In our last article, we shared how you can help your customers avoid the insurance rate hikes that come from committing moving violations. In the “max happiness” scenario, drivers with usage based insurance not only pay the rate that reflects their real behavior; they’re also incentivized to keep those rates low by building better daily driving habits in the first place.
As it turns out, the same goes for claims.
Drivers: you should probably sit down for this
Making an auto insurance claim is no small thing. Forbes called the ultimate cost of that phone call staggering. “Filing a single claim of $2,000 or more will cause an average motorist’s car insurance premiums to skyrocket by 41 percent, according to a recent study conducted for the website InsuranceQuotes.com,” Forbes Contributor Jim Gorzelany said this January.
It’s a touchy topic for your customers. Think about it. They’ve been dutifully paying their premium every month for just this contingency. They didn’t purchase insurance only because it’s required by law; more importantly, they bought it because they wanted someone to be there for them when they needed help.
You don’t want them to regret it. You want them to walk away from the scene of an accident feeling taken care of, not punished. One way to give them that feeling is to demonstrate that you’re on their side from the start by collaborating with them to keep them out of trouble, by providing the tools they need to keep their costs down.
How usage based insurance can combat claims-related rate increases
Forbes said that on average, a driver who files a claim can expect to pay $335 more for insurance per year: “This is all based on the actuarial premise that someone filing an insurance claim is more likely to get into another accident than a policyholder who’s never opened the umbrella of coverage, so to speak.”
Get in a second accident, and watch out! The average rate hike for that is 93 percent.
Usage based insurance could work differently for your customers in claim scenarios in two ways. First of all, it gives you objective data that can be used to evaluate rate increases. Instead of hiking their rates solely based on a claim occurrence, you have other information on which to base an informed pricing decision. Years of good driving don’t have to count for nothing when an accident happens. The old way of hiking rates after every accident may not be the best way, particularly considering recent studies that indicate customers are highly likely to change carriers after filing a claim. If a carrier chooses to do so, it could feasibly offset the rate hike triggered by an accident with good driving habits that UBI customers have demonstrated.
Which brings us to the second way usage based insurance is different: Once again, it incentivizes good behavior, giving drivers a daily reason to make better, more conscientious choices while they’re on the road. Those good habits lower the risk of getting into an accident in the first place.
When drivers get tickets, their car insurance gets more expensive. No surprise there – traffic violations bear an impact on insurance rates, as just about every driver knows. However, what might surprise your customers is just how much a single violation can affect how much they pay.
How much damage can a traffic violation do?
We’ve posted a revealing infographic from The Hartford below to answer that question. But before you peek, let’s test your knowledge. Of the following infractions, can you guess which is harder on a driver’s pocketbook?
Which is worse: tailgating or failing to yield?
Which costs more: driving without a license or driving without insurance?
Which tops the list: reckless driving or DUI?
Ready for the answers?
Tailgating is worse than failing to yield, with an associated rate increase of 13 percent – versus only 9 percent for shouldering your way past a yield sign.
Driving without a license is more expensive in the long run, raising you’re a policyholder’s insurance rate by 18 percent. Driving without insurance? That comes with a rate penalty of only 6 percent.
It’s bad news for reckless drivers. It turns out that one instance of reckless driving could raise a driver’s premium by 22 percent, which is actually higher than for DUI, which amounts to a 19 percent hike.
Short-term caution vs. lasting happiness
If you tell your policyholders how violations impact their rates, they may drive more cautiously – at least for a little while. It’s one thing to mean to be more cautious, though, and another thing to follow through and permanently change driving behavior. No one knows when they’re going to get ticketed. If they did, they would modify their behavior in the moment to avoid it. Most often, drivers don’t get ticketed for fluke choices. Rather, the tickets they get are often a reflection of their everyday driving habits.
