Tag Archives: pay-per-mile

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.

What Will Operations Look Like in 2028?

In a 2011 article in Insurance and Technology, Kathy Burger enumerated several big technological changes in the insurance industry since 2001, including the rise of big data, the ubiquitous nature of cell phones and social media and an increased emphasis on data security and privacy.

Seven years later, these once-big innovations are par for the course. P&C insurers and insurtech companies are now positioned to use these tools — which scarcely existed in 2001 and which were only beginning to be broadly embraced in 2011 — as the foundation for the next wave of major changes in the insurance industry.

Now, let’s look at some of the biggest rising insurtech trends today to get an idea of where they’re likely to take us 10 years from now.

Auto Insurance

In July 2015, Jayleen R. Heft published an article at PropertyCasualty360 with the provocative title, “Will the auto insurance industry be obsolete in 20 years?”

Heft cited the work of Deutsche Bank research analyst Joshua Shanker, who argued that by 2030 self-driving cars and ride-sharing services would occupy so much of the automotive market that setting rates based on driving data would no longer be necessary. Instead, the companies behind these vehicles and services would simply “insure their cars like any other product,” Heft said.

While self-driving cars and ride-sharing services like Uber and Lyft are already shaking up the auto industry, predicting the demise of auto insurance by 2030 — or by 2028, even — may be premature. Pay-per-mile auto insurance is gaining popularity. Spearheaded by companies like Metromile and Esurance, the pay-per-mile model charges a base rate, plus a specified rate for each mile driven.

“Each mile usually costs a few cents,” Craig Casazza explains in an article for ValuePenguin. “So if you drive 200 miles per month at a rate of five cents per mile, you would be charged $10.” In addition, Metromile only charges drivers for the first 250 miles driven in any given day in most states.

Tracking Mileage With Telemetrics

Both Metromile and Esurance use telemetrics to track miles driven to calculate each month’s rate. Metromile calls its program the “Metromile Pulse,” and it uses the car’s OBD-II port to track mileage.

Other insurance companies have experimented with telemetrics for a number of years but haven’t connected rates directly to miles driven. Instead, they use the vehicle’s data to adjust rates in a more complex, less transparent manner, Casazza says.

See also: Future of P&C Tech Comes Into Focus  

The pay-per-mile model is increasingly popular with younger drivers, who often have the option to abandon their cars entirely for the convenience of Uber or public transportation, but who are happy to keep the freedom of their own vehicle when they feel they can more directly control its costs. For these drivers, who include a growing number of those currently under age 40, auto insurance may survive into the 2030s — although it may operate in a very different way.

Shanker’s prediction that auto insurance will fade into product liability insurance over the next decade, however, may be prescient. In an October 2017 article in Business Insider, Danielle Muoio explored Tesla’s partnership with Liberty Mutual to sell insurance as part of the purchase price of the company’s vehicles. The plan, called InsureMyTesla, factors in the car’s autopilot feature while setting rates and comes up with a lower cost than other insurance plans as a result, Muoio reports.

Insuring Shared Rides

Similarly, while ride-sharing company Uber currently requires drivers to carry their own auto insurance coverage while also providing supplementary insurance, the company may switch to providing all insurance coverage on its cars as it continues to move into the self-driving vehicle market.

Given Uber’s bumpy ride in producing self-driving vehicles, however, the company’s total abandonment of conventional auto insurance expectations for human drivers may be more than 10 years out, Tech Radar’s Leif Johnson and Michelle Fitzsimmons said in May 2018.

Adding Value and Processing Claims

“Digital technology destroys value,” warned a March 2017 article by Tanguy Catlin, Johannes-Tobias Lorenz, Christopher Morrison, and Holger Wilms at McKinsey & Co. According to the authors, “although digital technology propels some companies to become clear market winners, for many more its impact depletes corporate earnings and the overall value of an industry. Consumers, not companies, are often the ultimate winners.”

To stay relevant, the authors said, insurance companies must “meet customers’ expectations, which have been transformed by digital technology.”

In 2018, insurance companies seeking to stay ahead of the curve often accomplish this task by breaking down their own silos and presenting a quick, clean digital interface that makes it easy for customers to interact with the company and for staff to understand customers’ needs and provide clear, consistent answers.

Bridging Human and Automated Workflows

By 2028, companies are likely to have struck a balance between automation and human intervention — a balance that many insurers are currently struggling to find, Rick Huckstep writes in an article in The Digital Insurer. Automation offers both the opportunity to improve claims response and the challenge of providing the “human touch” that customers also demand, as Roger Peverelli and Reggy De Feniks put it in a December 2017 piece for Insurance Thought Leadership.

