Building a Business Case for Usage-based Insurance – UBI Offers Insurance Companies a Number of Clear Advantages
Usage-based insurance (UBI) – sometimes called pay-as-you-drive (PAYD) insurance – is becoming a popular alternative to traditional automotive insurance. Unlike traditional insurance models, which try to identify safe and unsafe drivers based on their driving history, age, gender, and even marriage status, UBI uses actual driving data to determine a fair premium for each client. In other words, usage-based insurance is about measuring time, distance, driving behavior and driving location to figure out who should pay less for their automotive insurance.
All of this information can be collected in a variety of ways, though most UBI models have involved the installation of a special device that wirelessly transmits data from the vehicle (via its OBD-II port) to the insurance company. Now, new strategies – like those that let data be collected and sent through a driver’s own smartphone – are emerging.
For many drivers, usage based insurance is a popular option that offers direct and immediate results to those people who take care when behind the wheel. Drivers who might otherwise face steep premiums – such as young, unmarried men – can demonstrate their safe approach to driving and see the cost of their premium clearly go down.
But it’s not just drivers that stand to benefit from usage-based insurance. UBI also offers insurance companies who put together and offer these programs a number of clear advantages.
HERE ARE THE 3 BUSINESS CASE REASONS FOR LAUNCHING USAGE-BASED INSURANCE THIS YEAR:
1. Gaining Access to Low-Risk Drivers
Usage-based insurance is attractive to consumers because it rewards them for driving safely. This encourages consumers to leave insurance companies that fail to offer UBI programs for insurance firms that do.
This could have devastating consequences for insurance companies that fail to adapt, as they will be left with a higher percentage of unsafe drivers more likely to make a claim and cut into an insurance firm’s profit margin. In essence, insurance providers who get involved with UBI programs early will have a huge advantage as the market evolves in the coming years.
2. Enhancing Customer Retention
It’s no great secret: automotive insurance providers are constantly trying to keep their customers from leaving for their competitors. In fact, it’s estimated that up to one in ten customers will switch insurance providers each year as they seek a better and less expensive premium.
This is a problem for insurance providers, primarily because it costs roughly five times more to acquire a customer than to retain existing clients. And with profit margins in the automotive insurance industry thinning all of the time, this makes retaining customers – and especially safe drivers – especially important.
This is yet another reason for insurance providers to employ UBI programs. Not only do they offer customers a way to save money on their car insurance, but they give customers the impression that an insurance provider understands emerging trends in the industry. Both of these factors are important in retaining customers and keeping costs down.
One of the best ways to retain customers is by encouraging entire families to become and stay clients. Usage-based insurance can help with this because it offers younger family members – including teenagers and people in their twenties – an opportunity to demonstrate that they are safe drivers. This can be enough to motivate entire families, and not just young drivers, to stay with an insurance provider or move to a new one.
3. Giving Customers Access to Personalized, Value-Added Services
Usage-based insurance is dependent on cutting-edge technology. Not only does that mean using technology to collect data about a driver’s on-road behavior, but it also means using emerging tech to show drivers other, crucial information. Imagine, for example, an application that could show a driver how their driving affects their insurance premium if their vehicle is ready for another harsh northern winter, or when their vehicle is due for its next oil change. Smartphones will be key to the emergence of this technology, which could engage consumers more than ever before and drive them towards the insurance providers who demonstrate value by actively offering interesting and useful applications and services.
The opportunities in this area are endless. Value-added services could involve offering applications that make safe driving a game, encouraging family members to accrue points based on their driving activity. It could help drivers see how they can save money on gas by showing them how safer driving reduces fuel costs. And it can help services that specialize in responding to traffic accidents dispatch emergency services personnel to ensure that those involved are taken care of.
Looking down the road, it’s expected that location-based services will be employed to allow insurance providers to enter advertising partnerships with local companies interested in attracting customers through discounts and coupons.
Overall, it’s clear the automotive insurance market is changing and changing rapidly. Those insurance providers who get involved with usage-based insurance programs early will have a distinct advantage over those companies who wait and risk losing valuable customers to their more innovative competitors.
We recommend that anyone interested in building a business case for usage-based insurance contact an experienced, knowledgeable telematics service provider (TSP). They can help you carefully evaluate and understand the business case scenarios most appropriate for an insurer. The right TSP can also help identify the business case best suited to each individual business’s strategy— the necessary foundation for implementing a successful program.