So, if you want your policyholders to experience true driving Zen, introduce them to usage based insurance. Once they realize that their rates will be based on daily driving habits, they will have the incentive they need to behave better, every day. That brings down the risk of getting ticketed in the first place, empowering policyholders to keep their premiums where they want them: nice and low.
Sure, anyone can set out to “drive better.” But for most people daily monitoring, coaching and repetition is needed to achieve a lasting improvement. Usage based insurance gives drivers the tools to drive better and insure happier. Stay tuned for part two of this series … we’re talking claims.
With Valentine’s Day around the corner, there’s never been a better time to talk LOVE … in this case, our love affair with electronic devices and apps. While we all know Americans are obsessed with their smartphones, the latest data is juicier than an episode of “The Bachelor.”
Check out these sizzling trends …
Hotter than husbands? According to January 2014, Pew Research, 44% of cell owners sleep with their phones by their beds and 29% describe their cell phone relationships as “something they can’t imagine living without.”
Trading up? In 2014, for the first time, people began to spend more time in smartphone apps than watching television! Yes, you heard right. There was a 9.3 percent rise in just nine months. This is a continuing trend, as mobile web usage has already overtaken the PC.
Speed dating? In fact, in 2012 the iPhone app Draw Something broke Facebook’s record, reaching one million users in just nine days! Mobile advances are reaching consumers at a simply ridiculous rate.
The key to lasting relationships …
According to this WebDAM infographic, 85 percent of users prefer mobile apps to mobile websites, and yet only 45 percent of U.S. mobile marketing campaigns employ app downloads.
In the United States, 224 million people actively use apps on their smartphones.
On top of that, 61 percent of customers report a higher opinion of companies that offer a good consumer experience on mobile.
Forbes reports that mobile is the key to create a sustained relationship with customers. Mobile is increasingly becoming the platform of choice for not only social networking, but contacting customer service.
A formula for successful UBI matchmaking …
Smartphones are driving technological advances and changing UBI policy adoption figures. In 2013, a pilot program conducted in Sweden led to new customers and the transition of existing customers to a UBI program. The article outlines several key points:
Smartphone telematics will be relevant for several years to come.
As a UBI alternative, smartphone technology could disrupt contemporary business practices in the insurance industry through technological innovation and improved end-user experience.
Despite its challenges, smartphone telematics offers a scalable, user friendly alternative to UBI and could result in innovations in the sales process.
Fairytale ending …
While the rest of the usage based insurance story is left to be written, it’s clear that the leading characters are destined for auto industry greatness. America already has a love affair with smartphones, apps and saving money. Auto insurers who appeal to these preferences with smartphone UBI programs can look forward to many years of “automonial” bliss.
Wondering if your policyholders will LOVE smartphone UBI? See it through their eyes in the video below:
Like the lyrics in a Beatles song, auto insurance underwriters are often left waiting and hoping – not for mail, but for accurate information. They wish their policyholders would be forthcoming with truthful information. Unfortunately, that’s usually not the case.
The image you see above represents a driving route revealed by usage based insurance tracking. This driver’s auto insurance underwriter has no idea that he is driving a delivery route every morning at 3 a.m. He then returns home for most of the day, before leaving to commute to his local community college at 4 p.m. He returns home most evenings at 8:30 p.m.
Harmless right? Not necessarily. It turns out that if you’re an auto insurance underwriter, what you don’t know will hurt you. In fact, this person is not only using his vehicle for a work-related function, he is also driving during the highest risk times of the day.
A 2012 study by the Insurance Institute for Highway Safety found that 32 percent of crash deaths occurred between the hours of 3 p.m. and 9 p.m. Usage based insurance can help you underwrite for high risk drives times in two ways. First, by communicating that high risk drive time has a pricing impact upfront, high risk drivers would not elect to participate and those with low risk drive times will self-select. Second, if there are people in your UBI program who drive during high risk times, you will be able to identify them and price them appropriately upon renewal with the help of accurate driving data.
