Car insurance pricing is complex and requires carriers to offer competitive rates that effectively balance risk and profit potential.
Fortunately, the evolution of telematics has streamlined the pricing process to introduce more personalized, fair and transparent insurance policies based on how a person drives versus who they are and where they live.
Today, all of the top 10 US auto insurers offer a telematics solution to their customers.
Most take the traditional approach of offering all customers the same discount for signing up for the program, usually between 5% and 10%, regardless of how risky or safe they actually drive. However, thanks to new advanced telematics solutions, carriers can now instantly reap the benefits of pricing with this data.
This next-generation approach to telematics data benefits consumers who already share their real-life driving behaviors in popular mobile apps, like Life360 or GasBuddy. When these consumers purchase insurance, this data is already waiting to help better price them while allowing insurers to finally assess a much larger percentage of their business portfolio more accurately at quote time.
Advantages of telematics-based car insurance
By giving insurers a way to personalize their premiums based on actual driving risk factors versus proxy variables such as age, gender or credit history, telematics provides detailed customer insights that improve price accuracy and encourage safer driving. Whether it’s new business or renewals, telematics-based pricing helps improve profitability and increase customer retention rates, especially among safer drivers, who often receive discounts on substantial bonuses.
For consumers, where lower prices are often the #1 reason for choosing one insurer over another, telematics gives them more control over the price they pay and the corresponding discounts they get. While providing them with greater transparency into the factors contributing to their insurance premiums, when customers stay connected, these programs can help improve their driving behavior and provide valuable safety benefits such as collision detection. .
For example, when Southern Farm Bureau Casualty Insurance Co. (SFBCIC) launched its new program in several states, the rate of distracted driving fell by almost 10% overall – and almost a quarter of those considered as the most distracted reduced their distracted driving by more than 50% after 30 days of background telematics on their phones.
Leverage telematics data to reduce risks on road works. This is just one of many carrier results we’ve seen where making this information available to their customers can help improve their driving behavior.
Consumers want to be priced according to how they drive
Despite the many incentives for consumers to choose telematics, more widespread adoption remains elusive and stuck in first gear with policies estimated to be priced at only 8% to 10%, before 2020. Although some may still hear that there is low adoption in the industry, that’s probably not true. When the pandemic hit in early 2020, purchases of new insurance skyrocketed and many consumers turned to big, well-known brands and offers at lower rates.
Carriers like Allstate Insurance have seen just that. According to David MacInnis, vice president of product management – telematics and usage-based insurance, consumers’ desire for telematics-based policies in 2020 was something they had never seen before. Consumers want more personalization when it comes to just about everything – what they watch on TV, buy online – and insurance is no exception. As a result, Allstate has seen 100% growth in its telematics programs as a new business since March 2020.
An Arity survey of nearly 2,000 American adults confirms this recent interest in telematics programs promising more personalized policies. The survey found that up to 30% of all consumers not currently benefiting from telematics-based insurance policies are very interested in them, and 69% of respondents are at least somewhat interested in participating. to a telematics program. In addition, consumers listed driving history, the number of miles they drive, and how safely they currently drive as the three most important factors for the price of their insurance.
Increase in telematics adoption rates
For insurers, access to driving data at the quote point presents an attractive opportunity to increase the total number of policies priced based on these more predictive factors. By doing so, insurers can help customers leverage their driving behaviors for more seamless and intuitive car insurance, especially for the 38% who are generally satisfied with their current policy.
The moment of opportunity is now. According to Arity’s consumer survey, despite some reluctance among 41% of the population, more consumers than ever are willing to share their driving data, suggesting that a new two-way approach to telematics could help carriers drive adoption forward. With higher levels of adoption, carriers can improve their bottom line, ROI, customer retention levels and more.
Encouraging policy change is one way to bring about that change. Instead of blanket, generic offers, give consumers tailored, personalized offers that help them see how much money they can save, not how much others have saved or could save in the future.
This represents a decoupling of “discounts” from the insurance transaction, which at the end of the monitoring or promotion period results in churn.
At the same time, greater data transparency can help customers better understand the factors that affect their rates. This approach saves carriers from having to guess whether a driver is low or high risk, thereby avoiding mispricing at both ends of the spectrum.
According to MacInnis, telematics solutions that allow insurers to personalize insurance quotes in real time based on driving data already collected (with consumer opt-in) are already beginning to appear. These apps and services are already used daily by drivers in GasBuddy, Life360 and WeatherBug.
(Editor’s note: Arity has existing partnerships with all three companies. Arity partnered with Weather Bug in 2019 to provide users of the weather forecast app with personalized weather notifications and efficient driving directions. based on past driving behavior Arity has partnered with GasBuddy in 2021 to provide users of the travel and navigation app with personalized notifications that suggest ways to optimize their fuel consumption and save fuel. money based on past driving behavior. Life360, a family driving network, announced a relationship with Allstate and its subsidiary Arity in 2018.)
After years of slow and steady progress, access to this most predictive data has caught up with the large-scale opportunity of telematics to dramatically change the way insurance policies are bought and sold. In a world more sensitive than ever to traditional factors such as credit data, telematics is key to providing the insights and insights insurers need to deliver more relevant policies and ultimately better routes. safe for everyone.
Trends based on automatic data