The car insurance industry has seen many conversations around the pivotal role of digital technologies, product innovation, and customer-centricity as market differentiators. With these concepts, new terms have emerged to reflect the cutting-edge technologies and the upgraded ways of doing business. Understanding what they mean, how they differ, and what opportunities and constraints they entail, is essential to getting ahead of competitors.
The global automotive usage-based insurance market is expected to grow by 46.5 million units in the next three years, according to a recent report. Some technologies mentioned in the study are yet to reveal their full potential. Adopting them early could be a strategic breakthrough for many insurers looking to sustain profitable margins. This article explores some of these emerging concepts and discusses how you can leverage them to bring more value to customers and expand your share of wallets.
UBI has been around for almost a decade. Still, it is yet to cause a stir in the industry, as in the next five years, the UBI insurance market is set to grow by nearly 30%. This data-driven insurance model delivers personalized insurance offers based on customers’ behavioral data. It replaces policies based on driver cohorts with a method that accounts for each person’s driving skills and evolution. While traditional models rely on extremely generalized factors, like age and location, UBI models use telematics data for each individual.
Such a customized approach benefits customers by offering lower premiums, tailored discounts, and/or rewards based on the premise of safe driving. Attracted by better deals, many of them will consider it a more efficient insurance model than the traditional car insurance products. On the other hand, insurers who provide it can demonstrate fair rates and transparency that won’t go unnoticed by prospective customers.
Among the solutions insurers can use to collect UBI data, we can find dongles and blackboxes, connected car platforms, and mobile apps, providing customers and insurers with several options. Additionally, a few different product models fall under UBI, differing mainly in terms of the data they collect. For example, some models focus on driving habits, while others are concerned with where you drive and the distances covered. Let’s investigate some main approaches.
This is one of the primary UBI insurance product models, and it centers around studying the customer’s driving patterns to determine policy rates. Actions such as braking and gently accelerating are measured and factored into renewal calculations, helping customers achieve affordable rates. Motor insurers can benefit from this product model by attracting new drivers, as they always look for the lowest prices. Pay how you drive makes it possible. Making this option available can also help providers appeal to drivers who want to capitalize on their safe driving skills.
An alternative to traditional pay-how-you-drive insurance is to use the same driver insights to run a loyalty and rewards program. Through this approach, drivers accumulate points based on how they drive, which can then be exchanged for different discounts and benefits (e.g., garage discounts, life insurance discounts, policy renewal discounts…). For the insurer, following this approach means that there is no modification on the tariff and, hence, minimal administrative hassle. For the user, these types of programs offer great rewards which can be obtained just by driving safely.
Pay as you use is another insurance plan that helps drivers get the most convenient rates based on their driving habits. However, unlike pay how you drive, it focuses on the distances traveled rather than the drivers’ skills. The technology relies on telematics devices to collect the most accurate data for the insurers, who can then calculate the driving distance using mobile telematics software and invoice the customer based on how much he/she has driven in a given month. This model is great for people who drive less frequently than others, as they can benefit from reduced premiums compared to traditional insurance.
This is another time-based insurance product model that is sometimes called ‘hourly insurance’ or ‘pay as you go’ insurance. It measures customers’ hours behind the wheel and tailors insurance premiums accordingly. Many people seek this kind of insurance because of its versatility; not only can it be applied outside of auto insurance, but customers can also define the exact duration of their cover. This makes it a popular option for people using borrowed cars or for driving instructors, for example. Insurers can also benefit from an influx of customers needing this specific and convenient cover.
This concept has been around for a while in the telematics insurance space, and many customers are familiar with it, particularly young drivers. A black box is a small device installed in a discreet location within your vehicle. Modern data collection and analytics software send detailed information to insurers about how customers drive.
Insurers can see whether drivers exceed speed limits, directly impacting the insurance cover cost. Blackbox insurance rates can be much lower than traditional insurance, hence their popularity with young drivers or fleet owners.
Key takeaways: New technologies keep transforming the car insurance industry, bringing along novel concepts, ideas, terms, and jargon. Understanding them is key to staying on top of the game, and choosing the right approach to launching new insurance products that increase competitiveness and serve insureds better.
If you want to learn more about usage-based insurance products or capitalize on this rising trend, speak to one of our experts today.
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