Usage Based Insurance: The High Cost of Procrastination

Usage Based Insurance2014 represents the best of times and the worst of times in the auto insurance industry. Financial results continue to be strong. Rates are trending up and P/C insurers’ net income rose modestly in the first half of 2014 according to Verisk Analytics.

No pain, no gain?

However, as the old saying goes, where there is no pain, there is often no gain. Is it possible that auto insurers are too comfortable to venture forward into territories not yet conquered?

It certainly seems that way from the usage based insurance perspective. Collectively, the industry seems to embrace the concept of usage based insurance. The industry also agrees that usage based insurance has the potential to be the next big market disrupter – akin to the change brought about by the introduction of credit scores as a rating factor back in the 90s. There also seems to be great buy-in to the concept of smartphone UBI – particularly since two major industry leaders announced smartphone UBI programs/intentions.

The only ingredient that seems to be lacking is forward momentum. This may be the worst of times in the auto insurance industry because many insurers lack any incentive to innovate.

Is a “wait and see” attitude prudent or foolishly tentative? Who will emerge the winners: The market leaders or the market followers?

Study finds early adopters grow faster.

According to a 2014 Harvard Business Review study, “The Digital Dividend, First-Mover Advantage,” there is a correlation between the early adoption of new technologies and better business outcomes. The study found that Pioneers (the 34% of the market who seek to gain first-mover advantage) are growing faster than other companies. Twenty percent of Pioneers have experienced more than 30 percent growth – twice that of those in the Follower category and three times that of those in the Cautious category. Those in the Cautious category were most likely to report no growth.

Interestingly, 54 percent of Pioneers report that their core strategy has changed due to changes in technology and 52 percent have changed their product/service offerings due to changes in technology.

Forty-six percent of financial services organizations in the Follower category cited “legacy technology getting in the way” as the biggest resistance to change.

How does early adoption translate to auto insurance?

To answer this question, it’s helpful to travel back in time to the mid-90s when credit-based rating made its foray into the auto insurance industry. What happened to the early adopters? Eighteen years later, at least one early adopter is now one of the top five largest auto insurers.

If you’d like to accelerate growth, it might be time to move from the back seat to the driver’s seat and become a leader rather than a follower. When you’re ready to do so, we are ready to help.

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