User-based Insurance Leads the Charge Toward Personalization

One-size-fits all insurance is a thing of the past. Today’s consumers want coverage that better reflects their usage and behavior.

Regulation, technology, and globalization have significantly changed the insurance industry over the last few decades.

Nothing, however, has impacted the insurance industry as much as the changing needs of the consumer.

Today, consumers are not only looking for an insurer that offers a competitively priced policy, they also want it personalized to suit their lifestyle. Research found that 20% of policyholders report a lack of personalization is a ‘main reason’ for leaving a provider. In 2021, we predict insurers will continue to evolve their offerings when it comes to personalized insurance products, and usage based insurance (UBI) will be a key thrust of that effort.

Personalization becomes king of the road

Auto insurance is by far the most widely adopted use case for UBI, with insurers offering drivers insurance based on how far, how well, when, and even why they drive. The numbers speak for themselves: While overall adoption in the U.S. is currently below 5%, UBI is anticipated to surge in the coming years, with the global market expected to witness nearly 25% growth through 2026.

EIS™ research confirmed the trend. It was found that more than half of consumers would now consider purchasing a car insurance policy that they only pay for if and when they drive. Since the start of the pandemic, this type of offering has been of particular interest to drivers who haven’t had to commute to work and are looking to reduce their insurance premiums.

In the face of such opportunity, auto insurers are pivoting harder toward UBI. More UBI propositions are coming to the market, propelled by growing public acceptance of personal data sharing, changes in mobility and car ownership, and demand for insurance products that can flex to social and economic uncertainty.

The most common UBI models adopted by insurers rate drivers based on miles only, or driver behavior, or a combination of these. And to add spice to their offerings, several insurers have bundled popular value adds, such as weather, street cleaning and traffic alerts, and a variety of rewards for good driving.

But driver behavior and mobility patterns continue to change, aided by new technologies and the advent of the connected car. The sharing economy has introduced car sharing and ride sharing, a term used to describe companies such as Uber and Lyft, which connect passengers to drivers via mobile apps. This market has seen significant growth over the last several years and is expected to grow by more than 50% in the next year, according to Statista.

Accepting the UBI challenge

What insurers need now is a technology platform that can be configured to support the existing and emerging UBI models. However, few insurers currently have such infrastructure. Each UBI model has its own requirements for the buyer journey, the administration of the policy, premium billing, and the claims process. All of these need to be configured to support a unique UBI product.

Ridesharing, for example, presents a significant challenge for insurers. How can insurers accurately underwrite, and price based on “why” the car is in use? Typically, ridesharing company policies do not cover all the stages as drivers move between personal and commercial use, and the coverages, limits and deductibles vary depending on the ridesharing company, leaving coverage gaps for the drivers. Insurers have an opportunity to provide complete coverage that is competitive and profitable — if they can.

What consumers want is insurance that better reflects their usage and driving behavior. If they are traveling little, are very good drivers, appreciate the extra services, share their car, or like the extra support provided by safety alerts and feedback on their driving, they want pricing and discounts or rewards that reflect their usage.

What insurers need to compete in the market is the ability to provide a UBI offering that uniquely matches consumer needs and can accurately underwrite the risks associated with each policyholder including number of miles driven, where (is it a high traffic area?), when (is it a safe time of day), how driven (is there hard braking or speeding?), and why (is it personal or commercial use?) — to accurately calculate premium.

Supporting customer choice

Every customer — whether it’s a consumer looking to save on their policy or an organization looking for tariff to suit their business model — is different. In 2021 and beyond, insurance customers will continue to demand more choice when buying coverage.

With data and tech improving every day, a one-size-fits-all policy is a thing of the past. UBI-styled insurance, based on data-driven insights, gives insurers the capability to provide the personalized experience the customer is demanding.

Article By: Joel Yarde

Source: NU Property Casualty 360