Fast Five: Five Thoughts on GEICO Entering the Telematics World

Digital Insurance announced on Wednesday that GEICO, long a notable telematics holdout, will be piloting a mobile-based UBI offering in several states. Here are five quick thoughts.

• The telematics “network effect” increases.As noted by Digital Insurance, customers will now have the option to try UBI at all 10 of the top 10 largest personal auto insurers. The “win” for telematics is when it becomes broadly accepted—even demanded—by a plurality of consumers. Every insurer that adds a telematics program is another set of drivers who have never been offered telematics.
• It’s a win for cell phone telematics data collection.It was already generally accepted that cell phones could collect accurate enough telematics data to support a UBI program, but GEICO going mobile-only is a big vote of confidence. That will lower the barrier of entry for smaller insurers looking for a turnkey solution, since they’ll be modeling their program on a top-tier carrier’s.
• Smaller carriers without telematics should watch their books.One of the upsides of telematics programs, for insurers, is that their risk book gradually improves as poor drivers self-select themselves out when their premiums increase at renewal. As telematics becomes more popular, those drivers have to go somewhere.
• Telematics isn’t going to become dominant overnight.Progressive’s Snapshot, the market leader in UBI policies, has been successful—to the tune of what Novarica estimates to be around $3B in premiums (up from $2B in 2013). But that still only represents 25-30% of Progressive’s personal auto book. Only 10-15% of drivers in the US have tried telematics-based programs. That’s always increasing, but we’re still far from telematics dominance.
• Telematics remains a great customer-engagement play.GEICO has worked gamification into the DriveEasy app, which should help create engagement. Customers don’t have to open the app to log trips, but they can open it to check their metrics, and most will do so. Gamification features are also a great way to improve actual driving behavior, which is an excellent benefit (and excellent selling point) of telematics programs.