Tag Archives: auto insurance

Nonstandard Auto Insurance’s Key Role

Now, more than at any time in history, customers, insurance carriers and their distribution need nonstandard auto protection for drivers.

Although, in the past, some carriers have declined to cover higher-risk drivers, that could change, partly as a result of economic turmoil caused by the COVID-19 pandemic. Early in 2020, both the consulting firm McKinsey & Co. and the reinsurance broker BMS Group predicted the United States could see a surge in the market for nonstandard auto insurance.

In July 2020, Allstate Corp. announced it would buy nonstandard auto insurer National General Holdings Corp. for about $4 billion in cash, a deal that is set to be completed early this year. With National General reporting about $5.6 billion in gross written premiums in 2019 (with nonstandard auto policies accounting for 44% of that), Allstate is scaling up its auto insurance business at a time when the coronavirus has crushed traffic on roads and reduced claims. In September 2020, State Farm, America’s largest property and casualty insurance provider, announced it would buy nonstandard insurance provider Gainsco for about $400 million in cash, another deal expected to be completed early this year. It’s State Farm’s first acquisition of another insurance company in its 98-year history.

So why is a renewed focus on this type of insurance is important? Well, let’s start with the most important part of the equation first: the customer.

The Customer

According to IBISWorld, the market size of the U.S. automobile insurance industry is estimated to be $311 billion in 2021. Estimates vary regarding the prevalence of nonstandard coverage; some experts say it makes up 20% of premiums for personal auto insurance, while others estimate it to be 30-40% of the auto insurance market.

Customers need nonstandard coverage availability and premiums to protect their families. One family member having driving issues (a DUI, multiple accidents, SR-22, being recently nonrenewed from a preferred policy and poor credit) shouldn’t knock out the entire family unit from getting the type of protection they need and from qualifying for a preferred policy/rate.

Today, the average household has multiple vehicles and multiple drivers. More than ever, people want a carrier and an advisor/firm to represent them on everything. They expect and demand a one-stop shop for all their insurance and financial needs. This includes, but is not limited to, providing protection even when the household account is not 100% a preferred risk.

See also: How to Engage Better on Auto Insurance

Now let’s look at how a focus on the nonstandard market can benefit carriers.

The Carrier

Until recently, most of the largest carriers focused on the “preferred market.” A few of the leading carriers have had affiliate companies/brands to provide a nonstandard solution for their customers. Other preferred carriers dabbled in or tried to provide a “near-standard“ option, only to get clobbered in many instances.

Progressive and Geico are examples of companies embracing the nonstandard market with expertise pricing and are models of how to provide customers with a protection solution that is sustainable. However, most carriers are currently looking at strategic alliances or are purchasing existing nonstandard carriers as partners. The bottom line is that the customer has spoken, and companies need to provide a one-stop shopping experience going forward. Not providing such a solution opens the door to the competition.

Finally, let’s look at how increasing the focus on nonstandard coverage can benefit distribution’s ability to provide unrivaled service.

Distribution

Whether advisors are employee-led or contractor-led, are brokers, firms, agents or team members, providing unrivaled service, advice and product solutions is the way forward. While there will always be an element of transactional sales, providing a meaningful and consistent customer experience is the winning strategy.

Most practitioners would not want to try to make a living on nonstandard auto only. But ignoring it altogether means a significant missed opportunity. The firm owners, brokers and agencies that have a laser focus on the economics business realize they must provide real solutions for all their clients, even in situations that are complex, difficult and risky.

Providing nonstandard service and solutions not only wins new business, it sustains relationships. And we all know great relationships lead to referrals and additional opportunities. Providing unrivaled service requires focus on factors other than just price. Offering nonstandard coverage when your competition does not is one way to leap ahead.

The nonstandard auto market has never been more important. It’s no longer a one-off. As our industry retools, nonstandard auto needs to be at the top of the list as we serve our customers.

