The Usage Based Insurance Happiness Factor: Claims

usage-based-insuranceIn 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,” 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.

That’s good news for your customers as well as for your business. Having fewer claims to deal with makes everyone’s life easier – and less expensive. Want to know more? Download our free report: “10 Reasons to Unplug and Unburden UBI.”

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