Zip codes are another common source of soft auto insurance fraud. A carinsurance.com survey found that while the average cost for a 40-year-old man to insure a 2014 Honda Accord was $1,231, a policy with identical provisions could cost as much as $5,109 in some zip codes. Think people in those zip codes enjoy paying five-times the rates? Think again. A fair percentage most likely falsify their garaging addresses … maybe even the postman we’ve been discussing.
Looking at the big picture, insurance fraud costs U.S. insurers $80 billion a year, according to the Coalition of Insurance Fraud. Some of that fraud is soft and some is much more overt. In fact, the organization’s 2015 Fraud of the Month features the “Crash-Gang Dispatcher” – a humble taxi dispatcher who moonlighted as an insurance fraud organizer, sending cronies to maneuver more than 30 staged vehicle crashes. Similarly, Insurance News Networking details the seven worst instances of fraud in 2014 – two of which impacted the auto insurance industry – a legal/chiropractic team that “manufactured” auto injuries and the purposeful sinking of a Bugatti.
While the postman song has a catchy chorus, the message is a bit passive. Auto insurance underwriters simply cannot afford to wait and hope for accurate data. They need a better way of detecting and eradicating insurance fraud. Is usage based insurance the answer? Quite possibly.
For more on usage based insurance’s impact on fraud, click here. To learn more about our UBI pilot program, available to select insurers, contact us.
Over the past couple of weeks, I’ve seen a few articles in the news saying that half of Americans aren’t interested in usage based insurance. They seem to be inferring that the usage based insurance trend is losing demand. Really?
This conclusion struck me as a little premature. First, I think we can all agree that most consumers don’t even know what usage based insurance is yet. The technology is in its infancy, with most carriers not even offering it yet. Is it possible that consumers are losing interest … before most even had interest?
Before we jump to conclusions, let’s take a moment to dissect the facts:
Half empty vs. half full. Just last week, we ran an article and an infographic highlighting a 2014 LexisNexis study that concluded that one in three consumers are interested in mobile usage based insurance. I personally felt that interest from one in three consumers was great, especially considering that a lot of consumers don’t really understand UBI yet. I guess you could say my glass was a third full.
The new study from Insurancequotes.com concludes that 49 percent of consumers would not consider usage based insurance. Maybe their glass is half empty? Flipping those numbers, and considering the margin of error in any survey, you could easily say that roughly half of consumers would consider usage based insurance. And that’s a number worth noting.
Risk vs. return. With all products and services, there is a pro and con. For example, the pro of buying a new $350 ski jacket is that you’ll be warm through the winter. The con? You won’t have $350 anymore. A person’s likelihood of buying a $350 ski jacket entirely depends on circumstances. For example, if I ask a Texan, “How likely are you to buy a $350 ski jacket?” she will probably say “not likely.” However, if she was planning a trip to Colorado in two weeks, her answer would probably change.
Now let’s apply this elementary logic to usage based insurance. If you ask consumers if they would consider purchasing usage based insurance, obviously, there’s a downside. They have to give up some degree of privacy. Again, the likelihood of adoption depends entirely on the circumstances – specifically the strength of the upside. The LexisNexis study we highlighted last week, found a positive correlation between the degree of discount offered and consumers’ degree of interest. When the discount level was increased from 5 to 15 percent, consumer interest doubled!
Awareness vs. interest. Finally, anyone who has any experience in marketing knows that before you can get to interest, you have to cross the awareness hurdle – something the usage based insurance segment hasn’t even tackled yet. The insurancequotes.com report cites privacy as a major UBI barrier among older consumers, and goes on to say that many believe their insurers will be able to tell if they’ve been drinking and driving. Anyone detect an awareness issue?
The bottom line: Take a close look at the numbers, and I’m sure you’ll agree … it’s way too early to say that interest in usage based insurance is declining. In fact, interest may be increasing. When all the facts are on the table, and consumers clearly understand exactly what UBI programs monitor, how much UBI programs cost, and how UBI might translate to increased safety, fewer accidents and lower rates, then we can talk.
