Major auto insurers spent well into the billions on traditional advertising in 2020, amidst a rocky period of pandemic rebates and changing consumer preferences. But now more than ever, carriers need to change the way they approach marketing and advertising. That’s a fact that the industry can’t ignore, as previous customer acquisition tactics simply don’t cut it today, for two primary reasons.
First, digital channels and personalized, streamlined, and efficient customer experiences are now taking precedence among consumers. According to McKinsey, “Whatever products and services an insurer offers, customers want to access them across a range of channels where they enjoy the same high-quality experience that they are used to from other industries, such as retail. And they want to be able to switch from one to another without the disruption of having to repeat themselves or re-enter data.”
A J.D. Power 2021 U.S. Insurance Digital Experience Study also found that mobile app usage is up 26% since 2020. As an insurer, if you aren’t leveraging these digital channels to provide better, more streamlined experiences, you risk the possibility of sinking beyond repair.
Second, when it comes to acquiring preferred risk, traditional factors in insurance scoring like credit score, gender, and age are losing traction by an increasing number of US states. And insurers who’ve attempted to solve this by leveraging traditional telematics programs have faced big obstacles, particularly when it comes to accessing behavioral data for customer acquisition purposes.
The time has come for carriers to fully rethink customer acquisition in the auto insurance world. In this guide, we’ll explore how the industry got here, how the market should approach preferred risk insurance today, and how that carries over into easing big picture problems like long-term profitability and retention. Let’s dive in.
Barriers to preferred risk auto insurance: Why customer acquisition needs an overhaul
Leveraging the right channels, cost-effectively
In 2022, growth in the $311 billion auto insurance industry is predicted to stagger. Since 2016, the industry has grown by an average of 2.3% per year, but by the end of 2021, that growth is expected to lower to just 0.7%. And while auto insurance rates are rising, as are costs incurred by insurers.
One big problem that insurers face today are barriers to acquiring preferred risk. Previous, outdated customer acquisition methods are now barely sufficient in keeping insurers on a path toward profitability. Why? Let’s look at the stats.
1. Ineffectiveness of insurance advertising
Industry spending on advertising slightly decreased in 2020, but spending had risen by nearly 20% in 2019 (and the volume of consumers responding to online display ads grew by 50%). But the overall effectiveness of auto insurance advertising must be called into question.
In an insurance advertisement study that surveyed over 300,000 consumers from 2008-2016, the University of Delaware’s Yi-Lin Tsai and UCLA Anderson’s Elisabeth Honka found that advertising did not affect consumers’ auto insurance brand preference when it came to getting quotes and purchasing insurance.
TV ads, for example, do affect brand recognition and recall, but don’t impact buying decisions, the study found.
2. The smart embedded insurance opportunity
As the Baloise Group states, “today’s insurers are operating in an entirely different distribution paradigm, one where data science, artificial intelligence, and real-time communication systems are all counted as part of their formidable 21st-century financial services arsenal.”
And according to J.D. Power, for the first time ever in 2019, online consumer experience outweighed the agent experience in terms of customer satisfaction.
Here’s where embedded insurance, a $3 trillion market opportunity, could be crucial for the auto insurance industry. Embedded insurance, which bundles coverage or protections within a purchase of a product, service, or platform, is attached to one main goal: “getting more affordable, relevant, and personalized insurance to people when and where they need it most.” Insurance is sold as an embedded or native feature, providing customers with a completely seamless and hassle-free digital purchasing experience.
If insurers can get access to relevant, accurate data, perform real-time risk assessments, and set their prices accordingly, they “can embed their products virtually anywhere there is risk.”
“As economies, technologies, and market dynamics continue to evolve, an incredible opportunity has emerged for insurers – one that promises to turn that old maxim forever on its ear and revolutionize the way insurance is bought and sold. Enter embedded insurance.” - Baloise Group, 2020
All of this underscores the fact that insurers may soon have little choice but to fully embrace these types of digital, embedded distribution channels in order to acquire new business.
But in order to fully benefit from this opportunity, auto insurers should consider smart embedded insurance, backed by Mobility Risk Intelligence (MRI), to implement these new customer acquisition tactics while ensuring they’re both less costly and more effective.
Offering fairer prices to customers
Banning of credit scores & other demographic scoring factors
Having long relied on credit scores in preferred risk classification, insurers are now facing state-wide bans on the use of these factors, along with the use of other demographic data. Many regulators consider using factors like credit scores to price policies to be unfair or biased, making it harder for certain groups like minorities to access affordable insurance - regardless of how they drive.
