Progressive is eyeing a way to offer bigger auto insurance discounts to safe motorists enrolled in its driver-monitoring program Snapshot, but it would come at the cost of surcharges penalizing motorists who are riskier when behind the wheel.
Snapshot is powered by a device plugged into the vehicle (pictured) utilizing telematics, an information technology that measures users’ driving data, including what times drivers are on the road and how they apply their brakes. According to Progressive, current lower-risk drivers in the Snapshot program—like those who don’t drive at night and are soft on their brakes—have saved an average of $150 a year on their car policies.
Under its current model, Snapshot participants exhibiting riskier tendencies behind the wheel aren’t charged higher premiums. But a model is in the works that would surcharge worse Snapshot drivers as Progressive executives seek out the next step for its flagship usage-based insurance (UBI) program.
‘Surcharge Model’ Could Be Part of ‘Evolving’ Snapshot
Through a spokesman, Progressive told Online Auto Insurance News (OAIN) that the “surcharge model” is an option that the car insurance company is continuing to “research and evaluate” for its “evolving” Snapshot program.
Under the model, riskier drivers could be surcharged, but safer drivers could also get bigger discounts on their insurance policy.
“[It] would give us flexibility to offer larger discounts to safer drivers and charge a fairer price for the small percentage of drivers whose driving data suggest they represent a higher risk for accidents,” according to the statement provided to OAIN.
David Pratt, Progressive’s general manager of UBI, told Forbes earlier this month that, under the proposal, about 80 percent of Snapshot users would get discounts on coverage but “some people will actually pay a little more,” adding that the surcharge could be capped at 10 percent of the policy’s total cost.
Progressive could introduce the model next year, Pratt told Forbes.
The direct-to-consumer car insurer hasn’t avoided linking the topics of risk and premiums before. Its Rate Suckers advertisements kicked off in April and offered comic views on how car insurance works. Better drivers, according to the marketing campaign, subsidize worse drivers through their premiums.
“A Rate Sucker is simply an over-the-top manifestation of an underpriced driver and can be anybody—your mom, the guy next door, the waiter at your favorite restaurant,” Jeff Charney, chief marketing officer at Progressive, said in a statement about the new campaign. “We all probably know somebody we’re subsidizing. Snapshot helps solve that problem, showing consumers that their good driving can reduce the impact other drivers have on their rate. This campaign is our line in the sand to the industry and a wakeup call to consumers.”
But Progressive wants to turn up the volume on that wakeup call. CEO Glenn Renwick told investors during a conference call this month that the company is “trying to find the message that actually moves the needle.”
Whether it’s a lack of awareness or concerns about data privacy, Progressive is still facing obstacles in getting consumers on board with a program measuring driving behavior. According to Renwick, company research showed that 2 out of every 5 Snapshot prospects said they would not enroll in the program.
“Intellectually, I kind of go, ‘why wouldn’t 100 percent of people take that option?’” he told investors.
Meanwhile, Progressive told OAIN that its “commitment to Snapshot remains unchanged.”
Indeed, the insurer hasn’t shied away from developing the program. In June, Progressive announced a licensing deal with USAA for intellectual property rights to Snapshot’s telematics technology. It also recently implemented a U.S. patent, awarded last year, which beeps to alert hard-braking Snapshot drivers, providing “instant feedback [that] can help you improve your driving.”
“[We] have made no decisions on the future product design or timing at this point,” the statement to OAIN read. “We’ll communicate any changes to the program well in advance, and existing Snapshot customers will not be affected by future changes to the program.”
Major Insurers Bank on UBI Programs—But Not All
A major survey on telematics recently showed that Snapshot was, by far, the most well-known of all UBI programs among major insurance companies.
But those other insurers are looking to close the gap.
In the past year, both Allstate and State Farm have expanded availability of their UBI programs, respectively called Drivewise and Drive Safe and Save, with further expansion of those programs expected.
Allstate spokesman Justin Herndon told OAIN that, despite rising awareness of major insurers’ different UBI offerings, Allstate is focused on Drivewise’s impact on motorists’ safety and not how it compares to other insurance programs based on driving habits.
“We, ultimately, want to create a more self-aware driver,” he said. “Our theory now is that it’s all about safety.”
Herndon added that driver-behavior programs provide advantages to the entire industry.
“More safe drivers out there means fewer accidents and fewer claims, and that means lower costs for insurers and better prices for customers,” he said.
However, passengers on the UBI bandwagon don’t include all major insurers.
GEICO—which, along with State Farm, Progressive and Allstate form the nation’s largest providers of car coverage—is conspicuously absent from the line of major insurance carriers offering UBI products.
Telematics was addressed shortly by Warren Buffett at Berkshire Hathaway’s annual shareholders meeting in May, when major media outlets reported that the CEO expressed no plans for his direct-to-consumer car insurer GEICO to offer a UBI program.
The Wall Street Journal reported that Buffett told the crowd that he did not see programs based on driver behavior “as being a major change.”
“Our risk selection is working extremely well,” he said.