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Nationwide (Columbus, Ohio) is not the first company to offer pay-by-the-mile insurance, but with the launch of SmartMiles, it provides an example of how insurers can learn to innovate as they face disruptive threats from both InsurTech carriers/distributors and from auto insurers eager to control vehicle data.
SmartMiles, which is a follow-on offering from Nationwide’s SmartRide UBI product, lets members pay for the miles they drive, allowing for potentially substantial premium savings. MetroMile (San Francisco) has been recognized as a pioneer in this space, having launched in late 2012, but the first pay-per-mile insurer was MileMeter, a Dallas-based company that went out of business that same year. Esurance (San Francisco), Allstate’s (Northbrook, Ill.) startup acquisition, began offering pay-per-mile insurance in Oct. 2015.
Nationwide deserves credit for adapting to the differing insurance needs of drivers in a more granular fashion, and learning from the above-mentioned companies. However, the insurer has gone even further by letting SmartMiles be applied to specific vehicles, allowing for a more customized solution for a multi-vehicle household. (See our news coverage of the SmartMile announcement for more details.)
“Innovation needs to take into account the practicalities of consumer usage,” comments Karen Pauli, Principal, SMA (Boston). “By implementing its new telematics program at the vehicle level in combination with other telematics programs, Nationwide wisely removes an adoption barrier.”
Pauli opines that in providing the SmartMiles option, Nationwide has shown its ability to respond to the fact that no single method of rating works for everyone—and that consumers want choice.
“It’s an example of an incumbent who recognized the intricacies of consumer preferences, addressed it by adding a rating method they didn’t have before, and implementing it in a unique way,” Pauli adds. “Rather than chasing off an entire account because the telematics capabilities only addressed one usage form, they keep the account and addressed both vehicle usage scenarios with appropriate pricing.”
How Incumbents Can Learn from InsurTechs
The InsurTech phenomenon has provided a great opportunity for insurance carriers through the billions of dollars Silicon Valley has pumped into R&D for the insurance industry, according to Matt Josefowicz, CEO, Novarica. In a recent presentation, “The ABCs of InsurTech,” Novarica identified “Creative Carriers” and “Digital Distributors” as two of four categories of InsurTechs that insurers need to understand and can learn from (the other two are, Analytics Arms Dealers and Beneficial Bots).
As a pioneer of pay-per-mile insurance, Metromile could be considered a Creative Carrier, that started as a Digital Distributor. “The Creative Carriers are starting from a blank slate to create these customer-optimized products,” Josefowicz explains. “Most digital distributors are simplifying the experience of traditional products by wrapping them with a simplified presentation layer.”
Some insurers will buy InsureTechs that have already proven they can be successful at a limited scale, according to Josefowicz. Others will be able to copy successful models. “But copying an innovative model requires changes in mindset and operations that not every insurer can achieve,” he cautions.
What incumbents are learning from InsureTechs is the importance of starting from customer needs rather than their own ideas about how an insurance product should be, Josefowicz adds. “Customers don’t care about underlying product architecture, they care about a product designed to meet their needs,” he elaborates. “Being able to offer a flexibly priced product based on customer need should be a no-brainer, but if you start with the traditional structure of an insurance product, it’s quite complex to achieve.”
Disruption from Outside the Industry
Nationwide’s SmartRide and SmartMiles programs are examples of the ongoing experimentation by auto insurance carriers to identify niche opportunities to engage more frequently with policyholders and to refine their underwriting and pricing models, affirms Stephen Applebaum, Managing Partner of Chicago-based Insurance Solutions Group. “They are also good marketing vehicles,” he adds.
However, Applebaum cautions that the higher level strategic reason carriers are engaging in all of these various connected vehicle insurance programs is because they are preparing for the looming push by car makers (OEMs) to take control of the auto accident response and claims management and repair space—as exemplified by GM’s (Detroit) recently launched Certified Collison Network partnership with Mitchell (San Diego). “The battleground is the connected vehicle and the prize is the data and its related monetization potential as well as customer relationships and retention,” he says.