Over the past few months, we’ve explored how the pandemic has been a catalyst for transformation in the auto insurance space.
Consumer behavior is changing, in favor of more engaging and interactive insurance programs that save them money when they drive fewer miles or drive safer. In order to remain competitive in a market that’s long been behind on digital trends, insurers need to invest in usage-based insurance (UBI). And this post-pandemic era of change makes now the optimal time to offer policyholders the right UBI program.
The question is no longer, “To UBI, or not to UBI?” but rather, “How do we build a low-friction, cost-effective, engaging, holistic UBI program that will boost customer acquisition and retention right now?”
Of course, this means that there are many elements to building a program your customers will love, but we’re focusing on one major decision insurers might (still) have to make: choosing to go with a smartphone-centric or a hardware-based telematics program.
But first, let’s take a quick look at how UBI has changed over time.
First originating in the 1960s-’70s, telematics technology became used at the enterprise level by the 2000s as web-based fleet management systems. At first, UBI was seen more as a tracking system and only used in premium cars, but the concept eventually yielded a multitude of systems that exist today, including:
Originally, UBI systems simply allowed insurers to price pay-as-you-go premiums, calculating total driver mileage. Hardware installed by manufacturers, or purchased by insurers and added to cars by individual drivers, was the norm.
And before smartphone-centric solutions, hardware-based UBI programs were the only means of ensuring accurate vehicle-specific tagging to determine mileage. But over the past few years, smartphone-centric technologies have evolved to become a better source of behavioral and contextual risk predictiveness.
Today, a successful UBI program for both insurers and their customers - complete with pay-as-you-go and pay-how-you-drive features - offers much more, thanks to increased reliance on smartphone technology.
In this new era of UBI, solutions are becoming increasingly reliant on policyholders’ smartphones, offering them engaging and helpful programs through unique driving apps.
That said, some insurers still find themselves facing that traditional hardware vs. software decision. So we’re breaking down the benefits of smart-phone-centric programs, and why they consistently come out on top.
When compared to hardware-based solutions, smartphone-centric programs are safer in the sense that they provide crucial distracted driving insights that hardware devices cannot.
Mobility risk intelligence providers like Zendrive:
In addition, the right smartphone-centric solution can ensure highly accurate mileage without relying on any hardware devices.
Providers like Zendrive can distinguish between drivers and passengers during trips, tag vehicles using existing stereo bluetooth technology, and classify trip mode (trips taken on buses, trains, bikes, etc. are removed from mileage calculations).
Hardware devices that need to be installed in policyholders’ cars can put a dent in insurers’ wallets, costing around $100+ per driver. As many drivers already have smartphones, insurers can leverage this technology for free by offering unique driving apps directly in smartphones.
One common argument against hardware-based UBI programs? They often include difficult onboarding and adoption processes. Hardware devices like Bluetooth beacons have made signup processes long and complicated, making customers reluctant and insurers unsuccessful in their UBI program rollouts.
But times have changed. Smartphone-centric solutions are quick and easy to deploy, bringing peace of mind to both insurers and their customers.
Furthermore, another friction-reducing capability of the right smartphone-centric UBI solution is claims automation. Insurers can offer their customers automatic collision notifications and instant FNOL reports, making the entire claims process more efficient.
Smartphone-centric programs are highly scalable. Insurers can deploy solutions on millions of devices instantly, which leads to significant improvements in variety, volume, and freshness of data.
Consumers are increasingly craving engaging and fun experiences from their insurers, easily created using smartphones. With the right solution, insurers can not only provide actionable insights around driving behavior to their policyholders, but also tie them to fun incentives and rewards like badges, streaks, and redeemable points.
If insurers opt for a hardware model, they miss out on an active touchpoint with their customers that in turn helps boost acquisition, retention, and loyalty.
One big component of customer retention and loyalty is trust. According to an RDN survey, only 42% of all customers strongly agree that they trust their insurer.
But by providing consistent feedback to policyholders, and being right with their customers as a “digital witness” during a stressful event like a collision, can truly strengthen brand trust.
Lastly, smartphone-centric UBI solutions help insure the vehicle, offering non-hardware-based vehicle tagging solutions, while also letting insurers better understand the drivers. This provides a more holistic program, versus a more siloed hardware approach.
While hardware-based UBI solutions have long been around and are still used today, the time is now to move to a smartphone-centric solution. The right telematics partners will not only help build a program offering all of the benefits listed above, but also adapt to the specific needs of insurers and their customers.
Zendrive flexibly works together with insurers to create a UBI program that works for them - mileage-based, behavior-based, or a combination of both - with the ability to work with data collected on past hardware systems.