Telematics Feeding Frenzy
Why Discounts May Not Drive Demand
In a recent Insurance Thought Leadership article, Ami Mintzer (head of big data and client development at Viasat Group) expressed some doubt about insurance telematics. Does the ROI make sense? Do the benefits pull their weight?
According to Mintzer, telematics is a valuable innovation, but the business model is all wrong. As long as insurers use it to offer discounts only, the results will be unimpressive. To fulfill its potential, telematics has to do more. It has to shower customers with the value they want most: it has to deliver a feeding frenzy.
“To encourage dolphins to do their show, you must feed them with fish continuously,” Mintzer said. “The same is [true] with customers – if you’ll pardon the analogy. You must keep them engaged and provide them monetary value on a daily basis.”
If “discount” is the first word that pops into your mind when someone says “UBI,” you’re missing out on the full potential of telematics. The key word here is really “value.”
If you’re using telematics for discounts only, you’re missing out
Ah, the discount. It was the first idea to draw people, both insurers and policyholders, to telematics, but like many first ideas, it wasn’t complete.
Shaving a few dollars off an insured’s policy just isn’t enough to wow anyone. For drivers, an isolated discount doesn’t provide enough draw to earn their participation, and for insurers, the ROI doesn’t make sense. While they might gain a few good drivers by offering a discount, the price-cut by itself doesn’t improve the driver pool enough to offset the upfront investment.
It quickly became clear to telematics stakeholders that the purpose of telematics had to be much bigger.
Which telematics benefits really do pull their weight?
- Real data provides more-accurate risk assessment. Fact: analytics is more accurate than guesswork. Telematics allows insurers to base risk assessment on reality, unlike the proxy factors they used to rely on before telematics data was available.
- Data-driven pricing appeals to customers’ desire for fairness as well as their belief in above-average driving skills. In other words, accuracy is more than just accuracy: it’s a benefit, too. By assuring customers that you’re treating them fairly and, at the same time, demonstrating confidence in their skills behind the wheel, you incorporate two powerful motivators into your messaging.
- Smartphone telematics apps can be designed to strengthen the customer/insurer relationship via frequent, personalized messages. Telematics moves the conversation from once a year or less to a few times a week. Repeat contact is a proven way to strengthen brand adhesion. “The more contacts made with a customer, the ‘stickier’ that customer becomes,” according to a whitepaper by Aspect.
- Driver feedback and scoring can motivate average drivers to become good drivers. Insurers don’t necessarily have to attract new customers and kick others out in order to improve their driver pool. Telematics makes it possible for the drivers you already serve to improve their skills. Drivers in a recent survey said that the safe driving concept was by far more important to them than the possibility of a discount.
- Value-added services can be integrated to bring customer experience to a new level. Free carwash, anyone? How about a complimentary latte? When you tie low-cost perks to good driving, you can incentivize good behavior on the day-to-day. Build the reward into the experience of using the smartphone app, and instantly, the value becomes emotionally compelling to drivers.
- Young driver monitoring can appeal to parents’ desire to hold kids accountable to family driving rules. For families with teenage drivers, this is a big one.
And if you choose to offer a discount on top of all that? Your policyholders surely won’t complain. But bear in mind, it’s not the discount they’re after. It’s the whole experience. When you deliver, you’ll discover the telematics feeding frenzy. Download our Survive and Thrive white paper to learn more.