Top Two Reasons Drivers Want More Control Over Insurance

Usage-based and digital insurance solutions can give control back to policyholders in a post-COVID world.

(Image source: Pixabay.)

There can be no doubt that the pandemic has changed driving. With fewer people making a daily work commute and many also choosing to socialize less, auto usage has declined significantly, both in North America and Europe. This is prompting drivers to demand better value from and more control over auto insurance in the form of pricing and policies that better reflect the way cars are being used. Today, drivers want smarter insurance (it’s not just COVID) and car insurance based on mileage can be a big part of the solution.

Reason One: The Pandemic

For many insurers, this has been the elephant in the room for some time—and it’s easy to see why. Earlier in the pandemic, when many countries were imposing stringent restrictions and lockdown measures, many employees stopped commuting altogether, but that didn’t last long. As vaccines became more widely available and governments shifted to focusing on handling COVID implications long-term, the days of staying at home every day came to an end. But, even now, the idea that car use will completely return to pre-pandemic levels still seems a little far-fetched. Working from home—at least some of the time—seems to be here to stay. Which explains the fact that driving has simply not returned to pre-pandemic levels in Europe, the U.S., or Canada. Across the board, both frequency and distance travelled remain significantly lower than pre-pandemic.

But insurance premiums didn’t change.

Consumers who are driving less are looking at car insurance premiums still stuck at pre-pandemic levels with the proverbial “side-eye.” And, while few drivers are expected to give up driving altogether, many do expect insurance costs to drop in line with decreased vehicle usage.

The net effect of this change has been an immediate surge in the popularity of usage-based insurance (UBI) and mileage-based auto insurance programs as policyholders demand more control over products and premiums. The “trend” has led to a plethora of new insurance companies launching pay-per-mile products built on a foundation of accurate, connected car data to answer the needs of consumers driving fewer miles. Telematics driven pay-per-mile insurance programs mean insurers receive detailed reporting, which is equally important to the policyholder to accurately document reduced driving distance and frequency. Consequently, there is now a real opportunity for auto insurers to offer mileage-based auto insurance using connected car data as a basis for delivery.

Reason Two: Social Justice Reform

The pandemic hasn’t been the only issue to hog the headlines, so to speak, in recent months. A parallel trend has been the growth in pressure for social justice reform and greater equality or fairness. For insurers, this means greater scrutiny, as traditional rating methods (using criteria based on past or supressing variables, such as income, home location, credit scores, and past convictions) can have an unfair impact on society.

More so than with other lines of business, policyholders from all demographic groups are exhibiting signs of dissatisfaction with auto insurers. Recent research by J.D. Power & Associates found that only one in five drivers feel valued by their insurers—and just 24 percent say their insurer treats them as an individual, rather than a number. Many feel a lack control and, in part for the reasons outlined above, they are now looking for insurance companies and products that reflect how, where, and how often they drive.

A key reason for the current customer dissatisfaction is the fact that even today, many insurers are still not taking advantage of the full capabilities of mileage-based auto insurance because it measures how people are driving today, and not the past. Telematics-based mileage programs factor what drivers pay based on current and real-time usage variables enabling all to have fair and equitable insurance.

Telematics data measures exactly how, how much, when, and where a person drives. Not only are these factors more powerful than traditional factors but use of these specific data points also means an insurer can move beyond methods that are now being recognized as unfair to some groups. In fact, at least two insurers recently announced an intent to move away from using insurance credit scoring for rating, favoring telematics data instead.

Data is the Way (Forward)

Right now, data-driven programs represent the best answer to the market’s changing needs. Which is why telematics-driven, mileage-based, auto insurance programs, often referred to as Pay-As-You-Drive (PAYD) or pay per mile, are rapidly gaining traction. And, these programs are growing more sophisticated by the day. Already, some enable policyholders to buy blocks of mileage in advance, buy on-demand, and even top-up when miles begin to run low. Mileage-based solutions not only record the actual miles travelled but can also personalize the cost of each mile according to factors such as where the driver is driving, the time of day, the type of road, and more.

Best of all, both UBI and mileage-based auto insurance provide full transparency to the policyholder, resulting in more insights into and control over rates and premiums. Insurers, therefore, are embracing telematics and UBI quickly, but, as the data already shows, the market is not waiting.

UBI — As In, ‘You Better Investigate’ Now

Claire Alleaume // Claire Alleaume is the head of market strategy for IMS. She can be reached for further information or comment via email at [email protected].

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