Oct 2015

Are Usage Based Insurance Discounts Sustainable?

usage-based-insuranceAre usage based insurance discounts sustainable? Maybe not. According to a 2015 study on usage based insurance by LexisNexis, there’s something else that drivers want more.

What do insurance telematics customers really want?

LexisNexis published a graph that gave some insight into the motivations that drivers bring to insurance telematics adoption.

  • When drivers were offered a 10 percent discount through UBI, the demand was 15 percent.
  • When that 10 percent discount was combined with value-added services such as emergency roadside assistance, automatic emergency crash response and vehicle theft tracking and recovery, the demand maxed out at 17 percent.
  • But the idea that insurance telematics will make you a safer driver? That concept alone outpaced both discount-driven options above. Demand for the safe driving concept was 22 percent.
  • Throw in some rewards, and demand rises to 24 percent. Rewards include free oil changes and roadside assistance, or the ability to earn points for miles driven.

Bottom line, “U.S. consumers are more motivated by a smartphone application (app) that scores their driving than they are by premium discounts,” said Business Wire.

Customers may be getting hungry for a different carrot

Discounts were the original carrot that UBI offered to attract drivers to the program. But UBI is no longer new, and the more insurers offer the same carrot, the less attractive it seems.

“In 2014, 18 percent of respondents expressed interest in participating in a UBI program with a 10 percent premium discount; in 2015, carriers would need to offer a 15 percent discount to achieve the same market coverage,” said Business Wire.

Ten percent off is nothing to complain about. It’s nothing to get excited about, either.

Perhaps that’s why UBI adoption has plateaued. “While there was a jump in UBI awareness from 10 percent in 2010 to 36 percent in 2013, since then consumer awareness has roughly leveled to 39 percent in 2015,” said Business Wire.

Clearly, customers are getting hungry for a different carrot. For insurers, that’s good news.

The safe driving challenge: a better way to incentivize telematics

LexisNexis found that drivers enjoy competing against themselves even more than competing against one another. The personal challenge of self-improvement makes a strong incentive - and it’s fun, too.

These days everyone wants to be above average; drivers are no exception. In fact, LexisNexis said that allowing drivers to compete against their own scores could enhance customer engagement at the same time, because they want to stay, beat their score and achieve above-average skills.

Drivers may not need additional incentives to make the move to insurance telematics. Even the offer of rewards (in combination with the safe driving concept) bumped the demand up by only two percentage points. It seems that for now, the safe driving challenge is enough.

Want to see how your own driving stacks up, and if you can improve your personal best driving score? Request a pilot here.