23 Apr / Author: SK Tirumala
Think Rewards Not Discounts
Fear and money are significant motivators to influence behavioral change and works better than simply advise and education. This is particularly applicable for auto insurers who are trying to encourage their insured to drive more responsibly. Analysts who regularly survey the market report that nearly 20% of US insurers are already offering telematics solutions to promote safe driving in exchange for premium discounts. While these early adopters need to further optimize their programs to drive greater adoption and profitable growth, what about the other 80%?
While telematics-based auto insurance is picking up steam, many insurers are still on the sidelines in a “wait and watch” mode. In my own interactions, I found that these insurers are quick to assume that a telematics program means a hit to their topline revenue with no real assurance of positive impact to loss ratio. They believe in the theory but are unwilling to move forward until there is more proof from the market, a well-tested UBI product, more attractive pricing factors, and better ways to prevent gaming of the system. They also fear losing loyal customers due to the negative perception of “big brother watching”.
Their reasons do make sense, but I believe that the trick to successfully lowering risks and staying profitable using telematics lies in having a good end-to-end strategy and roadmap that balances the current opportunity with innovative ideas, adequate preparedness, and a well-orchestrated roadmap that delivers desired outcomes. Moreover, maintaining the status quo could eventually hurt the books when good drivers gravitate towards insurers offering more tailored products and pricing, leaving behind only risky drivers with higher claims exposure. Insurers who wait will then be compelled to take counter measures such as raising premiums to protect margins, causing further erosion of the book.
Insurers should not rush towards UBI if they are not ready, but should at least consider providing cost-effective safe driving tools based on telematics as a free value-added service to their current policyholders without sacrificing any premium. Just as for good health, exercise and eating healthy are necessary, and much easier to achieve with tracking tools to monitor progress. Telematics would provide factual insights into how safely one drives and unsafe habits they ought to change. To further show that their insurer cares about their safety, creative opt-in “cash back” schemes using gamification and safe-driving contests would drive their adoption of safety tools. Best of all, the driving behavior data derived from the insured participating in these opt-in programs, would be an invaluable asset when the business is ready to compete in the UBI market more aggressively. I would call that a win-win-win game plan.
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