With competition tightening, insurers are motivated to find ways to more precisely predict risks, sharpen pricing strategies and provide better value to their policyholders. Usage-based insurance (UBI) offers a promising approach. Data obtained from real-world deployments and proof points from industry surveys indicate that the benefits of well-designed UBI programs can justify the investment.
The expansion of UBI programs around the world is proof that insurers are increasingly recognizing that UBI programs can transform business models by delivering both revenue-generating opportunities and cost-saving opportunities by:
- Acquiring low-risk drivers: Insurers starting UBI programs often target low-risk drivers first. These drivers welcome the opportunity to demonstrate their safe-driving practices and benefit from lowered premiums.
- Increasing customer retention: To combat steep attrition common in the insurance industry, insurers can capitalize on the investment that drivers have made in a UBI program. After demonstrating safe vehicle operation for a period of time and obtaining lower rates, these drivers are less likely to go to another insurer.
- Offering personalized, value-added services to customers: Telematics data collection gives insurers a window into driver habits and behavior, providing opportunities for unique, innovative, value-added services.
- Reducing the frequency and magnitude of claims: By helping improve driver behavior and awareness, telematics can cut the frequency and magnitude of claims significantly.
- Improving accident reconstruction: Data collected using telematics devices can help paint a picture of the conditions and events whenever a driver is involved in an accident. Factors such as location, speed, G-forces and weather can help fill in details that the driver or witnesses may not recall.
- Encouraging better driver behavior: Statistical evidence supports the argument that drivers perform better when enrolled in a UBI program, with the understanding that their driving performance is being analyzed for safe driving practices.
- Reducing claims processing costs and fulfilling claims promptly: Analytics in support of a UBI program can distinguish between claims that should be processed directly and those that require deeper investigation. By identifying the claims that need not be challenged, carriers can reduce the costs of claims processing and improve efficiency.
- Increasing client engagement: Insurers can successfully enhance driver behavior, as has been indicated by a number of surveys, by providing prompt feedback, rewarding safe practices, acknowledging improvements and, in some cases, creating games to let a driver immediately see recommended practices in action, with scores that help reinforce good, safe driving.
As a vehicle for enhancing revenues, reducing costs and nurturing a steadily growing customer base, UBI counters prevailing trends that show increasing customer dissatisfaction with their insurance companies. UBI provides a number of ways to improve the overall customer experience and to expand communication with customers. Accurate telematics data can reduce the frequency and the magnitude of claims, as well as speed up the settlement process, all of which results in cost savings for insurers. Structuring insurance programs around distinct customer personas, behaviors and preferences is a proven path toward building a long-term relationship and boosting customer satisfaction.
We recommend that, before contemplating a UBI program, insurers should be clear about objectives and adopt a strategy well-suited to long-range corporate plans. UBI programs can be effectively mapped to the individual market objectives and mission of each carrier by choosing the segments, product features and data-collection technologies appropriate to each company's long-term strategy.
For more information, download IMS' free white paper on Building a Business Case for UBI.