Time to Start Over on Secondary Towing

Immediately following an accident, undrivable cars are typically towed away from the scene to temporary holding locations such as an impound lot or storage facility. There they remain until an insurance adjuster evaluates the vehicle and declares it a total loss or requests to have it towed to another facility to be repaired. This process could take several days, and, each day, storage costs are adding up. Moving the vehicle to a repair facility — whether a DRP (direct repair program) facility or somewhere else — is referred to as a “secondary tow,” and, as any claims adjuster in the auto insurance business will tell you, the secondary tow process is ugly. The current system is outdated, chaotic and excruciatingly inefficient. In fact, it’s so awful that the only reasonable solution is to rethink the secondary tow process altogether and start over from scratch. 

Let’s take a look at the process as it stands today. Following the accident, the claims adjuster often has no idea where the damaged vehicle is for several days. The tow was likely called for by local authorities on the scene, and the tow operator may bring it to any local lot. Sometimes, the carrier has to rely on the motorist to learn of the vehicle’s location.

Because there’s no standard procedure once the location is identified, the adjuster must determine how to get the vehicle released. Every lot is different, and, with adjusters working hundreds of simultaneous claims, it takes quite a bit of time to determine what signatures are required, what information is needed for forms, how to transfer money and so on for each one. Each claim requires a lot of phone calls and extensive paperwork to resolve.

The adjuster then has to order a tow to transport the vehicle to a repair facility or a salvage location, if it’s totaled. By and large, tow providers don’t like doing secondary tows, so finding a willing provider may take some time, and, even then, the provider is not likely to prioritize the job, which will cause additional delays. 

Tow Operators — Caught in the Middle

It’s hard to blame tow providers for their reluctance to perform secondary tows. They often find themselves completing a lot of paperwork and have to pay for fees out of pocket. Reimbursement for the fees and payment for the job can take 30 days or more, and, even worse, the provider often doesn’t know how much the network will pay until the check arrives.

Typically, it takes about three days to get a vehicle released from a tow yard, and, throughout the entire process, the adjuster has zero visibility into the status of the vehicle. Most of the time, an adjuster will only know where a vehicle is when the repair facility notifies the adjuster that they’ve received it. All the while, the insurer is racking up storage fees and rental car costs. If the motorist calls for an update on the claim and the vehicle, the insurer has no information to provide.

Requirements for a New Secondary Tow Process

The industry needs a new, transparent system for secondary tows, because the current one benefits no one, including the impound facilities. After all, they want to move vehicles through their lot and get paid for storage services. The longer that vehicles remain in the lot, on average, the harder it is to identify vehicles that will never be picked up, which is a poor return for the business. Certainly, the impound facility can send abandoned vehicles for salvage, but the facility rarely recoups costs.

Here’s what a new, more efficient and transparent secondary tow process needs to do:

  • Ensure tow providers are paid fairly and quickly for the secondary tow: If tow providers know they’ll be paid a reasonable rate within 24 hours after the job is done, they’ll take these jobs and complete them quickly. 
  • Provide adjusters the transparency they need: Adjusters need regular updates on the status of the vehicle to optimize their workflow and to provide the vehicle owner with updates. Receiving real-time updates from an online dashboard is preferred.
  • Create a more standardized process for vehicle release: This is a longer-term goal, as this industry is highly fragmented, with many “mom and pop” operations. Nevertheless, the industry needs to organize around some standard procedures for vehicle release to speed the process and reduce confusion. Yard owners will get paid faster if adjusters know in advance the information required and the basic outline of the process they’ll need to follow. And motorists will get their vehicles back faster if it takes less time to release it from the yard and transport it to a repair facility. Everyone benefits.

See also: Transforming Auto Claims Appraisals

Much of this new process can be accomplished through digital technologies. By automating the process of authorizing and paying for a vehicle’s release, tow operators can focus on the task they do best: transporting vehicles. Mobile technologies can make it simple for tow operators to keep adjusters informed, often without having to do anything beyond their regular transport tasks. Systems exist today that can send alerts when the tow operator picks up and drops off the vehicle. GPS can even track the vehicle as it’s towed to the repair yard.

