrier’s
seven patents, although Progressive announced it was appealing the decision.
“Insurers weren’t necessarily sitting
around waiting for a court decision. But
I thought there would have been more
movement,” said Welch. “On the other
hand, Progressive succeeded in proving the
business model. About one-third of their
new customers use UBI. That’s significant.
Doubters felt there wasn’t a big enough
portion of the insured public that would
Welch believes Progressive is sitting
in the catbird seat.
“By the time the rest of industry starts
to catch up, Progressive will have a huge
lead. It will be interesting to see how that
plays out,” he says.
Carriers didn’t join with the Progressive licensing program because telematics is expensive to begin with, points out
Carnahan, and if insurers had to pay
a license fee and sit through a waiting
period, that just added more barriers.
Chad Hersh, managing director of
the insurance practice for Novarica,
believes there is a smaller push by consumers for telematics, in part because in
the U.S. there are much weaker privacy
regulations compared to Europe. In
the UK, where telematics is extremely
popular, people feel comfortable giving
insurance companies their information
because it is well protected.
“There are other carriers starting
to introduce telematics products,” says
Hersh. “Some are working around the
Progressive patents, some have sued Pro-
gressive and won. There is a fair amount
of opportunity to really go after that
market. However, they have to be mindful
of the fact Progressive got the first wave—
Part of the challenge for insurers is
UBI relies heavily on technology, so it’s
something carriers have to prepare for
and some insurers aren’t there yet.
“The billing system has to be pre-
pared for it; your policy system has to be
ready for the products to be developed;
your underlying data warehouse or
analytics have to be mature; you have
to understand the patterns and what
discounts will apply,” says Hersh.
UBI is optional for Progressive
customers and the insurer tries to price
both the UBI product and the traditional
personal auto policies so profit margins
are the same for the people who sign up
for Snapshot vs. the people that don’t.
“We don’t want the people who do
UBI to subsidize the people that don’t,”
says Pratt. “Progressive doesn’t want ad-
verse selection. I hope if we still have the
best UBI program we attract more of the
good drivers to Progressive. In my world
it creates adverse selection against the
competition, but no such thing within
Hersh believes there was a natural
market for UBI. Drivers that were the
best risks and early adopters were going
to be the ones to sign up initially.
“It’s why you come up with a product
like that—something that rewards being
a good risk and allows you to pull in a
pool of great risks,” he says. “After that
initial rush it’s not necessarily clear how
much you want that rush to continue.”
Trouble for the Midtier
Telematics is a major issue for midtier
carriers, but those Carnahan has spoken
with have smaller R&D budgets.
“How does a $250 million insurance
carrier compete against a $5 billion carrier
when it comes to investment?” she asks.
Devices such as Progressive’s cost
money, explains Carnahan, as does
transmitting the data, storing the data,
analyzing the data, sending back the device, and putting together a new policy.
“There is a huge array of costs
associated with capturing and leverag-
ing telematics data,” says Carnahan. “A
midtier says this is a huge investment
and when they look around they see a
low take-up rate. Less than one percent
of U.S. drivers are using UBI and 95 per-
cent of those are using Progressive.”
Working with a mutual carrier,
Welch explains that Concord is interest-