Want to know more about how usage based insurance can work for your company? Watch the video below.
In last Tuesday’s blog we told you that 1 in 3 consumers are interested in usage based insurance.
Today we’re discussing their concerns about consumer data privacy. How many people are wary about privacy? How could these concerns affect your usage based insurance rollout? What can your company do to alleviate privacy concerns and earn usage based insurance business?
Again, we turn to 2014 LexisNexis research for answers to these questions. The company’s findings, compiled from 2,000 respondents, reveal some interesting insights about the future of usage based insurance.
For example, the report predicts that 20 to 30 percent of the insurance market will be captured by usage based insurance within the next five years. And, data indicates that consumers like the idea of insurance controlling costs through safe driving habits. Up 12 percent from 2013, parents are more interested than ever in tracking their teens’ whereabouts and knowing how well their kids are driving. Almost half (45%) of the respondents expressed interest in using UBI data to track the driving habits of family members.
It appears that the high priority of safety may move the privacy issue to a back seat. In other words, consumers may be willing to give up some information in exchange for the opportunity to help themselves and their teen drivers avoid accidents.
While many consumers take issue with giving information to their auto insurance carriers, an equal number are as comfortable with the data exchange as they are with social media. In particular, younger drivers are more accustomed to trading personal data privacy to gain the benefits of technology.
The history of online banking reminds us that consumers will be wary and voice concerns over privacy but convenience and value added services will win out in the long run. Likewise, as consumers become more familiar with usage based insurance, they will acclimate to the data tracking aspect of the product. Case in point: Only 68 percent of consumers in 2014 feel that usage based insurance provides too much information to insurance companies, compared to 72 percent in 2010.
For consumers who are still hesitant around the issue of privacy, insurers can offer value-added services to emphasize the safety benefits of data collection. Providing emergency response and roadside assistance services along with stolen vehicle tracking and recovery are solid counter measures to consumer reluctance. Focusing on teen safety and accident reduction through coaching is also a smart strategy.
Clear communication about the type of data collected is also important. For example, some consumers believe that insurers would be able to tell if they’d been drinking and driving in a UBI program. Of course, insurers can’t detect drinking and driving with smartphone UBI, but nevertheless, it is a concern that needs to be addressed with clear and proactive communication.
Our conclusion: Privacy is still a potential barrier to consumer adoption of usage based insurance, particularly with older audiences. That said, it’s not a formidable barrier. With increased awareness, education and focus on the safety upsides of data sharing, privacy issues will take a back seat. The most important thing that auto insurers can do is to start planning UBI program rollouts, and communicating coming options to policyholders now. The grass is always greener, and policyholders won’t stay with you just because they’re satisfied with your service. Use UBI as a tool to build the relationship and earn their loyalty.
We have limited UBI pilot programs available. Let us know if you’d like to be considered.
A quick review of the 2014 usage based insurance study by LexisNexis calls to mind three key words: YOUTH, DISCOUNTS and SMARTPHONES. Want to know more? See notable study conclusions and the full infographic below.
Notable finding #1: The under-25 crowd is interested.
In fact, interest in usage based insurance from 21 to 25 year olds jumped from 31 percent to 45 percent between 2013 and 2014, whereas overall awareness only increased by 1 percent, to 38 percent in 2014.
The survey reported that respondents were just as comfortable sharing UBI data as social media, smartphone, and online search data. Autoblog.com reported similar results, and drew connections between receptiveness to UBI and comfort with mobile technology and social media. Young drivers voluntarily post their information using social media already, making privacy less of a concern – especially in the face of the potential savings.
Notable finding #2: Degree of discount drives the degree of interest.
