Tag Archives: auto insurance

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.

Telematics Consumers Are Ready to Roll

At a time when consumers and business owners are focused on cost efficiency more than ever, telematics solutions offered by insurance carriers present a prime opportunity for customers to leverage their driving data’s potential to enable discounts and operational savings. 

Nationwide’s latest Agent Authority survey found that 65% of consumers would be willing to allow telematics to capture their data if it provided an insurance premium discount, but an overall lack of knowledge on the solutions and benefits available to them is a major hurdle. On the flip side, middle market business owners demonstrated a high level of awareness of telematics and support for investing in the technology due to its safety and operational impacts but could use more guidance on which solutions fit their needs and how insurance ties in. 

The results emphasize the important role carriers play in offering innovative but easy-to-implement solutions, in tandem with robust sales and marketing resources for distribution partners like agents and brokers, to help drive home the benefits and instill confidence in customers in using telematics.

Lack of telematics knowledge a barrier for consumers

Just over a quarter of consumers (27%) surveyed say they know what telematics is and over half agree lack of knowledge is a key barrier to using the devices. They’re also fairly split on how much they think telematics could save them each month. 

Diagram

Description automatically generated

Notably, while 67% of consumers have not discussed telematics with an insurance agent, it’s clear that they’d greatly benefit from an agent’s counsel. Consumers who say they don’t use telematics were likely to also hold key misconceptions about costs with using the devices. A quarter (24%) said they believe there’s an added cost to using telematics, and more than half (57%) believe using a device could make their rates go up. 

In fact, in 2020, drivers enrolled in our usage-based insurance programs are saving an average of more than 20% compared with a traditional policy. By 2025, we project usage-based programs will account for 70% of personal lines new business. 

Through innovative partnerships with companies like Cambridge Mobile Telematics, Nationwide is also delivering new features like monitoring and informing drivers of their distracted driving risks – a major concern of 42% of consumers. 

Telematics can solve business owner challenges

In addition to managing their business, many middle market business owners face added concerns related to the safety of their drivers and fleet vehicles. They also experience 7.5 accidents per year with their fleets, so it’s not surprising their top concerns include distracted driving among employees (83%), rising cost of insurance for fleet vehicles (82%), safety of drivers and accidents with business vehicles (81%) and knowing the location of their vehicles (76%). 

Interestingly, business owners may overestimate difficulties of implementing telematics. Many cited the costs of investing in telematics (35%) and the time it would take to install the devices (21%) as top barriers for using the solutions. The majority of respondents don’t see costs as an issue, however, with 52% of business owners saying they’d pay $30 or more a month per vehicle to ensure safer driving and 87% saying the benefits outweigh the financial costs. 

See also: The Evolution of Telematics Programs

Telematics can address many of fleet owners’ concerns, and the opportunity is ripe for carriers and agents to change conversations with customers about telematics from an “add-on” perk to what it really has become – an essential tool for managing a business. With nine-in-10 business owners agreeing telematics improves driver safety and improves operations, providing clear information can give them a full view of telematics’ advantages for their operation. 

A picture containing text, electronics

Description automatically generated

Nationwide’s Vantage 360 Fleet program is available at no cost to small commercial auto customers and delivers valuable business insights based on a number of driving factors, including speed limits, hard braking and acceleration, phone distraction and location and trip history. The technology is simple and takes just a few minutes to install. Vantage 360 Premium Partner Program brings comprehensive fleet management and GPS tracking to middle market business customers.  

Consumers, businesses agree telematics benefits outweigh concerns

The survey found many consumers (25%) and business owners (37%) who don’t use telematics view data privacy as a barrier but agree that the advantages overshadow those concerns when they’re receiving some sort of discount. 

The results reiterate the need for today’s telematics programs to make it very clear to customers how data is being collected and used, and the benefits customers can gain. The driving data collected by Nationwide is used for insurance purposes only and never sold to any third-party entities. 

