It’s no secret that COVID-19 has had a huge impact on nearly every aspect of society, and insurance companies and car companies are no exception. Shelter in place orders across most states in the month of April drove mileage down 50%. And even as numbers start to improve as states begin to reopen, traffic volume is still down by nearly 35% in some areas. Automakers are anticipating a rough 2020 and, as recently as April, have reported sales declines as high as 50%. For insurance carriers and OEMs, telematics might offer an opportunity to not only meet the challenges of the day, but accelerate the customer experience of the future.
The benefits of telematics for drivers, insurance carriers and car companies have been well established for years. Drivers enjoy discounted insurance premium rates based on the amount they drive (traditional pay-per-mile programs) or how they drive (usage-based insurance programs). Insurance carriers can better balance their risk portfolios using mileage and behavior data, both of which are more accurate risk predictors than demographic data. And OEMs can drive value by leveraging connected car data to offer meaningful experiences for their customers.
However, despite all the clear benefits for telematics-based insurance policies, drivers have historically been slow to adopt. Telematics-based insurance policies are more profitable, have longer retentions, and higher customer satisfaction (source). The circumstances of COVID accelerate those benefits both for all parties. In order to not just manage business today, but thrive post-COVID, carriers and OEMs should look at a balance of short-term measures and long-term strategic decisions. Telematics may provide a solution to both.
- Aid:Both mileage and behavior-based telematics policies can quickly detect decreases to vehicle usage. Carriers can pinpoint the customers who have decreased their drive times and proactively work with them before they reduce or cancel their coverage. It also helps confirm that policyholders who have retained typical driving patterns are paying premiums that reflect those patterns. This helps achieve higher customer satisfaction rates leading to brand loyalty. Further, as carriers look toward the future, this could provide a foundation for real-time insurance pricing, based on both miles driven and behavior. Perhaps more importantly, this unprecedented, dramatic, and widespread decrease in driving means the value of a telematics-based insurance policy has never been more apparent or immediate to the general population. Customers who previously may have been reluctant to share their driving behavior may be much more open in the current environment. In fact, according to a JD Power survey, as many as 40% of customers are more likely to use UBI now than before the pandemic. (PD Power Insurance Intelligence, Auto Insurance During COVID-19: Premium Relief: Consumer Impact and Outlook, April 16, 2020)
- Safety:While less people are currently taking to the roads, they are driving much faster than congested roads would typically permit. According to our data, while accident frequency is lower, high speed crashes and total losses are on the rise (“Emerging Auto Accident Trends with COVID-19” article). Mobile crash detection technology can alert a driver’s insurance carrier or OEM in real-time of an accident and initiate the appropriate response. For lower impact collisions, this process can also launch a digital claims experience for drivers, making the claims process faster, easier and even safer because the mobile tools help maintain social distancing. For higher severity claims, OEMs and carriers can provide assistance more quickly to the customer.
- Personalization:As we emerge from the crisis stage of COVID-19, business as usual is unlikely to be a winning approach. Customer expectations, which had already shifted toward digital, self-service demands in the last 3 years, are going to get even more specific. Telematics can drive personalized experiences beyond UBI that meet, and even exceed, customer expectations. For example, on-board diagnostics can help notify customers of needed repairs through their mobile devices without having to look up a maintenance code. Geo-fencing and GPS can help parents keep track of teenage drivers and find stolen vehicles. When customers begin to feel that telematics technology is designed for them, not their insurance carriers, adoption will rapidly increase, which is a win for everyone. Customers who use telematics tend to have higher profitability and retentions for insurers. Telematics also empower customer experiences for OEMs that can build long term loyalty as well as offering an additional ongoing revenue stream. In fact, increased customer insurance shopping could mean even more revenue for OEMs supplying driving data. Bringing customers into telematics now could leave carriers and OEMs even stronger on the other side of this crisis.
Look Ahead to the Future
Recovery from the pandemic will likely be a long and winding path filled with uncertainty. For insurance carriers, risk assessment and pricing may be permanently changed as driving behavior and economic conditions change customer profiles. For OEMs, supply chain challenges may ease, but customer finances may be slow to recover. Companies that take the right steps now are likely to come out stronger on the other end. Getting the tools in place now will put insurance carriers and OEMs ahead of the curve as new consumer demands are likely to emerge.