Transformations in the Auto Insurance Industry in 2022

While many industry analysts have long predicted that usage-based insurance (UBI) and behavior-based insurance (BBI) programs would revolutionize the entire automotive insurance industry, it’s clear these trends are about to explode.  

According to research from IoT Insurance Observatory, in 2020, 8.2 million U.S. auto policy holders shared their driving data with an insurer, and additional estimates indicate that there will be 140 million UBI subscribers around the world in just one year’s time.  

Insurers see the value and are acting quickly. The Novarica Research Council found that 74% of large insurers have either already deployed, planned, or expressed interest in telematics programs. More, this same study found that 63% of those insurers who already measured ROI found they had positive results – reinforcing that UBI/BBI programs have real potential.  

Yet many insurance companies may still wonder how they can create profitable UBI offerings using telematics data or provide highly personalized auto insurance products. It’s a real issue: many insurance companies don’t have an effective way to operationalize their use of telematics data in order to capitalize on the opportunities UBI/BBI present 

Challenges of Telematics in the Auto Insurance Industry 

Today, most insurers still face challenges related to telematics: 

  • Collecting data: In the past, insurers didn’t have a good way to collect telematics, often resorting to third-party mileage trackers, dongle devices, and other clunky products. 
  • Integrating driving data: Insurers have a hard time operationalizing large volumes of driving data and leveraging the insights to forecast demand for their UBI portfolio. 
  • Updating risk models: Most telematics insurance vendors only provide a single driver score or a limited set of metrics. This unexplained “black box” approach doesn’t provide the modeling flexibility required to accurately define risk in building successful UBI programs.  
  • Engaging consumers: Insurers wrestle with the best ways to connect with consumers through technology, and then develop the right plan for each customer. 
  • Profit erosion: Currently, many telematics products may be too expensive, especially since it may not be apparent how they can deliver ROI. If insurers try to force a third-party hardware solution into their infrastructure, they may need to invest in additional tools and technologies, adding even more costs that kill profits. 

 

Why are Telematics Critical to your Business? 

To think about why telematics and UBI/BBI are so important, it is worth noting that telematics is much more than just the concept of applying discounts for safe driving. Instead, using telematics data in an effective UBI strategy can help you value and reduce risk while creating the opportunity for more meaningful interactions with your customers.  

As briefly mentioned above, many insurance carriers provide a telematics-based tariff or price based on a single score (that insurers may not understand or have the opportunity to change). This score will determine the discount insurers should offer.  

It may seem valuable, but in a low-margin business, this approach can actually harm the insurance company since the lack of control may lead to discounts that erode profit margins.  

The answer is an innovative telematics solution that provides much more data than just an indeterminate, random score. Modern UBI solutions also enable insurers to operationalize UBI programs and make optimum use of telematics data. For example, insurance carriers can price products depending on how, when, and where customers drive. This helps them understand and calculate the premium much more efficiently and accurately (and achieve many other business benefits). 

With these new data-driven insights, insurers can also identify new correlations, which can be analyzed and compared to influence the risk models of traditional insurance offerings (i.e., non-telematics). In turn, this helps optimize the overall book of business by motivating consumers to drive more carefully.  

Telematics in Action: Driving Pricing and Personalization

 

To best understand the true value of telematics and UBI, let’s take a look at how they can improve the pricing and personalization strategies for a typical auto insurer. 

In terms of pricing, using telematics data in the pricing process will increase the quality of pricing – for telematics-based pricing as well as pricing for traditional (non-telematics) product offerings. Analyzing these offerings will lead to an improvement in overall risk modeling and risk valuation. Additionally, using the right telematics solution (such as Earnix Drive-It) gives insurance companies more control and analytical abilities to use telematics data in the way they prefer. 

When it comes to insurance personalization, insurers can use telematics data in creative new ways to create additional customer touchpoints. For example, if insurers can detect that a customer is driving to a ski resort, they could quickly send a personalized communication offering additional products such as ski insurance. Insurance carriers can also offer services that help reduce risk; for example, encouraging consumers to use paid parking options instead of more risky street options.  

Combining telematics, personalization, and pricing all adds up to a win-win for both the insurer and the consumer. Customers get rates and discounts based on their actual driving behavior while insurers can create more touchpoints to generate more business, reduce risk, and improve profit margins. 

Discover how powerful end-to-end pricing platforms – using next-generation technologies such as advanced data analytics, machine learning, and artificial intelligence – now enable auto insurers to take full advantage of UBI programs.  

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