Carriers have an opportunity to step up in addressing these challenges with partners and customers, supplying expertise and resources to better educate drivers on how telematics data is tracked and used and arm partners with resources to help dispel common misconceptions customers may have about telematics. 

See also: Driving Into the Future of Telematics

About the study: 

Initiated in 2020, Nationwide’s Agent Authority research seeks to understand what business owners and consumers value when buying or renewing insurance policies, explore the different challenges each audience faces around insurance, gauge perceptions of the economy and how each audience is managing uncertainty and find out the actions business owners and consumers have taken as a result of COVID-19 and the conversations they’re having with agents. Previous Agent Authority research reports include: Agent-customer relationship; Small business owner needs and challenges; Middle market business owner needs and challenges; Agents’ top concerns through the pandemic; Consumer and business owner cyber preparedness.

Opportunity Among Latinos in U.S.

The U.S. has grown to become the second-largest Spanish-speaking country in the world, only behind Mexico. The impact the Hispanic population has had — and will continue to have — on this country is quite vast, especially with purchasing power nearing $2 trillion. This serves as an extraordinary opportunity across a variety of markets, insurance being one of them.  

While this demographic shift has created a once-in-a-generation opportunity to serve a historically underserved market, many in the Hispanic community continue to struggle when it comes to getting insurance, which goes for both personal and commercial insurance. Not only is it challenging for this customer to find and evaluate options in Spanish, but the customer is also often forced to brick-and-mortar brokerages, two inconveniences that could easily be solved. 

Conning Research predicts that there will be more 30 million new Hispanic drivers searching for insurance throughout the next 30 years. Why not meet the need?

To do so, it’s important to understand the distinctions in purchasing behavior and preference when comparing the Hispanic market with the broader insurance market. These differences are critical in effectively servicing this market. 

Younger Customer = Opportunity for Longer-Term Value

Because the Latino consumer is younger than the general population, with a median age of 28, this younger customer base translates into a longer average lifetime as they enter their prime earning years. The trend in increasing purchasing power also reflects the increasing needs for personal insurance, from car insurance today to homeowner’s insurance in the future. 

This is also an opportunity to build a customer base that over-indexes on brand loyalty, as more than 50% of Latinos are “likely to find a good source and stick with it,” compared with just over a third of the broader market. A relationship can unlock long-term value and pay dividends over time.

Being Available in Spanish Is Non-Negotiable

Most of the Latino market prefers to speak Spanish, so, if you’re interacting with prospective Latino customers, you should consider providing Spanish language materials or support. You can hire employees who speak Spanish or contractors who can translate your marketing materials. This will open up access to a market that cannot be uniformly served in English. 

Understand What’s Needed and Prioritize Relationship-Building

Most U.S. Hispanic consumers today primarily purchase auto and health insurance. Given the socioeconomic and cultural characteristics of our community, many Latinos focus exclusively on buying the insurance they need.

While many insurance companies want to serve the Latino market, they often ignore the fact that customers are primarily purchasing basic auto insurance and basic health insurance. While maybe not the ideal purchase for insurers right off the bat, these products can serve as an entryway to serving the future insurance needs of the customer, or even providing other valuable and complex products. In many working-class neighborhoods, for example, auto insurance is purchased at the same place where you do your taxes or get loans, so by building a relationship with the Latino consumer you will have the opportunity to earn more of their business in the future. 

See also: 3 Tips for Increasing Customer Engagement

Use the Right Channels

Building a relationship with your Latino customer first requires meeting them where they are. Latinos are extremely tech-savvy and spend more time on their mobile phones than any other demographic. Latinos do research, watch television and purchase all over their phone. Using mobile channels, like social media and text messaging, to reach and service our community will help lower your costs and increase chances of success. 

Putting the proper measures in place to find and attract Latino customers is a no-brainer. It’s not only the right thing to do to provide this underserved demographic with easy-to-access and fair-priced insurance, but it also means increased customer acquisition and revenue numbers for you. To move beyond intention and into implementation, work with your Latino employees to better understand the community, hire employees who know the market and explore partnering with other trusted service providers in the community. 

