Insurance Companies are Setting Themselves Up for a Profit Gain from the Growing Popularity of Mobile Telematics
Mobile telematics systems are having a dramatic impact on the automotive industry. And for good reason: unlike the rather stagnant traditional method of measuring how a driver drives — using generic and dated information associated with a driver’s age, gender, even marital status — usage-based insurance (or UBI) uses a person’s actual driving behavior to determine an accurate and fair insurance premium.
It’s an approach that has clients and insurance companies — at least, those who have adopted and implemented coherent mobile telematics programs — very excited. In fact, it’s been a huge boon for young drivers, who for years — even generations — have been unfairly burdened with hefty monthly insurance payments.
But it’s not just consumers who are in a position to benefit from the growing popularity of automotive insurance telematics and usage-based insurance. Insurance companies are also setting themselves up for a profit gain, for a number of simple reasons:
1 – MOBILE TELEMATICS ALLOWS INSURERS TO LEARN MORE ABOUT THEIR CUSTOMERS
It used to be that, in the best case scenario, a client signed on with an insurance provider and quietly went about paying their premiums for years. Their lives changed and, to some extent, the insurance company learned about this and made necessary adjustments to their premium. But it’s not as if the insurance company really understood their clients or had a clear picture of how they drove — unless they faced a torrent of speeding tickets and traffic accidents.
But with the introduction of both mobile and device based telematics technology, that’s completely different. By leveraging a smartphone or installing automotive telematics in a vehicle, an automotive insurance provider can, in just a day or two, acquire a pretty accurate picture of a client’s on-road driving behavior. Insurers can see how fast they drive, how quick they take corners, how slowly they brake, when they drive and where they drive.
That’s hugely useful information on a client-to-client basis. But it’s also useful when considered in a collective way. By collecting all of the information related to a large pool of clients, insurers can start to understand how drivers behave at certain times of the day, in metropolitan or rural environments, even while driving specific types of vehicles. And that information can be collected and analyzed in real time — not just once or twice a year.
2 – MOBILE TELEMATICS IS COST-EFFICIENT
For the past few years, most insurance companies taking a lead role in the development of automotive telematics and usage-based insurance have used small devices that connect to a vehicle’s OBD-II (or diagnostic) port to monitor driver behavior and craft a more accurate picture of how a client acts on the road.
Thankfully, the world of telematics technology continues to evolve. Now, insurance companies are leveraging into people’s smartphones to get an accurate picture of how their clients drive. And why not? Smartphones are essentially high-tech computers that virtually everyone — including the young and old — now carry with them at all times.
The rapid emergence of smartphones — no longer an expensive technology reserved for the very rich — has made mobile telematics the new champion of usage-based insurance. Besides the fact that just about everyone has one, smartphones are also a lucrative tool for insurance companies because they contain sensors that give insurance providers access to measurements like distance traveled and speed. They can even help insurance providers determine who’s driving (the owner of the vehicle or someone else), how fast the driver is taking turns and braking, and where and when the trip is taking place.
In the end, the smartphone gives insurance providers cheap and easy access to a wealth of accurate data, helping them bring usage-based insurance options to regions and people previously unfamiliar with the technology.
3 – MOBILE TELEMATICS SYSTEMS KEEPS INSURERS AHEAD OF THE COMPETITION
What do you get with an insurance program that uses the technology you already own (a smartphone) and that rewards clients for driving safer? That’s right — a clear, tangible reason to abide by the rules of the road. It’s a system that effectively rewards the road’s safest drivers with lower insurance premiums. At the same time, it lets insurance providers see who really poses a threat to other drivers, allowing them the option to increase those customers’ premiums while lowering those of safer drivers.
In the end, mobile telematics with the rich insight from mobile data analytics lets insurance companies build more competitive pricing and premiums, giving them an advantage over other automotive insurance providers. Additionally, the collection of a wealth of data allows insurance companies that participate in UBI programs the opportunity to see how their pricing structure will build and change over time.
4 – MOBILE TELEMATICS PROVIDERS ARE COMMONLY SEEN AS DISRUPTIVE INNOVATORS
Say an automotive insurance provider adopts a mobile telematics insurance option while also maintaining the traditional insurance model for many of its other customers. After a year or two only a small but significant percentage of the company’s customers have signed on for the mobile usage-based program — perhaps because the company hasn’t had an opportunity to properly market its UBI offering. Is the usage-based insurance effort a failure?
No, and for one major reason: it shows clients, even those who don’t opt for the mobile UBI model (at this time) that their insurance provider is an innovator and actively developing new ideas and insurance programs that can benefit their clients. Even if a customer determines that mobile telematics isn’t right for them at this time, they may change their mind down the road. And they’ll be happy about their insurance provider and its forward-thinking approach to expanding their product offerings.
Then, of course, there are the rewards for customers who do sign up for a mobile telematics program. So long as they drive safe, they’ll see their premiums go down, giving them a feeling that their insurance provider really cares about rewarding them for safe on-road behavior. The relationship that emerges between the insurance provider and the customer will be closer and more intimate, making a safe driver less likely to sever their ties with their provider in favor of another automotive insurance company.
5 – MOBILE TELEMATICS SYSTEMS HELP REDUCE COSTS ASSOCIATED WITH CLAIMS
If you created an automotive insurance program that clearly rewarded drivers for safe driving, what kind of people do you expect would sign up for such a program? The answer: far less risky (and therefore far more profitable) customers. According to one consulting firm that’s researched this issue extensively, on average it can lead to a 57 percent decrease in total claims costs.
Meanwhile, more risky drivers — or drivers who are more likely to get into a traffic accident or receive a speeding ticket — will be convinced to avoid the usage-based insurance model and may even leave the insurance company, thereby flocking to other insurance companies that offer more traditional (and less profitable) insurance programs.