Deloitte's latest report, "Overcoming speed bumps on the road to telematics: Challenges and opportunities facing auto insurers," discusses the future of UBI products in the market, how insurers can differentiate themselves with telematics, gaining actionable insights, addressing oversight concerns and next steps.

Click through the following slides to learn more about overcoming the challenges associated with telematics and how insurers can differentiate themselves with the technology.

Navigating the obstacle course

Before integrating UBI into their product line, insurers must convince consumers that it is worth their while, which may be a challenge according to recent data that reveals that half of all customers are not ready for UBI.

Carriers need to convince customers that monitoring benefits them, and a way of attracting drivers to telematics monitoring programs is to lure them with a lower premium charge. New UBI programs often provide a discount based only on participation, not actual performance, and carriers collect critical mass data to determine how to effectively leverage it for predictive modeling.

Both the insurer and the customer would stand to benefit in this initial stage, as the consumer is incentivized by the discount, while the insurer gathers valuable information. As insurers build large, statistically and actuarially credible UBI data sets, the price cuts will eventually have to be translated into earned discounts based on actual driving experience.

Insurers may have to sacrifice some margin in the initial stages of telematics, with discounts being part of the acquisition cost to enroll a new policyholder or gather additional data from a current one. Over time, though, if the driver develops a relationship with the insurer, and receives and heeds safety tips from the insurer based on their monitored driving behavior, loss costs would decline, retention would increase and margins would improve.

At the same time, data gathered from telematics can help insurers improve segmentation, underwriting and pricing accuracy, which could also bolster profit margins.

In the early stages, first-movers have the opportunity to increase their market share by offering discounted coverage, but once the market reaches saturation, it is unlikely that UBI insurers can grow their business by selling telematics based on discounts alone.

To boost retention and differentiate UBI offerings, Deloitte believes carriers will likely have to offer more value-added telematics services. Insurers will reach a stage where de-commoditizing the product is important, differentiating themselves from competitors.

Moving beyond a price focus

While a discounted premium may be enough to lure customers initially, the development of a UBI program opens the door for a new level of customer engagement by creating a mutually beneficial customer experience that Deloitte calls this the "holy grail for insurers."

According to Deloitte, this experience is created by establishing a brand stickiness by offering ongoing value to policyholders beyond the price charged for coverage and claim services provided. In order to differentiate themselves with telematics, UBI carriers can offer a variety of value-added features for customers. The survey provides the following suggestions:

• Provide immediate feedback on how customers could drive more safely
• Alert drivers about potentially hazardous road conditions and traffic slowdowns
• Facilitate roadside assistance and claims notification in the event of an accident
• Locate lost or stolen vehicles
• Geo-fence to allow parents to monitor a teenage driver's location and driving behavior
• Monitor how "green" a driver is by measuring the impact of their driving behavior on their carbon footprint

Making insurance "fun" with telematics

Insurers can leverage telematics to foster customer loyalty among policy holders. Developing rewards for good or improved driving behavior, relative to their own performance or the performance of the broader policy holder pool, groups, or individuals can make the application of telematics fun for customers. The experience becomes more interactive for policyholders and perhaps foster competition and gratification.

One major part of this process would be offering incentives for behavior that prevents losses. This would make insurance more proactive and prevention-driven, with the goal of creating value for the carrier and customer by encouraging loyalty, but also safe driving practices.

Incentives could potentially go beyond traditional benefits such as lower deductibles and higher limits. Insurers could also give policyholders the option to redeem their points for auto repairs, car washes, detailing, gas discounts or other perks. Not only do the loyalty points benefit the customers, but they could also help the insurer's retention value, as customers may be less likely to switch if it means surrendering the loyalty points they have earned.

Similarly, carriers can support the "fun" aspects of telematics by making insurance a "game" for policyholders through telematics monitoring. A weekly or monthly driving competition, for example, offered among family members or friends insured by the same company would encourage good driving behavior, but also could be an incentive for policyholders to refer friends to their carrier.

Overcoming privacy concerns

Despite some of the potential benefits of telematics monitoring, a potential source of resistance to widespread implementation is, of course, privacy. The notion of sharing so much personal driving data with insurers can be a concern for some policyholders, and many are not comfortable with the idea of a virtual backseat driver, monitoring their every move behind the wheel. Others may be concerned about hackers.

Although there are naysayers fully against the concept of monitoring, there are some who do not oppose the idea of monitoring in theory, but fear data privacy breaches and cyber security measures. Others are concerned that their data may be seized by other official channels, including law enforcement, seeking someone's driving history for criminal or civil actions.

These concerns may be alleviated by putting them into context, according to the Deloitte survey. By pointing out the other technologies that already monitor driving, including traffic cameras, it is clear that enhanced surveillance and geo-locational capabilities are already integrated into the present day, for better or worse.

On the whole, though, UBI carriers can emphasize the potential advantages to drivers that telematics offer, and stress how the product would be worthwhile for consumers, despite privacy consideration. The Deloitte survey revealed that a significant segment, especially among younger respondents, are open to trading personal data for some sort of value proposition.

Deloitte suggests that gaining widespread acceptance and adoption of UBI programs will require insurers to engage in proactive communication and education with the consumer. Consumers, in particular, should be aware of the benefits of sharing their personal driving habits. If the consumer stands to gain something, whether it is lower rates or rewards, and they believe their data is secure, he will be more likely to adopt telematics monitoring, despite any lingering concerns about personal privacy or cyber security.