Back in pre-pandemic times, auto insurance companies were breathing a collective sigh of relief.
The industry was showing signs of recovery following a 9-year loss streak. Despite increasing numbers of cars on the road, insurers were able to maintain a profitability at an average of 98.3 in 2019. Auto tech improvements and strengthened safety measures contributed to this success (but the severity of claims increased with high repair and medical costs).
Despite this profitability, the global pandemic disrupted and transformed how we do business, shop, communicate, and even drive— introducing a new set of challenges for insurers. For one, policyholders, driving 55% fewer miles on average, fueled demand for usage-based insurance (UBI) programs.
According to Bain’s 2018 survey, 21% of policyholders had already switched to UBI programs, while 56% said they would likely purchase it in the future. Interest in UBI accelerated in 2020, as 30% of consumers were reducing their auto insurance coverage and 27% were looking to cut costs by switching carriers, despite $12 billion paid in rebates by insurers.
Now, with the number of cars on US roads gradually returning to pre-pandemic levels, post-pandemic shifts in consumer mentality ensue. With the pandemic as a strong catalyst for new technologies and further global digitization, AI and big data will continue to offer more accurate risk predictors and rewarding, fun experiences that will boost customer retention and loyalty.
Clearly, UBI, despite its rocky past in terms of adoption, is the way forward.
Let’s break down why that is, and how to build a UBI program that your policyholders will actually want to use.
Learning from the past: Why UBI programs haven’t historically worked
Before we look ahead, let’s take a few steps back.
UBI programs aren’t anything new, and in the past, insurers have struggled with user adoption. Of the 60 UBI programs that exist in the US, 70% are smartphone-centric telematics programs. But since the launch of the nation’s first telematics program, only 5 million drivers have adopted UBI policies, with approximately a 5% penetration rate. Why?
Here’s why UBI programs haven’t stuck
- Friction in onboarding and adoption: Users today want instant gratification. But many UBI programs have made it difficult for them to sign up and get started. And some have required specific hardware that makes the process even more tedious (and not to mention, more costly for insurers than smartphone-centric programs).
- Cookie-cutter programs: Many UBI and behavior-based insurance (BBI) programs take on a one-size-fits-all approach. This is not sustainable, as policyholders each have unique, varying needs.
- Limited discounts: Are customers being incentivized for adopting UBI programs? Not much. A 5-10% discount offered isn’t attractive enough for them to switch carriers. More specifically, the average annual discount a user gets on their driving behavior is $48.
- Resistance to data sharing: Customers initially resisted smartphone telematics programs due to security and privacy concerns. (However, this is changing. A recent study by Accenture indicates that 64% of consumers are now open to sharing their data for adjusted car insurance premiums based on their driving behavior.)
- Lack of virality: Early adopters of smartphone-based telematics programs didn’t get the experience and value they were hoping for, so virality via word-of-mouth suffered.
- Evolving customer preferences: It’s no longer just about the discount for consumers. According to a Bain study, next-gen consumers want products that motivate and affiliate with them, increase their sense of belonging, reward them, and ultimately offer a fun experience.
But insurers that partner with the right technology provider can map out a winning UBI program that is not only more fairly priced, highly accurate in assessing driving behavior, and engaging, but also adds further value with safety and rewards features.
The anatomy of a winning UBI program
With the above learnings in mind, let’s explore the anatomy of a truly successful smartphone-centric UBI program. We’ll break it down into four must-haves:
- User experience: Are you building a program that your users will actually want to use every day?
- Accuracy: Are you sharing behavioral and contextual data via apps that’s insightful and accurate?
- Customer centricity: Are you meeting the varying needs of your unique customers?
- Additional value: Are you providing features that will keep your policyholders engaged and satisfied?
Design a memorable user experience
Yes, offering policyholders fairer pricing is important -- 64% of customers cite pricing as the main reason they look for new insurance products. But, as we explored above, offering discounts for good driving behavior alone won’t keep modern-day policyholders coming back for more.
That brings us back to the user experience. Carriers who offer exceptional experiences to their customers through UBI programs will see higher profitability, growth, and retention.
First, insurers should partner with a technology provider that allows for ease of user adoption (and therefore increased adoption): in-app experiences should be able to provide personalized quotes to large audiences, without friction.
The right tech provider will also ensure carriers better retain customers by offering users personalized feedback on their driving, maintenance, and emergency assistance, all via their smartphone (with absolutely no hardware necessary).
Make it the most accurate UBI program around
In order to offer fair discounts, UBI programs must analyze driving behavior accurately. That means partnering with smartphone-based telematics companies that are industry-leaders when it comes to big data.
Insurance SaaS providers like Zendrive, for example, use AI and machine learning algorithms trained by over 200 billion miles of driving data. This allows for highly accurate scoring of driving behavior (such as hard stops, harsh acceleration, speeding, phone usage, and hard cornering), and capturing of overall mileage, ensuring drivers are fairly assessed and charged.
And here’s an added bonus: Providers with access to millions of users via consumer apps can help insurers to more seamlessly and cost-effectively qualify leads and expand their user base.
Adopt a customer-centric versus one-size-fits-all approach
To this day, smartphone telematics partners continue to provide carriers with cookie-cutter UBI and BBI programs. App interfaces and features are largely the same for all of their customers, despite your policyholders’ varying needs.
Choose a technology provider that allows you to remain customer-centric. Perhaps you want to seamlessly combine your UBI and BBI programs to provide the best user experience, or start your own program that allows users to try before they buy, for example.
Rather than offering you a standard, non-customizable solution your competitors might also be using, your tech partner should work with you every step of the way to ensure your program flexibly caters to your customers’ specific requirements.
Provide additional features: Safety, convenience, and rewards
Let’s not stop at a better user experience, highly predictive score, and mileage accuracy.
Insurers need to ensure their UBI program goes above and beyond what’s been done in the past, offering additional features that deliver value. These might include accurate collision detection, a simpler, more seamless claims process, and family safety offerings.
Collision detection and claims automation
Imagine: Your policyholder is driving to work and suddenly gets in a car crash. As soon as that happens, she gets a notification on her phone that a collision was detected.
Right away, her driving app asks her how it can help: Does she need a tow truck? Does she want it to call 911?
If she indicates she’s physically okay, it asks if she needs it to call a rental car. While it’s doing so, it asks her to take pictures of the car and upload them so it can start the claims process, which will be resolved in the next 24 hours.
A winning UBI program might include free family safety features to let parents keep an eye on young drivers. They can get alerts on their kids’ driving behavior and create geofences all via the right tech provider’s white-labeled app.
Last but not least, offering specific rewards for good driving behavior is a great way to further improve the user experience, strengthen customer retention, and build loyalty.
Did a user complete a full trip without hard stops, speeding, or phone distraction? Reward them with a Starbucks gift card or a discount at their favorite store.
Times are changing, and insurers need to keep up - or risk losing out.
Sure, the industry has been resilient during economic downturns in the past. But by April 2020, it had already lost $760 billion in market capitalization globally. That’s the third highest loss among all industries.
Even as US auto sales rise again and drivers make their return, pandemic-era trends have left carriers fighting for market share as they strive to meet the new needs of today’s consumers.
The time is now to change the rules of the game and get innovative.
Insurers can partner data-focused and smartphone-centric vendors to build accurate and fairly-priced, engaging, customer-centric, and rewarding UBI programs that will continue to delight users -- all through the device they’re already carrying with them.
Want to learn more? See how Zendrive helps insurers build a successful UBI program below.