The days of the “one size fits all” model in the auto insurance industry are dwindling as demand for a more personalized experience grows. When shopping for auto insurance, more and more people want to be treated as individuals with unique driving behaviors that vary by contextual situation — not as a statistic. Smartphone telematics, big data and artificial intelligence are making personalized auto insurance more possible today.
Recently, industry newcomer Root Insurance — a start-up that offers customers a personalized auto insurance experience through a model similar to usage-based insurance (UBI) and behavior-based insurance (BBI) — will work towards accelerating this transition with its latest round of funding and a $1 billion valuation. This is one of the largest investments in UBI and BBI, but it won’t be the last. Using innovative technologies, legacy companies with the reach to truly disrupt the industry can offer the same kind of personalized experience as the innovative, younger companies, but with the power to shape the industry’s new direction.
A personalized experience with smartphone telematics
Over the last decade, companies have become smarter. Consumers expect the brands they shop with to know enough about them and their behaviors to offer a personalized, tailored experience. That expectation has now entered the auto insurance industry, and it’s only the beginning.
Customers don’t want to be grouped and rated based on characteristics that have little to do with driving performance such as age, location and gender, and they certainly don’t want to be paying more than necessary when they have a history of safe driving. In fact, 73% of drivers said that they would prefer insurance rates be based on their driving behaviors. Smartphone telematics enables companies to easily receive data that provides insight on the driver’s individual performance — including speeding, hard braking and phone distraction habits — and provides regular feedback to consumers. This allows for rate assessment based on personal behaviors and individuals’ efforts to improve them.
Out of the top 10 largest U.S. insurance providers, nine of them are currently using or testing some form of smartphone-based telematics program. The various use cases include building better risk and pricing models, offering behavior-based discounts and/or rewards, and providing feedback and gamification to motivate customers to become better drivers. The personalization does not end with rates and rewards, however: telematics data enables additional insurance services to enhance the customer experience.
The next step in personalization
When insurers use technology to understand and offer a personalized experience to their consumers, they are better equipped to engage with drivers in their moment of need. Using telematics data, insurers can assess not only driving performance, but also vehicle crashes — one of the major reasons for communication between an insurer and driver today. When an accident occurs, it takes time and energy to compile and review all of the incident details, assess damage and provide cost estimates. In a time when consumers expect exceptional customer service and attention, streamlining the claims process gives insurers the opportunity to quickly respond and support their customers in a typically bleak circumstance.
Automated impact alerts ensure that the insurer is aware the moment an accident occurs, so they can provide immediate assistance to the driver as needed. After the accident, telematics data and photos of damaged vehicles can be analyzed using artificial intelligence to help reconstruct elements of a crash and send that information to the insurer. When drivers call their insurance companies after an accident, the companies will already have the relevant details: time of day, location, speed of impact, delta-v, number of impacts, etc. Plus, building a complete picture of the driver can help companies communicate more regularly and effectively with consumers, offer fair and tailored rates, and when the worst occurs — like a car crash — provide quick and personal support.
Who will lead the transformation?
Several start-ups are basing their entire model on offering a personalized experience to consumers, and it’s paying off. But, it will take more than the young companies to truly lead the shift to next-generation auto insurance. The industry’s legacy players will have to step up, adapt and flourish.
The shift will require overcoming a few barriers, like incorporating telematics data into actuarial scoring models and integrating the technology with current claims processes. But the overarching benefits vastly outnumber the initial discomfort of implementing a new practice in legacy processes, particularly as many telematics offerings no longer require a separate device. The time is now for the auto insurance industry to get personalized. As a result, roads will be safer, drivers will be better, and insurers will retain their customers.