By taking advantage of this opportunity, insurers will reap the rewards throughout the next decade. And if you don’t meet the market need, someone else certainly will.

Are Pay-Per-Mile Policies Here to Stay?

2020 has been a tumultuous time for consumers and businesses alike. The coronavirus crisis led to nearly half of American employees working from home in the spring of this year. Pair that figure with the fact that unemployment rates climbed to nearly 15% in April 2020, and it’s easy to understand why consumers are looking for ways to reduce their expenses and stretch the dollars they have. And why some insurance companies are making unprecedented moves. 

Numerous auto insurance providers took steps to reduce premiums or issue partial refunds to customers in light of the COVID-19 pandemic, but consumers are still on the hunt for savings. Those one-time deals might not be enough. According to a recent study, online demand for new insurance policies has gone up by 27% since March. 

Without a daily commute for the foreseeable future, consumer interest in pay-per-mile coverage is on the rise 

A recent survey by J.D. Power revealed that more than 40% of consumers were interested in telematics-based auto insurance options. This survey was released in May, early in a pandemic that many hoped would be quickly squashed. With COVID-19 cases once again spiking in some states, the interest could be even higher, because customers only want to pay for as much coverage as they use. 

Despite the appeal, true pay-per-mile policies aren’t offered across the board. At present, only a few carriers offer pay-per-mile insurance and determine premiums according to a mileage fee plus a base rate. Also, the potential savings from a pay-per-mile program may not be quite as high as consumers expect. Drivers who log an average of more than 1,000 miles per month (12,000 miles per year) on the road could end up paying more than they would with a traditional auto insurance policy.  

Increased interest means it may be time for more carriers to consider pay-per-mile insurance as a way to avoid customer turnover while increasing potential revenue.

See also: How to Engage Better on Auto Insurance

The impact of pay-per-mile coverage

While consumers may be interested in the option, some insurers’ hands are tied. Providers cannot offer these types of policies without first getting approval from each individual state’s department of insurance. In addition, privacy concerns and state regulations can make it difficult or costly for insurance companies to implement telematics-based programs in certain states. At present, usage-based car insurance policies are only available to residents in a little over half of the U.S. 

With pay-per-mile insurance, the industry may experience:

Fewer payouts. Drivers who sign up for mileage-based car insurance policies may also be more cognizant of their driving habits, speculates Andrew Hurst, insurance analyst at ValuePenguin. More-aware drivers should create safer roads for everyone — and potentially fewer payouts for insurance providers as a bonus. 

Reduction of fraudulent claims. Usage-based insurance could also lead to a reduction in fraud, according to the National Association of Insurance Commissioners (NAIC). Details that insurance companies collect from telematics devices can make it easier to estimate damages and review the actual facts (i.e., speed, time of incident, hard braking, etc.) when accidents take place. 

More insight into driving behaviors. Telematics tracking could also help an insurer identify individual drivers who should possibly pay higher premiums due to risk. Progressive reveals, for example, that it increases the premiums of around two in 10 drivers who sign up for its Snapshot program due to risky driving habits. However, Hurst said, “I’m not so sure this would be worthwhile in the long run, as customers could simply leave and go to an insurer that didn’t do that.” 

Pay-per-mile coverage and the future

Thanks to a number of factors, traditional auto insurance rates are likely to rise in 2020. Higher repair costs on tech-heavy vehicles, more accidents from distracted drivers and natural disaster-induced claims are partially to blame.  

See also: How to Thrive in Auto Insurance

At the same time, consumer desire for lower premiums and usage-based options is on the rise. So, the insurance industry may need to find other ways to appeal to price-sensitive drivers while still controlling risk and overall costs.

