The Unbanked - a Good Fit for Usage Based Insurance?
Still, 10 percent of America is “unbanked” meaning that they are individuals who don’t use banks at all. In addition, another 17 percent are considered underbanked, which means, according to PBS, that “they use a bank account in addition to an alternative financial service like payday lenders or payroll cards.”
A marginal slice of the population? Not really: we’re talking 27% of the nation.
To make things more interesting, those un- and underbanked individuals are smartphone users.
- Among the unbanked, 70 percent use smartphones
- Among the underbanked, 40 percent use smartphones
Occasionally these bank-averse individuals do open an account, and when they do, statistics show they have an overwhelming preference for mobile banking. That’s true among regardless of income level. And while later they may choose to close the bank account, the phone remains an important fixture in their lives. Bank accounts may come and go, but smartphones are forever.
Does usage based insurance appeal to the unbanked?
If you’ve never opened a bank account, you probably don’t have a credit score. And when you don’t have a credit score, it’s tough to get car insurance. Some insurers may shut the door on you entirely. Others may require you to pay higher premiums. Here’s where UBI could present an interesting solution.
Anyone who’s already using a personal device on a daily basis is probably willing to consider getting auto insurance via a smartphone app. The un- and underbanked demographic, in particular, is even more likely, given their preference for mobile banking.
Usage based insurance eliminates the need for insurers to factor in a driver’s credit score when setting their rates. By basing the cost of insurance on a driver’s behavior, usage based insurance sidesteps the need for credit data.
This means that providers who offer UBI-based insurance without requiring credit data have a competitive advantage when appealing to un- and underbanked customers, because they can offer them more competitive rates. That’s a significant advantage as we’re talking about 27 percent of the population.
This is just one more way usage based insurance could transform the face of car insurance. Click here to see how usage based insurance could revolutionize your approach to insurance.