How auto insurers can use UBI to connect with drivers

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The autonomous driving revolution; COVID-spurred changes in travel patterns; growing awareness of the environmental impact of the automotive industry – all of these factors are driving new behaviors both within the automotive sector and among drivers themselves.

Naturally, auto insurance had to shift gears as well.

The auto insurance industry must now strike a delicate balance between meeting changing customer expectations and keeping pace with a new generation of digital-savvy drivers.

To address these ever-changing issues, existing technology and pricing models must be leveraged and modified with the long-term future of auto insurance in mind.

The need for UBI
A booming approach to auto insurance is usage-based insurancea policy that allows insurers to customize engagement solutions and expand a customer base.

In traditional insurance structures, policy profiles are based on the level of risk that the insured represents.

UBI differs from fixed valuation frameworks in one critical way: UBI premium calculations also take risk into account, but they summarize risk levels with the number of miles traveled by a user. Drivers who drive less will automatically be charged a lower premium than they would otherwise be, as they are statistically less likely to have an accident and make a claim. This allows insurers to accurately bill drivers who spend more than average time behind the wheel, while those who drive less don’t have to pay extra for idle hours.

The UBI proposition has taken on new life as inflation continues to drive up the cost of auto insurance and consumers go to greater lengths to find cheaper options. And as winter approaches and consumers look to mitigate higher energy bills, UBI is already gaining popularity as a way to save – 1 out of 5 of the cheapest auto insurance quotes come from insurers who use telematics.

In the UK, UBI has successfully transformed the young driver market, not only by making car insurance more affordable (often more than half the standard price), but by providing statistical evidence that the rate of serious injury resulting collisions fell by more than a third. for this demographic age.

How does UBI work?
UBI relies on the use of telematics – embedded sensors that transmit data from the road to insurers, allowing them to create policies tailored to specific cars or drivers. Similar tools have been implemented in the past to record driver behavior using a device called a black box, which was physically installed in the car.

These apps pave the way for a seamless transition to UBI plans, as they no longer require the installation of special devices, reducing the cost of driver data acquisitions from hardware, dongles, smartphones and directly from the vehicle. The rise of these tools has coincided with the recent migration of the insurance industry towards a personalized customer experience. Embracing telematics as a way to offer personalized rewards based on a person’s car usage, driving skills and average range is a step in the right direction.

Similar to the pandemic-triggered growth of mileage-based programs, the current economic crisis will likely push insurers to take an active role in reducing costs for consumers, which should increase the use and implementation of telematics in the motor insurance value chain. . As a result, current estimates predict an expected annual growth of 17.92% in the use of telematics, with the vast majority of insurers in the US, UK and Germany in particular, deploying telematics-based products.

Benefits of UBI
With strategic implementation, UBI models are likely to reduce costs for insurers and policyholders. Insurers gain rate data, customer self-selection, new pricing information and improved process flow, which in turn translates into benefits for consumers – from transparent claims processes to reduced car insurance costs.

Because UBI premiums are also calculated according to risk as usage rates, a reward structure is intrinsic to each policy. Insurers have always tried to reinforce positive behavior behind the wheel – rewarding safe driving with reduced premiums and rising rates for reckless drivers. UBI can take this practice a step further. Safety incentives can be calculated and administered with much more precision, as safe driver designations are not only based on the number of past complaints or incidents, but also on variables such as time spent behind the wheel , the prevailing road and weather conditions in a driver’s area, the degree of the driver’s responsibility in a given accident, and other parameters based on telematics data.

Such incentives translate into fewer accidents, fewer claims and, most importantly, safer roads. That’s why, market-wide, we’re seeing the growth of telematics insurance first for MGAs and brokers.

Finally, offering UBI plans is a powerful selling proposition that can help carriers cultivate more customers, driving both acquisition and retention. UBI plans tend to be cheaper than traditional policies, so users will be more likely to choose them, especially when they don’t use their car regularly – as is the case for many car owners. vehicles.

The future of UBI
Pricing pressure is an inevitable short-term byproduct of UBI, which could impact the renewal rate of some insurers as consumers seek more affordable options.

As UBI becomes more ubiquitous and consumers become more comfortable with an app to check their score, prices and additional services, we will see a shift in customer service behavior and of commitment. Imagine the power of having a consumer who interacts with your brand daily – and having the ability to educate users, reinforce a safety and cost message, and provide additional services.

The long-term impact will be an ongoing battle between Car manufacturers. These manufacturers have recently invested billions in in-vehicle communication and technology, but they are struggling to glean profitable returns – planned media subscriptions or connectivity services have not worked as expected. Fortunately, the next natural place to use these integrations is in high-value services such as insurance.

At Sapiens, we expect that over the next five years, 100% of new cars will be equipped with UBI-enabled connectivity, leveraging Data to enrich insurance options for consumers, directly at the point of sale. McKinsey Center for Future Mobility predicts that connected cars will account for 90% of new vehicle sales in the United States by 2025.

The global UBI market is expected to grow from $43.31 billion in 2021 to $132.02 billion in 2026. If these trends continue, UBI could play a crucial role in the future automotive industry. Motor insurers making a long-term commitment to it would do well to explore how UBI can energize their policy offerings and should start by asking themselves the following questions: Where and how do they play a role in the growth of the UBI? Is this impending reality – an auto insurance market dominated by OEMs – imminent or distant? What are they doing to prepare for this reality?

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