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UBI Technology Challenging Old Insurance Industry Customer Relationship Practices

by Roger Lanctot | Mar 09, 2013

I have frequently expressed skepticism regarding the mass market potential of usage-based insurance and nothing about my experience with State Farm's DriveSafeandSave program has changed that viewpoint.  At a gut level, consumers tend to resist surrendering their privacy to participate in such a program.  Of course, younger demographic segments, including those surveyed by Strategy Analytics, have shown a unique willingness to surrender that privacy in exchange for economic value – ie. an auto insurance discount.

There is no question that there are pockets of consumer interest in UBI insurance especially where auto insurance rates are either universally high due to prevailing market conditions or prohibitively expensive for particular drivers.  To the extent that competitive forces fail to suppress insurance rates, UBI programs can become the only route to finding a lower premium.

This brings me to the more fundamental obstacle to widespread acceptance of UBI insurance: trust.  One of the advantages of UBI insurance that is frequently touted by analysts is its ability to change the customer relationship by increasingly the frequency of customer interactions and enabling a higher degree of transparency around the determination of the customer’s insurance rate.

The problem is that few insurance companies are set up to take advantage of this new customer service paradigm.  The industry is built around infrequent customer contact in order to minimize the unpleasantness of policy renewal or the filing of a claim.  This fact was brought home to me recently when I explored a UBI offer from my own insurance company, State Farm.

State Farm has more than 20,000 independent agents selling insurance nationwide.  Normally this is considered a huge market advantage, which is reflected in the fact that State Farm is one of the largest, if not the largest, auto insurer in the U.S.

My agent sent me a letter offering a 5% discount if I were to sign up for the company’s DriveSafeandSave program.  DriveSafeandSave is approximately two years old, but as with most such programs it has taken time for State Farm to secure state-by-state regulatory approval for the program.

DriveSafeandSave was made possible in large part by a cooperation with Hughes Telematics which supplied its In-Drive module – an OBDII plug-in – to enable the program.  But DriveSafeandSave also allows drives of Sync-equipped Ford’s or OnStar-equipped GM vehicles to participate via those devices.

The beauty of taking advantage of the offer being made to me by State Farm is the fact that State Farm already knows my driving history and the driving history of my entire family, all of whom are insured by the company.  This means, State Farm can offer me the 5% discount immediately without any need to conduct any credit or driving history check requiring the onerous process of filling out forms and answering probing questions.

I know about the potential complexity of pursuing the second route – evaluating alternative carriers – because I did submit information for quotes but quickly realized that get a precisely equivalent offer I not only had to include my homeowner’s coverage but would also have to spend a lot more time digging into the details of the different offers – which, by the way, have been pouring in.

So I contacted State Farm to ask about the DriveSafeandSave program and, for the first time ever, spoke directly to my agent.  For as long as I can remember I have only interacted with one of his assistants.

Surprisingly, my agent pleaded ignorance of the DriveSafeandSave offer in spite of the fact that the letter I had received in the mail had his signature on it.  At this point my agent told me that I must be talking about the box that was sitting on his desk.  Evidently an In-Drive device had been sent to him to perhaps use on his own car.

I immediately explained to him how UBI insurance worked generally along with what I knew of the DriveSafeandSave program.  He was genuinely interested and promised to follow-up.

By now you may be beginning to understand what I am talking about regarding a new customer service paradigm.  Insurance companies are essentially getting into the consumer electronics business, with all of the customer service and support implications that that implies.

Consumers will need help installing the device, understanding how it works, understanding their privacy rights and understanding the scope of the insurance company’s right to use their personal information.  In that regard, I received a phone call a couple days later from my agent’s assistant who wanted me to sit through a reading of the program’s user agreement and privacy statement and agree to all of its terms.

Thankfully, the assistant agreed to email the document to me after I had agreed to all of its clauses (see below).  Based on my indicated wishes, I should have, by now, received at least three In-Drive devices to affix to my cars – but more than two weeks have passed and I am still waiting.

The issues at stake in this new customer relationship are, therefore, not limited to trust.  Another key issue is expectations.  I am expecting to see devices show up at my home to be installed on my cars by me, after which I will be able to access the driving information of all of the correlated vehicles online.

I am still waiting and the longer I wait the more my trust is being undermined and my expectations unmet.  I am also waiting to see a clear statement reflecting the 5% discount in my aggregate premium.

There is no doubt that UBI insurance has the potential to alter the course of the insurance industry providing a tool to enable more accurate underwriting.  But as long as carriers remain mired in old customer relationship patterns they are not likely to reap the full rewards of UBI offers and the program will remain a niche offering for desperate customers like me seeking to insure young drivers.

The good news for my agent is that he has by now received from me several reports and blogs written on this subject and so, better than most State Farm agents, he now knows what this new program represents – ie. a chance to reach out and snatch customers from competing carriers.  With any luck he has installed the In-Drive module on his own car so that he can better understand and explain the technology and the service to his new and old customers alike.

User Agreement:    

(From the email message: "You have requested to enroll in the Drive Safe & Save with In-Drive program.   I must get your consent to the following: ")                                    

- You have the full right and authority to provide consent on behalf of all   

Named Insureds on the policy and the owner(s) or lessee(s) of the vehicle.  

- You understand and agree that Drive Safe & Save will impact the premium for 

the vehicle and any renewal, transfer, reinstatement, amended, substitute or

replacement vehicle unless a new consent is required by State Farm or until 

participation in the program is discontinued.                               

- You understand that if you are currently receiving a premium reduction for  

low estimated annual mileage as reflected on your policy renewal notice or  

declarations page, your premium may increase at a future renewal if the     

calculated annual mileage no longer fits those criteria.                    

- You understand your Drive Safe & Save discount amount may be adjusted at    

each renewal based on the collected driving information.                    

- You are or intend to be a Hughes Telematics, Inc. (HTI) In-Drive subscriber 

by installing the In-Drive device into the enrolled vehicle. You understand 

that if you do not install the device within 30 days, you will not be       

eligible for Drive Safe & Save.                                             

- You authorize HTI to provide State Farm with mileage and other vehicle usage

information, such as how, when, and most common areas (approximately 40     

square miles) the vehicle is driven.                                        

- You understand that the device you receive from HTI as an In-Drive          

subscriber must remain installed in the participating vehicle for you to    

remain eligible for the program.                                            

- You understand that you may not be eligible for the program if you cause    

State Farm to receive inaccurate data for the participating vehicle.        

- You understand the insurance premium as it relates to annual mileage will 

be based on vehicle miles driven as reported by HTI instead of estimated    

annual mileage. Also, you understand that other vehicle usage information 

obtained from HTI can impact your premium.   

- You authorize HTI to verify the status of your In-Drive enrollment and to   

provide information from the vehicle to State Farm.                         

- You authorize State Farm to share your contact and other policy information 

with HTI to facilitate your participation in Drive Safe & Save.             

- You release HTI and State Farm from any liability associated with the       

disclosure of information gathered through Drive Safe & Save and In-Drive.  

- You understand that any Named Insured can discontinue participation in the  

State Farm Drive Safe & Save at any time by notifying your State Farm agent.

- You will inform your State Farm agent if you are no longer an HTI           


- You will inform HTI and your State Farm agent if the vehicle is sold or     

transferred to a new owner or lessee. You will remove and return the In-Drive

device before the vehicle is transferred.                                   

Do you consent and wish to enroll in Drive Safe & Save?          Y       

Does the customer need a telematics device?      Y        (Y/N)       




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