Secondary towing is broken, but it can be fixed. With the application of new technologies and the will for all the players to benefit together, it is possible for the industry to build a secondary tow process that works for insurers, tow companies, yard owners and motorists alike.

The Key to the Future of Mobility

For the past few decades, mobility innovation has trended in one direction: empowering the individual consumer. Google Maps and GPS have made navigation simple and paper maps obsolete, while rideshare apps offer options that traditional taxi services could not. Autonomous vehicles aren’t yet commonplace on the street, but experiments have logged millions of crashless miles. We’re living through the greatest change in general mobility since the invention of the jet engine. 

Insurance has a traditionalist reputation; insurers often reassure customers by advertising that they’ve been in business for several decades or even for whole centuries. The industry’s emphasis on past practice and proven traditions is admirable and necessary. But so is innovation, and we see insurers from every corner of the globe excited to build smart new products and programs based on new technologies. 

Telematics, the practice of analyzing mobility data for special insights, can help solve some of insurance’s oldest problems. Conventional actuarial models struggled to differentiate between individuals and types. If twin brothers live at the same address, work jobs with comparable salaries and share the same red sports car, they’re going to look equally high-risk to an insurer. One brother may be a thrill-happy daredevil, while the other shuns speeding and is conscientious about his turn signals, but the insurance company has few ways to recognize this. The responsible brother and the irresponsible one will pay the same fees despite their wildly different risk profiles. Telematics can make a huge difference here – it personalizes an insurance policy to each driver, providing the most equitable way to price premiums possible.

This is good for drivers, because it encourages good driving, and for insurers, because they’re much better able to predict costly car crashes. 

See also: How Tactile Sensors Can Help in Auto

The uses for telematics in insurance are obvious, and dozens of companies have partnered with telematics providers or founded in-house telematics operations. The customer’s phone is the central infrastructure element for telematics, but much remains to be built.

First, there’s the matter of what you might call social or trust infrastructure: Although most of us transmit huge amounts of data to Apple, Google and Facebook every day, potential telematics customers need to know that they are not being spied on. Explaining why telematics doesn’t compromise privacy is essential.

Second, telematics needs to be as simple and unobtrusive as possible. If a driver must open an app every time they step into a car, that’s an issue.

Finally, customers must be able to easily track the benefits of their participation. If, for example, a customer learns that their adherence to speed limits has earned them a 10% reduction in their premium, they’ll feel persuaded they’ve made the right choice. 

The insurance industry is evolving, but it doesn’t do it as noisily or quickly as the tech, automotive or mobility industries. We can see the changes happening, and the infrastructure necessary for the transformation grows firmer every day. As the insurance market becomes ever more competitive, telematics and related innovations offer the prospect of a more efficient industry that works better for everyone, giving insurance consumers better choice, service and prices.

How Tactile Sensors Can Help in Auto

Auto insurance is ripe for a change.

But for insurers to take their services to the next level and develop accurate, personalized risk assessment models, insurers must shift to in-vehicle software solutions that provide granular data on the complete road-vehicle-driver ecosystem.

From insurers to OEMs, the future of in-vehicle collection technology lies in embedded software – including tactile sensors, which can provide the rich, relevant data needed to offer a more accurate picture of risk.

Here’s why current business models are coming up short and how tactile sensing capabilities can take auto insurers where they need to go: 

A Flawed Status Quo

While the usage-based policies (UBPs) that many insurers have been offering are a step up from the normal flat-fee approach, they’re hardly foolproof, as UBPs rely heavily on data collected by static in-vehicle hardware solutions. 

These solutions – including the OBD II Telematics, Black Box Telematics and Smartphone/SDK products that many auto insurers rely on – come with notable drawbacks. While they provide basic data based on the vehicles’ outputs (i.e., speed, breaking, windshield wiper speed, etc.) to determine the driving environment, they don’t take into account alerts, physical and functional road conditions, vehicle dynamics and health and how driving styles differ according to conditions.

