How Smartphone Telematics Helps Insurance Providers Save Money and Win Customers
Usage-based insurance is taking both the insurance and automotive worlds by storm. By allowing insurance companies to monitor driver habits using wireless technology installed in a driver’s actual vehicle, they can grasp a more realistic view of their clients’ on-road behaviour than ever before.
That’s why so many of the world’s most prominent insurance companies are now offering usage-based insurance (or UBI) policies to their customers. Experts now say that there are about twice as many UBI programs available to customers today than there were just three years ago. In the United States, Progressive alone has nearly four million customers assigned to usage-based insurance programs.
SMARTPHONE TECHNOLOGY CHANGING UBI LANDSCAPE
But the UBI landscape is changing. Today, insurance providers are making the shift to using smartphone technology to help monitor driver behaviour, allowing them to cut costs while still collecting the accurate data they need to make UBI programs a success.
Realistically, there are three very good reasons for automotive insurance providers to adopt smartphone-based UBI programs for their clients: premiums become more competitive; the cost of claims goes down; and customers feel better about their ties to their insurance provider.
SAVING COSTS ON HARDWARE AND DISTRIBUTION
First, and arguably most important, is the effect UBI policies can have on an insurance company’s bottom line. Unlike traditional insurance models, usage-based insurance policies give insurance providers a very accurate view of their clients’ on-road behaviour.
In the past, this was primarily accomplished through the collection and analysis of data collected by monitoring technology installed in customers’ vehicles. But that proved (and is continuing to prove for the insurance companies that still use this kind of hardware) rather expensive. That’s why so many insurance providers are now investing time and resources in researching and developing smartphone telematics, which use the sensors built into a driver’s own cellphone to help an insurance company learn more about a client’s on-road behaviour.
The advantages of such a system are clear: it dramatically reduces the cost of adopting UBI technology while losing none of the benefits of usage-based insurance. The data that’s collected remains highly accurate while the insurance company avoids having to pay for the manufacturing and distribution of UBI hardware. This method of collecting data is also easier on drivers, who may not feel comfortable installing UBI hardware in their vehicles. In comparison, most drivers today own a smartphone and understand the process involved in using it to download UBI-based applications.
In the end, the shift to smartphone-based UBI policies allows insurance providers to reduce their operating costs, helping them to increase their profit margin and pass some of their savings on to clients.
CLAIM COSTS GO DOWN
Second, usage-based insurance models that use smartphone technology for collecting data allow insurance providers to cut their claim costs by a significant amount. That’s because these types of policies tend to attract those who know they drive safer and therefore all less likely to get in an accident or receive a speeding ticket. In the end, that means safer (and more profitable) drivers flock to UBI policies, helping an insurance provider cut overall costs.
The emergence of smartphone technology in this space only makes UBI more accessible to consumers and more affordable for insurance providers. At the same time, those risky drivers who give UBI policies a try will actually see their insurance costs rise and may even cause them to leave their insurance provider — not necessarily a bad thing.
CUSTOMER LOYALTY GOES UP
Third, and arguably most importantly, is the enhancement of customer loyalty that comes with smartphone-based usage-based insurance policies. How so? It offers safer drivers an opportunity to prove to their insurance providers that they deserve lower premiums and it gives insurance providers a chance to reward those who pose less risk to their fellow drivers.
Take, for example, young drivers. Under traditional insurance models they tend to pay more for their automotive insurance. For generations, that’s just the way automotive insurance has worked. But many young drivers are very safe drivers — safer, in some cases, than their older counterparts. How frustrating it is, then, for these safe and young drivers to pay so much in insurance before getting behind the wheel.
Usage-based insurance changes that immediately. It gives younger drivers the opportunity to show that they’re safe and conscientious drivers who should pay a reasonable amount for their automotive insurance. This is only boosted with the rise of smartphone technology to monitor on-road behaviour, as most young people wouldn’t be caught dead without their smartphones.
But that’s not all — young drivers can further interact with their insurance providers through applications that can help them learn more about how their insurance premium is calculated, giving them legitimate paths toward even better savings. It’s the kind of dynamic, high-tech approach to automotive insurance that young people have been looking for.
Of course, usage-based insurance platforms can do more than make young people happy. It builds customer loyalty across all age groups by keeping everything honest — so long as you drive responsibly and take a safe approach to heading out on the road, your insurance provider will reward you with lower premiums. Over time, that will help build both transparency and trust between insurance provider and client.
MAKING DRIVING SAFER FOR EVERYONE
Finally, usage-based insurance that uses ubiquitous smartphone technology has the potential to make driving safer for everyone. In the past, traditional insurance models failed to update based on a driver’s on-road behaviour. Sure, insurance premiums went up after a driver got in an accident that was their fault or received a speeding ticket. And their insurance sometimes went down as they hit a specific age or got married. But it wasn’t as if anyone really believed their insurance provider knew who they were or how they behaved when they got behind the wheel.
That’s changing with UBI. Now, insurance providers have access to real-time information that helps them construct an accurate picture of their customers and how they behave on the road. That dramatically improves transparency between the two sides, with insurance providers gaining an accurate picture of their clients and clients building a better understanding of how their insurance premiums are calculated.
As the popularity of usage-based insurance grows, ideally this will result in more people driving safer — the understanding being that they have a real financial interest in staying safe while behind the wheel. With their insurance provider keeping tabs on them, drivers will know that every aggressive action — from taking a turn way too fast or speeding through a residential area — could result in their premiums going up. In the end, that could translate into fewer traffic accidents on the world’s streets and highways.