The Consumer Federation of America, for example, found in its 2015 report that drivers with “good” credit scores paid $214 more than drivers with “excellent” credit scores. And in the state of Washington, the study found that drivers that had excellent credit but had been convicted for a DUI paid $847 less in premiums than drivers with clean records, but poor credit.
In both instances, actual driving behavior was not considered. More recently, a 2020 NerdWallet analysis found that drivers with poor credit face 75% higher rates on average, compared to those with good credit - again, regardless of how they drive.
Using driving behavior to attract quality insurance leads
Due to limited access to credible behavioral and contextual insights, insurers haven't been able to find a way to provide personalized quotes to drivers based on their driving behavior.
Meanwhile, the pressure is on to find and secure the best drivers as policyholders, as 20% of drivers with the worst driving behaviors are responsible for more than 50% of all auto claims. To dodge high costs related to risky drivers, insurers need a better way of identifying applicants with poor driving habits.
The auto insurance lead qualification solution for a new age of embedded experiences
With increased demand for fairer pricing and fully digital, personalized customer experiences alongside a need to cut costs, insurers must leverage AI- and ML-powered digital platforms to acquire preferred risk using accurate driving data. They can use this data, gathered from short test drive programs targeted to specific audiences, to offer fairer and cheaper personalized quotes right at the point of sale.
The result? Improved expense ratios and loss ratios, better auto insurance prices for many drivers, and improved customer experiences - all leading to long-term profitability and retention.
Introducing Insurance Qualification Lens (IQL)
Ultimately, traditional risk factors aren’t enough for accurate underwriting and segmentation. Here’s where the Insurance Qualification Lens (IQL) comes in, powered by Zendrive’s Mobility Risk Intelligence (MRI) platform. As a smart embedded insurance solution, IQL allows insurers to offer personalized quotes to safe drivers based on their actual driving behavior.
Revolutionizing preferred risk: How IQL works
The trial period: Short, try-before-you-buy test drive experiences
With Zendrive’s Insurance Qualification Lens platform, insurers offer prospects a digital test drive experience at the point of sale, which helps them determine how they drive within a month’s time - without the need for these prospective customers to implement any costly hardware. Once driving data is collected, insurers can use this information to identify the best drivers and offer the most fairly, accurately priced policies to customers.
Let’s take a closer look at how this acquisition model works, step-by-step:
- Insurer joins the IQL platform. By joining the IQL platform, the insurer gets access to Zendrive's vast publisher network. This app network allows insurers to provide personalized embedded experiences within some of the most widely used consumer apps.
- Prospective customers sign up for a digital test drive. Embedded in-app ads direct consumers to sign up for a digital test drive experience.
- IQL assigns a risk score following each trip. Over the course of a given test drive trip, Zendrive's proprietary scoring model analyzes and scores driving behavior. Data points like drive time, distance driven, driving speed, driving behaviors, and distracted driving are gathered and calibrated, and turned into a driver risk score based on the insurer’s specific requirements. That score evaluates and measures the driver’s behavior.
- IQL assigns an overall driver risk score to qualify customers. Once multiple trips have been taken over the test drive period, the scores from each trip are accumulated and turned into an overall driver risk score. This score is used to qualify or disqualify the prospect for an offer that’s discounted based on their degree of risk. If qualified, the customer can get a personalized quote on a specific insurer landing page, saving about 10-40 percent.
Key benefits of IQL
The four simple steps to the IQL platform above offer app publishers, insurers, and policyholders important benefits, generating a win-win-win effect.
The app publisher earns high-margin revenue, while offering added value to their app; insurers convert more leads at lower costs; and qualified customers get discounted auto policies, priced fairly on how they drive - all through a seamless, embedded digital experience.
What’s more, that fairer price and solid experience goes a long way - insurers are more apt to retain customers, and secure long-term profitability, because of both.
Below are the key benefits of IQL for auto insurers:
- Improved expense ratios: Limited ad spending and use of cost-effective, direct channels that have higher conversion rates than traditional marketing and advertising methods.
- Improved loss ratios: Minimized risk of acquiring non-preferred risk.
- Fair, transparent, accurate scoring: Ability to accurately score driving behavior, taking into account the insurer’s defined lead qualification criteria.
- Ease of adoption: The ability to build in-app acquisition channels and experiences to bring personalized quotes to large audiences without friction.
- Ecosystem relationships: Insurers can leverage Zendrive’s ecosystem to extend their offering to millions of users via tailored try-before-you-buy programs. Each app publisher within the extensive network can open doors to new and different segments of audiences - from millennials, to 60+, to homeowners, and beyond.