LexisNexis reported that more people are interested in usage based insurance at lower discount rates. The difference between a 5 percent and 15 percent discount doubled interest in usage based insurance among respondents. While 30 percent expressed interest at a 5 percent discount level, a whopping 63 percent showed interest when the potential discount was increased to 15 percent! The addition of value services such as roadside assistance further increased demand.
Notable finding #3: Mobile interest is accelerating.
The study revealed that a great number of people who are responsive to usage based insurance would also be comfortable using apps on their smartphones to monitor driving. The number has increased by 10 percent since 2013, which means that more than one in three consumers now shows interest in mobile UBI.
Smartphone UBI + millennial market + discounts = winning opportunity
Looking for a winning opportunity? Offer millennial clients the chance to receive discounts by enrolling in smartphone UBI. Young drivers are increasingly interested in usage based insurance, and sharing information is less daunting on mobile devices, which they already use for sharing via social media. Engage the smartphone users where they are: on their smartphones.
Well-informed consumers will soon be choosing auto insurers that allow them to save money via smartphone telematics. Are you ready to meet their needs? If not, here’s how you can catch up quickly without having to eat an elephant!
Most people agree that the Internet of Things (IoT) is exciting, but we still have huge obstacles to clear. These obstacles include how to manage consumer privacy; cybersecurity; and the proficiency of inter-device communication. However, today, I’m not going to talk about any of those hot issues. Instead, I’m going to talk about another massive barrier: The cost of device and sensor management.
Case in Point: In a blog for Insurance Networking News, Matt Manzella says, “As with most new technologies, the cost of individual sensors is still relatively high, but what makes the cost of the smart home beyond most people’s reach is, to truly have a connected home, one requires a large number and variety of sensors. These may include the following sensors: open/close, motion, cameras, outlets/plugs or switches, water/humidity, temperature, smoke, and may also include things like smart appliances and water shut off valves. A minimal set up could be accomplished for $300-$400, but full coverage in a modest sized home could run $1,000-$3,000.”
Manzella is referring to the cost of sensors for each individual homeowner. But take that a step further. What is the cost of those sensors for each of the companies supplying them?
For those who manufacture connected products, device cost is expected to decline dramatically in the coming years and standardization occurs. However, for service industries that need to be connected without having a manufactured product (think insurance) the cost goes far beyond the physical cost of the sensor. This hardware also has to be procured, inventoried and shipped. And, there’s a wastage cost for sensors that are shipped and lost, or never actually installed by the recipient. At least that was the case for auto insurers that deployed hardware-based UBI rollouts.
In a 2014 Insurance Journal article, written by the Casualty Actuarial Society, Jim Weiss of FCAS shared a hypothetical example in which the UBI dongle cost $100 with a shelf life of three years. In addition, it communicates with the insurer via wireless which costs about $5 a month. He concluded that in this scenario, the insured’s loss ratio would have to drop by 22 percent to justify a permanently installed dongle.
It’s easy to see how hardware can inflate the cost of a usage based insurance rollout and complicate the task of achieving a return on investment. And, that’s just the beginning of the process. At some point, sensors will need to be updated or replaced. To save money, some insurers have considered giving UBI hardware devices to policyholders for only six months at a time, but there are still shipping and inventory issues – not to mention inconvenience to policyholders.
One thing is for sure: Mobile devices are easier to manage than hardware sensors.
Easier management, program scalability, and lower costs are just a few of the reasons that usage based insurance pioneers are making the move to smartphone-based UBI platforms. By delivering usage based insurance via a smartphone app + cloud, insurers can avoid all the hardware hassles. They can deliver usage based insurance instantly by sending the policyholder a link to the insurer-branded downloadable app. And, they can universally update their programs by releasing a new version of the app – without having to manage individual sensors.
There’s some interesting new research out from UK-based auto insurer, ingenie. Their Young Driver’s Report revealed that 40 percent of new driver crashes could be avoided with wider adoption of “blackbox” or usage based insurance.
While the infographic below fully illustrates the company’s findings, here are a few highlights:
One in five young drivers crash within their first six months on the road.