Moreover, hardware-based solutions can be too sensitive – punishing drivers, for instance, if they slam on their brakes even to avoid hitting a jaywalking pedestrian or a car that has suddenly pulled out in front. Finally, these telematics systems can be complex to deploy and implement. 

See also: What’s Wrong With Commercial Auto?

A New Generation of Auto Insurance

Auto insurers need better technology for measuring risk. And consumers want more personalized auto insurance policies – indeed, an Accenture survey finds that 64% are interested in policies with premiums tied to their individual behavior, and a PwC survey reveals that 41% are actually willing to switch to a more digital-forward insurance company to enjoy a better customer experience. Bridging the gap between auto insurers’ current offerings and consumers’ expectations will require technology that provides a greater understanding of the road, driver behavior, the vehicle and the environment.

In-vehicle software can enable this more comprehensive understanding of risk. Tactile sensors collect data not only on vehicle characteristics but also on road and vehicle-road characteristics – taking existing auto insurance data to the next level. Tactile sensors take into account factors such as tire tread depth, wheel balance, grip and much more. These factors, combined with insights on vehicle, speed, braking harshness and road roughness (to name a few), provide a much more holistic snapshot than existing hardware solutions can offer. 

Embedded software can sit on the vehicle’s existing sensors to collect data and generate unique insights that insurers can use to assess the state of the road and vehicle before, during and after an accident, the vehicle’s overall health, the driver’s behavior during an accident and more. This information can enable auto insurers to create personalized risk profiling and detailed accident reports. The insights can even predict road risks as well as identify and alert drivers to risks in real time by correlating road and vehicle conditions. The more comprehensive the data collection, the more personalized and dynamic the insurance policy.

A Win-Win

Insurers and policyholders both stand to gain from the deployment of in-vehicle software. 

By using embedded software, auto insurers can reduce the risk of loss, tampering or damage to a telematics box. Armed with more granular data and insights, insurers can assess risk and set premiums with greater confidence – reducing payouts and fostering more long-term customer relationships. Additionally, tactile sensors and data can allow for next-generation accident reconstruction, a significant boon to insurers in the claims assessment process. 

Drivers, meanwhile, will benefit from richer data on road conditions and risks, more personalized policies (with more accurate technology for measuring good driving behavior and lowering premiums), and real-time insights that can help them prevent a potential accident – such as early alerts that their tires should be replaced, for example. 

Amid technological advances and mounting consumer expectations, the insurance industry is undergoing a transformation. Insurers that adapt to this paradigm shift by embracing technology and delivering on expectations for personalized policies will drive innovation, propelling themselves to a competitive edge in the new insurance landscape.

Personalized Policies, Offered via Telematics

Mass individualization. Is it an oxymoron? Or a new perspective when attracting customers? With a growing number of connected cars on the road and 74% of new vehicles featuring advanced driver assistance systems (ADAS), it’s becoming easier to see the differences between policyholders. Increasingly, insurance carriers can understand how and when people drive, as well as the ways vehicles themselves interact with the road and their drivers. The growing variety of advanced safety features affect driving patterns, adding a layer of complexity as carriers navigate pricing, claim frequency and severity. So, how do insurers attract and retain customers when faced with so many new variables, while at the same time delivering a personalized experience to meet growing customer expectations? 

In a word — telematics. Telematics can unlock an insurer’s ability to:

  1. Better identify and reach high-intent customers
  2. Offer consumers new experiences that meet their expectations
  3. Deliver superior customer service in a way that ensures prospective customers feel confident in making a decision

Leveraging Telematics Data to Reach the Right Customers

High-intent customers can arise from common scenarios, such as the purchase of a vehicle in a state where securing insurance is legally required. In fact, for 29% of customers, a new car is what prompts insurance policy research to begin.

