It can be tough to pitch a non-existent usage-based insurance program that can generate an underwriting profit and improve loss ratio. Sure, everyone wants an easy-to-understand predictive model that guarantees positive returns, but it comes with certain challenges, especially in the initial investments.
UBI’s value proposition in the early days was tied primarily to pricing: good drivers would get discounts. This framework required insurers to make an initial investment to build out their programs, followed by additional investments needed to acquire low-risk drivers, conduct risk evaluations, and implement effective underwriting. The end result would be a reduction in loss frequency and severity.
The challenge with this approach is that it’s only Stage 1 of what UBI and mobile telematics can provide. Most UBI programs only last for a few months and then are shut off. Instead of taking an always-on approach where insurers can create data-driven programs, traditional UBI is laser-focused on one piece of the puzzle: price.
So, instead of pitching the traditional price-based UBI program, here’s what we recommend.
If you want to get a UBI program up and running quickly, or if you want to test the effects of a UBI program, go mobile. Mobile telematics is as accurate as hardware, it’s price effective, and 85% of drivers have a smartphone today. People are familiar and comfortable downloading apps and 77% see the appeal of a lightweight app over hardware. If you don’t have a self-serve app, there are white label versions available. The cost-effectiveness and the speed to market with a mobile telematics UBI program will help make your case.
Provide value, not just discounts
According to Bain, the top five services insurance customers want most are: breakdown services, safe driving rewards, safe driving alerts, theft and damage alerts, and repair shop discounts. In fact, a recent study conducted by LexisNexis Risk Solutions found that 76% of respondents were as interested in receiving free roadside assistance as they were in getting a 10% discount on their policy. Sixty-three percent said they were tired of insurers promising they could save money with UBI – over half didn’t believe the discounts would make a difference. As you’re developing your pitch, think about how to integrate these value-added services into the program instead of relying solely on price.
The data provided by mobile telematics opens a world of personalized loyalty programs for customers with KPIs. For example, an insurer could create a personalized program for teen drivers with the goal of increasing distraction scores by 10 points. Or, 60 days prior to a policyholder’s renewal, a carrier could spin up a rewards program with the goal of increasing renewal rates. There are any number of games, contests, incentives that insurers can provide to their drivers throughout their policy to improve driver safety and increase loyalty. The options are only limited to an insurer’s imagination, and the ideas can help fortify your pitch.
Fight adverse selection
The data insurers collect from a UBI and mobile telematics program will not only help them better price risk across their book, it will help them attract the best drivers with more aggressive pricing. But, it also has another effect – increasing pricing on the most dangerous drivers can drive them into the arms of the competition. So, not only do they rid themselves of the drivers responsible for the majority of their claims, but by letting the competition snatch them up, they’re left in a more defensive position. Adverse selection is a choice, and you can make that clear in your pitch.
Don’t get left behind
Even with all the benefits UBI and mobile telematics provide, some insurers may still be on the fence. If the benefits don’t convince you, let’s take a look at the future. Allied Market Research has the UBI market growing at a CAGR of 36.4%, with a market size of $123B by 2022. Progressive, Allstate, and State Farm already account for 35% of the global UBI market.
So, if you don’t want to get left behind, it’s time to start working on that UBI pitch. Let us know if you want help!