How to Sell a Complex Concept like Usage Based Insurance

In one sense, usage based insurance is very simple. Pay-as-you-drive-and-you-save (PAYDAYS) insurance is exactly what it sounds like.

On the other hand, usage based insurance is very different from the traditional auto insurance model. Innovators know that any time you introduce an idea that approaches an old challenge from a whole new angle, resistance is to be expected. For consumers, it takes mental effort to absorb a new idea. Usage based insurance is a little complex. It feels risky. In other words, it’s disruptive.

Disruptive technology serves an invaluable role in IT, of course. It’s the bow wave at the forefront of innovation, defining the outer limits of everything that follows in its wake. “This type of innovation shakes up the ecosystem and creates new revenue opportunities through new markets, categories and change in consumer behavior,” Consumer 360 said.

So how do you sell that type of concept to consumers? Thanks to the current abundance of research on consumer behavior and psychology, there are plenty of good ideas to choose from.

1. Reduce the mental effort required. 

Consumers avoid complex decisions when they can, according to a recent study by the National Association of Insurance Commissioners (NAIC). When they can’t, they apply minimal mental effort. Perhaps that explains why they tend to go with the default option, even when better alternatives are offered alongside. When products are complex, that instinct to stick with the default gets even stronger.

What to do? Make your disruptive offering the default, and suddenly it doesn’t feel so complex.

“This propensity to pick the default has been shown in a variety of markets, including automobile insurance,” NAIC said. “In Pennsylvania, for example, where full-tort insurance coverage is the default option, more than half of drivers sign up while in New Jersey; where it is not, fewer than one in 12 consumers sign up.”

2. Make savings more tangible.

Consumers do discriminate among products based on price. However, the budget they’ve got in their heads is likely a short-term one, and the savings that feel most satisfying are the kind they can easily visualize, NAIC said.

What to do? Set your billing cycle to smaller, more frequent payments, and right away the savings feel more obvious. Even if the total savings are the same, consumers will feel they’re spending more when paying large, less-frequent bills than if paying a smaller bill that comes more often.

3. Emphasize fairness.

When choosing a product, consumers consider more than just cost. However, those other factors don’t necessarily wield much influence. What does loom large in a consumer’s mind – maybe even larger than the price tag – is the idea of fairness.

“Marketing PAYDAYS UBI as a better and fairer deal could help it gain acceptance,” NAIC said. “Consumers generally are very sensitive to the perceived fairness of the deal (transaction utility), and they are much more willing to spend on what seems like a good deal, regardless of the purely economic value they may derive from using a particular product or service.”

What to do? Tune your marketing to resonate with your customers’ right to fair treatment. Demonstrate how your offering is a better deal, specifically how it’s fairer than the alternatives, and you’ll be appealing to a powerful emotional driver in your audience.

4. Make the purchase more emotional.

When emotion is high, price resistance is low. This age-old truth rings true when people buy luxury cars, brand-name sneakers and must-have electronic gadgetry. In fact, according to Salesforce.com, buying decisions are based on 20 percent logic and 80 percent emotion. The trouble with insurance is there’s not a lot of positive emotion involved … at least not yet.

What to do? Hook new prospects with a free trial of your smartphone telematics app. Get them emotionally-engaged with your company, before they even think about buying insurance, by sending them tips and suggestions to improve their driving safety and gas consumption. This tactic may be particularly effective with millennials, as well as parents of teen drivers and adult children of senior drivers who are highly concerned about the safety of their loved ones. If your app gives them greater peace of mind, they’ll be emotionally engaged with your brand. When they are ready to buy, an individualized pricing structure can further strengthen the connection.

When introducing an offering that’s different, complex or disruptive, how can you help consumers “get” it? For more ideas on reducing the mental effort involved in product selection, take a look at this article on keeping it simple from Harvard Business Review.