The Evolution of Telematics Programs

Thirteen years after Progressive launched Snapshot, its usage-based insurance (UBI) rewards program, telematics-based policies represent a modest part of personal and commercial lines insurance. Bullish estimates of double-digit adoption by 2020 haven’t materialized, but it’s clear that telematics-based products appeal to a need within the market. Adoption will likely continue to grow. Insurers should consider telematics strategically, whether they expect to enter the space or not.

Adoption: Modest but Real

Insurer telematics activity in recent years has split into rough thirds: About a third of property/casualty insurers are actively engaged, a third are monitoring the space but not yet acting and a third feel telematics don’t apply to them.

Overall, Novarica estimates the penetration of telematics programs at around 6% to 8% of insurers’ overall books, based on industry research and conversations with insurers. These numbers vary substantially from carrier to carrier. At some, telematics-backed policies can be more than 30% of their books, while, at others, it can be as little as 1%. 

Applications: Increasing in Variety

Insurers predominantly use telematics for underwriting and actuarial or product design. This approach aligns with the stereotypical UBI offering, where insurers rate drivers based on telematics data and offer retention discounts to those who prove to be safe risks. More insurers are also providing pay-per-mile offerings (such as Liberty Mutual’s ByMile and Nationwide’s SmartMiles), which charge customers based on the actual amount they drive.

Applications in other insurance functions are less common, but this is changing as both insurers and vendors innovate to offer new types of coverages and programs, like rewards programs to generate regular customer engagement or teen driving programs that can leverage telematics to create speed alerts. These offerings align with broader industry trends toward creating richer digital experiences, particularly in personal lines.

Insurers should also understand that getting the most out of these advanced features requires technological and business support beyond the telematics offering itself. For example, to support a feature like automatic first notice of loss (FNOL), insurers will need quality data, and they’ll need to be able to move it between systems across the enterprise. A comprehensive rewards program may require focused effort from marketing and customer service to stay on-message and deliver a seamless experience.

See also: Driving Into the Future of Telematics

Program Design: Essential for Success

The variety of telematics capabilities and offerings in the market means that insurers should design or expand their telematics programs with care and forethought. As with any technology initiative, the point of telematics-based insurance offerings is to better manage risk, reduce costs or create a superior customer experience.

For telematics, that means that insurers need to consider a number of factors to guide the features of their offerings. These include the target market segment, the channel through which the offering will be distributed, the services offered and how all of these elements align with existing technological capabilities and processes. There’s no one answer, and anything from a basic UBI product to an engaging rewards program could be the right fit, depending on what an insurer wants to accomplish.

Fortunately for insurers that have taken a wait-and-see approach, there are a number of products available in the marketplace, from turnkey telematics solutions to book-of-business analysis from a variety of telematics service providers and data brokers. Although early adopters like Progressive procured and managed their own telematics devices, insurers don’t have to do this anymore. Carriers that are new to the space shouldn’t spend time replicating technology that already exists.

Telematics Beyond 2020

Telematics adoption will likely continue to increase slowly but steadily over the next several years. Depending on the rate of growth, telematics-based policies could make up between $22 billion and $32 billion of the personal lines auto market by 2025.

COVID-19 will be a major factor in that growth. Anecdotally, Novarica has heard from both insurers and vendors that interest in pay-as-you-drive or pay-per-mile policies has increased in 2020 as more Americans are working from home. How long the pandemic lasts and whether widespread remote work becomes normalized could speed adoption for both insurers and policyholders.

Auto manufacturers have also been active in the space, with a number of recently announced partnerships to share driving data from connected vehicles with insurance companies. This, too, could speed telematics expansion by lowering the initial barrier to entry. 

Telematics-based insurance offerings are a small but real portion of the personal and commercial auto markets that will continue to grow. Telematics isn’t going away, but it also won’t dominate the auto insurance industry in the next five to 10 years.

At the same time, telematics doesn’t have to become dominant to affect consumer expectations around price, convenience and service. Insurers should consider potential impact now so that no matter what decision they make, it’s a strategic one.

To learn more about how insurers are using telematics, read Novarica’s full report Telematics in Insurance: Overview and Key Issues.