More than 90% of those using usage based insurance, engage with driving behavior feedback and check their feedback 14 times a month, on average.
Young drivers who share driving feedback with their parents or guardians are 28% less likely to crash than those who don’t.
Drivers with higher driving scores are less likely to have serious crashes than those with lower scores.
With ingenie’s usage based insurance program, one in eight drivers crash within their first six months on the road (compared to the usual one in five).
It makes sense that coaching teen drivers should improve their safety and ability to avoid accidents, and now ingenie has the numbers to prove it! In addition, we know that young drivers are digitally engaged, and therefore highly likely to embrace smartphone UBI.
American auto insurers – now is the time to take action. If you haven’t already done so, read this article on how to feed the usage based insurance elephant.
A California startup recently introduced another model for auto insurance: pay-per-mile. This new company, Metromile, has a simple value proposition: The less you drive, the more you save. Unlike traditional car insurance premiums, their monthly “base rate” is calculated by miles per month. And unlike usage-based insurance (UBI), the company isn’t looking at driving behavior.
Who benefits … and who doesn’t?
For those who don’t drive a lot, the pay-per-mile model may produce lower rates, saving customers up to $500 per year, Metromile said. While Metromile won’t charge customers for more than 150 miles per day (250 in Washington), it’s an ominous price structure for drivers who are on the road frequently. Auto News put it this way: “Because of the industry’s risk-pooling practices, the break-even point is around 10,000 miles per year. Drive more than that … and conventional insurance would probably be cheaper.” According to Metromile’s website, per-mile insurance is currently only available in California, Oregon, Washington and Illinois.
How does pay-per-mile compare to usage based insurance?
Like usage based insurance, the pay-per-mile model could be an auto insurance game changer. Metromile CEO Dan Preston says, “70 percent of the variation in insurance claims filed can be chalked up to how much customers drive, with just 30 percent tied to driving habits.” With that stat in mind, pay-per-mile seems logical for certain segments of the market.
That said, Metromile operates much like first generation usage based insurance solutions, relying on an onboard diagnostic device known as a Metronome for data collection. Those of us who have watched the evolution of usage based insurance know firsthand that hardware is expensive and cumbersome, making it difficult to cost-effectively roll out and scale a program. The use of hardware creates inherent inventory, storage and distribution challenges – all expensive. Furthermore, there’s the chance that those who receive the hardware never actually install it, creating a separate issue of wastage.
Pay-per-mile innovators may be well-served to follow the lead of usage based insurance, and try a smartphone-based platform to track miles instead.
Different strokes for different folks
While a certain segment of the market will appreciate the simplicity of the pay-per-mile approach, others may be looking for more. For example, usage based insurance may continue to be a more attractive option for the following audiences:
Those who drive a lot, drive safely, and want to be rewarded for their skill. No explanation needed here. If you drive a lot, and drive well, UBI is likely a more advantageous option.
Millennials. On one hand, Metromile says their approach appeals to millennials, because younger customers drive less, relying on alternative modes of transportation. On the other hand, it lumps people together, which isn’t exactly the approach that Millennials covet. IA Magazine describes the millennial mindset this way: “Millennials have grown up in a world of individuality: I am unique, I am different, there’s nobody like me in the whole world. I have control of my life, I’m self-reliant, I get to make decisions – don’t tell me what to do.” Conversely, usage based insurance treats each customer as unique, offering millennials the opportunity to prove themselves on their own merits.
Those who value relationships. As we said earlier, to gain long-term customers, you’ve got to build long-term relationships. Usage based insurance provides insurers opportunities to communicate positively with customers every time they drive – rather than making their only points of interaction the “potentially negative touch points” of “claims or billing.”
At the end of the day, both pay-per-mile insurance and usage based insurance have value. It really comes down to the audience you intend to serve, and your ability to cost-effectively introduce and scale the program.