The goal will be to use automation in a way that doesn’t feel automated. As AI technology continues to develop, this goal may be fully realized within 10 years.

The automation of many of the current day-to-day tasks faced by insurance agents will, in turn, change agents’ jobs. Some commentators are already predicting that today’s field agents will be obsolete by 2023, replaced by “bionic agents” who have fully integrated digital tools, including AI and machine learning, into their work.

How Automation Influences Customer Expectations

Customers are already demanding the knowledge and flexibility a bionic agent exemplifies. As Jason Walker writes at PropertyCasualty360, “Consumers today want the ability to conduct insurance business anytime, anywhere for simple transactions, while at the same time be able to have a relationship with a professional to discuss complex policy questions or walk them through the claims process.” As this option becomes ever more normalized for customers, the demand for the same experience in insurance will rise. as well.

The result? By 2028, “digital natives” won’t only be insurance customers — they’ll also be insurance agents who leverage technology not only to serve customers but to demonstrate real value in the insurance process.

See also: Key Strategic Initiatives in P&C  

Automation and Claims Processing

Field agents aren’t the only insurance industry professionals who will see their work change dramatically by 2028. The ways insurance companies process claims will change, as well, driven in large part by customer expectations.

For instance, Ben Rossi writes at Information Age that about a fifth of young adult customers (ages 18–24) expect insurance companies to use drone technology to survey property damage and gather information for claims.

This idea “would have been unthinkable as recently as a couple of years ago,” Rossi says. Ten years from now, sending a drone to a damaged building or factory site may be as commonplace as sending a human adjuster has been for the past 10 years.

For many of us, 2008 feels like it was yesterday. In 2028, our memories of 2018 will feel the same — yet the insurance industry is poised to be eons ahead of where it currently stands, and insurtech will lead the way.

Where Will Real Innovation Start?

Ten years ago, BlaBlaCar was founded and now is a trusted community marketplace that connects drivers with empty seats to passengers looking for a ride. BlaBla has 25 million members in 22 countries and is one of many successful initiatives using technology to bring together supply and demand. Are there successful equivalents in insurance, as well? When will the customer be served with appropriate insurance cover and services for a safe environment based on real-time individual risk profiles?

See also: The Future of Insurance Is Insurtech

There are a few interesting initiatives:

  • trials and pilots (in car-telematics have been around for 10-15 years);
  • conferences and summits where new technology is discussed as a true disruptor;
  • billions of dollars reserved for fintech and insurtech initiatives;
  • warnings from regulators and consultancy firms that business models are under pressure;
  • studies and whitepapers from the industry;
  • insurance companies setting up or expanding innovation labs.

And yet we hardly have seen any serious change in the insurance offerings in the last decades. Creativeness does not go beyond a discount on a traditional product/premium when good behavior is proven. That is good for a start but of course is a dead-end street.

So will real innovation/disruption come from the inside or the outside?

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As a business engineer with 30-plus years’ experience in insurance innovation and digital transformation, I’m following global insurance business and all kinds of new initiatives closely.

There are two important findings:

  • the initiatives are often thin (scratching the surface and lacking insurance substance) and
  • the initiatives are fragmented, touching only a part of the overall customers’ insurance and claims needs

It is rather obvious for me that the insurance future is in real customer-centricity and -engagement and that technology (with a personal touch) provides the means to achieve personalized, dynamic and engaging solutions in a new and sharing economy.

Some of the key requirements:

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If you do the tick-list, the outcome will be that there is a strong reason to have clever teaming-up between startups and existing insurance companies., where a NewCo can develop at arm’s length from the insurance company but with full consent and maximum freedom (while staying compliant). In insurance, it seems that “Construct” is more promising than “Disrupt.”

See also: Shift in Funding for Strategic Initiatives  

Where “Bla Bla” in BlaBlaCar refers to the level of chattiness, let’s hope that there won’t be too many Bla’s in insurance and that real innovation will come soon, resulting in future-proof insurance solutions with happy and engaged customers.

At Intsure Technology Solutions, we are working on projects like:

  • My Insurance Kit
  • Pay-per-mile car insurance
  • Digital Advisor and
  • InConnect (Intelligent Insurance for Smart Living)

As a consultant I’m ready; as a consumer, I’m waiting.

And anyhow there is so much happening and so much to learn that any delay is a waste of time.