- Higher customer satisfaction & retention: Seamless digital, personalized experiences lead to higher customer satisfaction.
- Embrace the embedded insurance journey: Insurers have a huge opportunity to partner with providers of financial services and other app publishers to create a truly embedded experience for users.
- Abundance of accurate, meaningful data: Test drives taken by prospects give insurers access to accurate, meaningful data about how they drive. If qualified drivers don’t convert, their driving data can be leveraged in future retargeting campaigns. That leads to better chances of bringing on the best drivers.
- Long-term profitability and retention: Personalized digital experiences as well as fair prices based on driving behavior lead to higher customer retention, extend LTV, and ultimately boost long-term profitability.
IQL's top features
The stand-out features of the IQL solution include:
- Rating factors: Make insurance fairer by including rating factors with higher risk predictiveness.
- Contextual risk signals: IQL’s targeting capabilities, and ability to identify driving patterns like highway vs. roadway driving, nighttime vs. daytime driving, etc.
- Unique embedded test drive experiences: Make the entire test drive experience easy, seamless, and memorable for prospective customers.
- Reach millions of safe drivers in weeks: Scale fast with Zendrive’s Mobility Risk Intelligence technology, extensive network of app publishers, and attentive support team.
- Define your own lead generation criteria: Use your own criteria to generate your own risk score or leverage Zendrive’s industry-leading score to target and acquire the best drivers.
- No costly, time-consuming installations or integrations: No additional hardware or software integrations are required for IQL.
- Flexibility in providing data: Get access to data in your preferred format. If insurers need to follow a specific model in accordance with filing/integration requirements, Zendrive will adapt.
- Privacy by design: Ensure privacy with anonymized driver IDs and Zendrive’s GDPR compliant user privacy practices.
Case study: One of the leading US app publishers
In late 2020, a leading US consumer technology platform was looking to expand its auto insurance offerings. Factoring in the growth opportunity among its heavily millennial customer base, it partnered with a tier 1 insurer and Zendrive to create a new offering.
The program allows the consumer app's members in 42 states to save more on auto insurance with a data-driven digital test drive experience. Based on their driving score, they may qualify for exclusive savings through the program. Members also receive feedback on their driving behavior, which helps them improve as drivers overall. The program was rolled out in early 2021, and by mid-year, it already had hundreds of thousands of users opted in.
Zendrive is helping its top tier insurance partner reach millions of qualified users through this US app publisher, creating a win-win-win for all. Below are a few highlights of the partnership:
- Zendrive data can be calibrated to the insurer's needs
- An experience that allows end users to “try before they buy”
- Upon qualification, end users get an exclusive, material savings
- The partnership with a top insurer enables Zendrive to bring an extensive network of publishers
Why IQL and why now?
Why should auto insurers today implement Zendrive’s IQL solution, and why now?
One-of-a-kind on the market today, IQL ultimately helps insurers across the globe:
- Increase retention: By offering better pricing and programs to their customers, retention is likely to be higher, driving higher LTV and profitability.
- Avoid adverse selection: The bottom quartile of drivers will seek insurance elsewhere, leaving the riskiest and least profitable drivers to others (“adverse selection”).
- Gain a first-mover advantage: To get ahead of the curve in the next 5 years and capitalize on a smart embedded insurance opportunity, long-term investment is necessary. These programs get exponentially more difficult with time.
Ultimately, insurers who act now to adopt a smartphone-centric, Mobility Risk Intelligence-based strategy with IQL will not only take advantage of benefits like cutting CAC and other expenses, while boosting LTV and profitability. They’ll enjoy a first-mover advantage that will catapult them into the next generation of preferred risk auto insurance. It will also help them get ahead in the industry-wide movement toward embedded insurance - the smart way.
At Zendrive, our goal is to partner with insurers who want to disrupt that conventional acquisition model and build a robust lead generation engine, facing head-on the problems with traditional tactics today.
And the opportunities are seemingly endless. The IQL solution is just the first step to improving customer lifecycle experiences overall: it helps insurers screen and acquire the best drivers, while simultaneously opening doors for more opportunities to inform, engage, and reward customers throughout their entire lifecycle.
Still not fully convinced? Here’s what Zendrive’s IQL solution apart from the rest.
Here’s what some of our partners have said about us recently:
Want to learn more about Zendrive’s Insurance Qualification Lens (IQL) platform? Learn more here or contact us below to get in touch with one of our experts.