To catch consumers’ attention during this critical point, carriers can gain valuable, personalized insights from connected cars, given that the latest vehicle models can chart and share data at every turn (not to mention each brake, acceleration and more). Equipped with this data, carriers can better determine which customers to target and what incentives to offer them up-front, helping customers increase confidence in their decisions and potentially improving carriers’ bottom line. 

Going a step further, by having this information readily available at the time of quote, carriers can offer competitive pricing personalized to how an individual drives and to the vehicle the person is driving. This eliminates the need to first educate the prospective buyer about the plus side of usage-based insurance (UBI) and then make the buyer wait weeks or months to learn what discount he or she is being offered. Accessible connected car data can help carriers stand out from the competition, win a customer and simultaneously reduce marketing costs. Because about one-quarter of insurer marketing/customer engagement departments spend all of their marketing budget and time on customer acquisition, these cost savings are critical. 

Offering New Experiences to Attract New Drivers

Today, most consumers navigate a variety of services digitally without a second thought — from filling prescriptions to buying groceries to banking — and have come to expect a seamless interaction with almost every brand. The insurance industry is no exception. In fact, according to McKinsey, customers cite convenience as the second-most-common reason for switching brands. As a result, insurance providers may want to adapt to meet customer expectations. The good news is that more than half (51%) of auto insurance marketing professionals list “designing new customer experiences” as their top priority, behind acquiring customers and improving the claims experience.

While driving may be down over the past year, accidents are still occurring, and have actually gone up in severity, possibly because less traffic encourages faster driving. By using telematics, carriers are not only able to detect a crash and provide on-the-scene assistance, but can help resolve a claim faster. These are the types of services consumers are looking for. In fact, 47% of consumers said access to telematics-enabled claims submissions would make them more likely to purchase usage-based insurance. Intuitive, personalized experiences drive so many of our daily interactions; the same should be true for submitting a claim. 

See also: Telematics Consumers Are Ready to Roll

Going Beyond Digital to On-Demand

Just as it has in other industries, digital adoption has allowed insurers to speed and improve existing processes, enabling inspections, appraisals and repair estimates virtually. Beyond this, AI is creating dynamic experiences such as near-immediate total loss vs. repair decisions, repair vs. replace-parts decisions and injury prediction. AI also helps underwriters identify risk at the point of quote. The evolution of data analytics and AI guiding the estimating process will only accelerate efficiencies in operations and customer satisfaction, allowing policyholders to participate in the claims estimating process. Research shows that 36% of customers are dissatisfied with the initial claim filing process, highlighting the significant opportunity for improvement.

For example, by using telematics data that detects an accident, the carrier can reach out to the driver in the way the person prefers — via text, in-app or through a phone call. The consumer can then decide when and how to respond. From there, the driver receives a link so her or she can take photos of the damage, upload the data, send it back to the carrier, receive a list of nearby repair shops and talk to a live person if there are questions. These improvements expedite the claims process and create a better customer experience: one that is on-demand and mimics interactions consumers have come to expect from other industries.  

Research already shows that 90% of current UBI customers are satisfied with their program, but carriers can take it a step further by using gamification to offer discounts while maximizing the convenience of app resources and more. This concept has shown success in a wide range of industries, helping companies achieve goals for creating awareness, increasing sales, simplifying complex processes and more. The interest, and opportunity, to expand to meet customer needs clearly exists, but to truly take advantage of UBI beyond pricing it is key that carriers differentiate to attract and retain customers. 

Carriers can begin to develop a strategy that allows them to innovate, reimagine the way customers see them and, most importantly, make offerings more personal and more appealing. The typical auto insurance customer requests three carrier quotes during the buying process. When the decision day comes and you’re among those three carrier options, these strategies can help your quotes stand out.

And, now that you’re more attuned to your customers’ expectations and their specific needs, you’re putting yourself in a position not just to win on decision day but to increase the likelihood of retention, creating brand advocates who may remain loyal for a lifetime.