For drivers today, usage- and behavior-based auto insurance is becoming a preferred standard. The number of consumers who have joined pay-as-you-drive (PAYD) or pay-how-you-drive (PHYD) programs has more than doubled since 2013: Progressive alone has close to 4 million usage-based insurance customers.
The rise of new telematics technologies is what’s fueling the switch. Recent advancements in artificial intelligence and machine learning allow providers to adjust their premiums based on real-time driver data. The king of these technologies is smartphone telematics.
Smartphone telematics provide insurance companies with the most accurate data and analytics possible. Through sensors inside a driver’s phone, providers have access to real-time information about their customers’ driving habits. This includes basic measurements such as distance traveled and speed, and more sophisticated information, like whether the smartphone belongs to the driver or the passenger. Smartphone telematics offer an easier, more accessible option for most drivers, versus other telematics hardware. For insurers, mobile devices mean better reporting and tracking, as most customers take their smartphone wherever they go – even if they aren’t driving their primary vehicle.
Many major insurance companies have already adopted smartphone telematics to offer competitive premiums, lower claims and program costs, and improve customer retention. Here’s why:
1. More competitive pricing and premiums
Smartphone telematics technologies enable insurers to take into account real-time information about a person’s driving habits. This can include factors like the number of miles they drive, their speed, how quickly they brake, time of day, and weather conditions. Smartphone telematics can also track phone usage throughout the trip, which can be valuable in determining and preventing instances of distracted driving.
Behavior-based insurance providers take each of these factors into account to provide a much more accurate picture of a policy member’s driving behavior. Using this predictive risk assessment model, they can offer the most competitive premium for each policy.
2. Significantly lower claims costs
Because behavior-based insurance programs offer incentives for safe driving, they tend to attract a much less risky (and much more profitable) set of customers. The result is an average 57% decrease in total claims costs, according to a leading consulting firm.
Insurers typically plan for about 65% of premiums to go toward projected claims costs. A 57% cut in that number represents significant savings for providers and for safe drivers who opt into behavior-based programs.
Here’s how it works. When a driver opts in to a behavior-based policy, they elect to sending data to their insurer in real-time. If the data shows a record of safe driving over time, policy members may become eligible for discounts and lower premiums.Riskier drivers, on the other hand, may see a rise in their premiums.
Insurers that offer behavior-based policies will lose their riskiest customers while also growing their user bases of safe drivers. In addition, telematics technologies tend to make safe drivers even safer, with automated reminders, real-time coaching, and scoring to track and measure driving behaviors. These factors result in a much lower risk profile for the insurance company.
3. Enhanced customer loyalty
With more options at their fingertips, insurance customers are less loyal than they used to be. They know they can shop around to find a policy that meets their budget and their needs.
As behavior-based insurance becomes a more popular option, providers who offer these programs have seen a huge advantage.
Behavior-based policies build loyalty with customer-friendly pricing and a more personal approach. With the ability to clearly track their driving records and data, customers feel they have more control over how much they pay over time. And with smartphone telematics tech in place, each car ride is an opportunity for the insurer to engage, connect, and communicate with valued customers on a much more personal level.
The future of auto insurance is behavior-based
For many drivers, the flexibility of behavior-based insurance makes financial sense.
As more drivers make the switch, insurers who provide telematics policies will see a huge uptick in safer, more profitable customers. Insurers who don’t offer behavior-based policies will be left behind.
Leading insurers across the globe are already embracing telematics solutions. Many are looking to smartphone telematics, as they offer a highly effective way to track real-time driver data.
Image credit: Nicolas Nova