Auto insurance has one of the highest Net Promotor Scores™ of any industry, yet nearly all auto insurers struggle to engage with their policyholders in a positive and constructive way. This has contributed to a consumer mindset that the only time to think about insurance is when finding a new insurer or processing a claim. Low engagement, combined with highly price elastic customers, leads to the insurance industry having a customer retention rate of 88% – 6% below the top performing companies in any industry. Low retention rates and the high cost of new customer acquisition point to a major business challenge.
Insurers are turning to insurance telematics in order to bolster engagement over the entire policyholder lifecycle.
The Purchasing Decision
Insurers are some of the largest and most successful advertisers in the United States, spending billions of dollars each year to attract new customers and combat churn. Telematics offers insurers new, innovative ways to further improve their customer acquisition strategies through more effective segmentation and better product design.
Audience segmentation has grown in prominence over the past ten years, led by marketers across industries. These segments are usually created in much the same way a traditional rate plan would be – based on static data such as demographics that segment large swaths of different people into the same group. As data on driving behavior becomes available through telematics, insurers are able to ask – and answer – newer and more complex questions than ever before. The insights drawn from this data are a treasure trove for sales and marketing teams for use in identifying segments of consumers with differentiated values. Combining finer segmentation with traditional product marketing strategies, marketers can reach potential policyholders with higher-impact messaging that addresses their individualized needs while developing product offerings that add tangible value.
Improved segmentation also allows salespeople to direct prospects to personalized products and services they actually need, helping insurers more easily acquire new, satisfied customers. Two large segments that are immediately identifiable with telematics data are low-risk drivers who are currently paying high premiums and high-risk drivers who are currently paying low premiums. The first group are highly prized and likely very profitable as an insurer can offer large premium discounts for switching to a UBI program while still charging an adequate premium for their risk. The second group is underpriced and can be either re-priced accordingly or re-written for more appropriately rated products.
The auto insurance industry has largely lagged in offering customized products to individual buyers. Telematics presents the possibility of an insurance product completely personalized to the policyholder. Beyond improved sales and marketing, telematics-driven usage-based insurance allows insurers to create flexible and personalized products, services, and communications. Usage-based insurance programs are particularly attractive to safe drivers who are typically penalized by ‘subsidizing’ poorer performing drivers in traditional demographic-based rate plans. As telematics matures and more insurers offer UBI programs, the lack of a usage-based insurance product can lead to policyholder defection and create adverse selection as more preferred risks seek lower rates elsewhere.
Having more auto insurance products doesn’t necessarily increase profitability; having products that speak to the specific needs and values of consumers does. Telematics-driven services such as vehicle recovery, emergency calling, and distracted driving prevention add real value to consumers. In a recent usage-based insurance consumer study, 90% of millennials and 65% of non-millennials would pay at least $45 per year for these benefits. Recent direct-to-consumer telematics products have launched in the United States, attempting to capitalize on this need. While we haven’t seen many insurers charging for their telematics program, consumers’ willingness to pay for these telematics-driven services shows the value of telematics to policyholders. Between discounts for the safest drivers, and the value-added services provided to anyone with a telematics-enabled vehicle, telematics programs can be a boon for both customer acquisition and retention.
Becoming a Regular Presence
For many policyholders, the ideal time to interact with their insurer is never – as long as they are not filing a claim. How insurers engage during and after a crash is critical, but a lack of regular interaction with policyholders during their day-to-day lives is a major missed opportunity for improving customer loyalty and retention. Technology has made policyholders easier to reach, but doing so effectively can be challenging. Insurance telematics enables communication opportunities outside of an emergency that are relevant, engaging, and add real value.
Telematics helps you understand how individual policyholders drive. That same data, once interpreted, can help policyholders understand how they drive. Once it has been translated into readable and actionable information for the consumer, telematics data is the exact type of personalized and relevant communication consumers want. Polling from the CMO Council shows that 56% of companies saw higher response and engagement rates from personalized content when compared to traditional communications. Companies around the world are using telematics to provide regular updates to their drivers, including:
- Weekly driving logs and reports
- Personalized tips to improve driving
- Risk event alerts
- Green driving reports and tips
- Registration, inspection, and vehicle maintenance reminders
- Vehicle health notifications and warnings
Some leading insurers are going one step further and adding telematics-driven gamification to their smartphone apps. Gamification has been linked to a 29% increase in customer engagement with companies’ websites. Using telematics data, insurers like Liberty Mutual have built mobile apps that allow drivers to collect badges, see how they’re driving compared to their fellow city-dwellers, and compete to be their city’s safest driver.
With new customer acquisition costing up to seven times more than retention, improving engagement can have a major positive impact on your business. Gallup research shows a strong relationship between customer engagement and critical business outcomes, including “an average 23% premium in terms of share of wallet, profitability, revenue, and relationship growth compared with the average customer.” Regular, positive communication that has been personalized to the policyholder with telematics data is a sure-fire way to build positive relationships with policyholders.
During an Event
According to a study by J.D. Power, 83% of policyholders who have a positive claims experience during an event definitely will renew their policies, whereas only 10% who had a negative experience would renew. Clearly, an insurer’s ability to ensure a positive experience for their policyholders’ during a claim is critical to the insurer’s ability to retain that customer. Insurers can improve the experience by streamlining the claims process with telematics and providing services that add to safety, security, and peace-of-mind.
Safety and peace-of-mind are at the forefront when consumers purchase auto insurance. When policyholders feel safe, they are more satisfied with their insurance and therefore more likely to stay with their insurer. Telematics-driven services such as automated first notice of loss and triggered emergency response give policyholders peace-of-mind. Advanced telematics services can notify an insurer when an accident occurs and provide information on both the severity of the accident and the location of the vehicle, allowing the insurer to contact the policyholder and dispatch emergency services. Fast accident response could not only save a policyholder’s life, but also significantly reduce bodily injury claims.
These same services are also critical to improving the claims process. Automated first notice of loss (FNOL) allows the insurer to begin the claims process immediately, rather than waiting for the policyholder to file a claim. Octo collects data from a vehicle’s sensors and onboard computer and reconstructs the crash, providing the insurer with a crash dossier. When integrated with the insurer’s claims system, the dossier helps significantly reduce the time to claim settlement. Octo’s partners report telematics-enabled FNOL can reduce the time to settle a claim by up to 50%. According to Ernst and Young, insurers realize up to a 40% reduction in claims costs. Policyholders also realize significant benefits as their barrier to settlement is reduced significantly. Data-driven claims also tend to be more accurate so policyholders may not have to take time off of work to have their car inspected. A shorter and more accurate claims process will significantly improve customer satisfaction and increase policyholder retention.
Insurance telematics can positively impact policyholder engagement throughout the lifecycle: from acquisition through renewal. Telematics can help an insurer attract new policyholders by offering prospects differentiated products. During the life of the policy, insurers can become a daily presence in their customers’ life with regular, helpful communications. Finally, telematics streamlines accident claims processing.