Consumer connection and individualization in driving: COVID-19 has put the pedal to the metal
The COVID-19 pandemic is unlike anything most of us have ever lived through. We’d like to take you on a bit of a time warp into what has been top of mind at Arity as we navigate insurance innovation over the last few months.
As we write this, it’s June. Normally in June, we’re returning home after an exhilarating, yet exhausting, cross country tour of conferences. We love attending these conferences to connect with thought leaders and exchange ideas.
We also often speak at the conferences; sometimes we’re asked to propose a topic and sometimes the topic is suggested. Regardless of the route, we always seek to infuse our learnings that are relevant to the time. We try to reflect on what’s happening with consumers, technology, competitors, big tech, and the broader transportation ecosystem to uncover big-picture insurance industry transformations.
Arity is a data- and analytics-intense company. That means we have a continuous stream of research on consumers, the environment, the economy, and consumers. At the onset of the new year, we always pause intentionally to gather up all we’ve learned, test our assumptions, and get new perspectives.
We don’t believe innovation comes from a random spark of genius, but rather a careful awareness of the forces upon an industry (thank you, Peter Drucker). So, for the spring conference season, we were ready for careful unpacking and lively discussion on some of the findings that are driving consumer behavior and insurer results. Here’s what we would have talked about, just a few months ago:
- A tremendous opportunity exists to make an impact with mobile connections. Mobile is our go-to device, with consumers spending 35% more time in mobile in 2019 compared to 2 years prior. In particular, monthly active users across financial services is growing. According to a survey conducted in August 2019 (by GfK), the most popular category to purchase online in the U.S. was financial services: 47% of respondents chose to buy financial products through mobile. Of course, adding value through mobile requires data sharing.
- When it comes to data sharing, consumers experience a “privacy-personalization paradox.” Three potentially conflicting factors create an opportunity for businesses to leverage mobility data management and exploration:
- Governments iterate on the right level of privacy protections to enable innovations across all market segments for both powerful and vulnerable communities.
- Consumers report concerns on data usage and access, and
- Consumers also reliably report through surveys and their actions that they value personalized services and will exchange their data for such.
This represents an opportunity to thoroughly understand customer experiences and what they value from insurance.
- Consumers seek to control their insurance price, continue to shop for insurance, and will switch to direct writers. Increasing frequency and severity have resulted in insurance costs rising at twice the rate of the median income over the past decade, according to J.D. Power. With lower expense ratios and prevalent marketing, direct writers have grown at a higher rate than other distribution channels.
- Insurers with the ability to reduce acquisition costs and increase close rates have tuned the dial to profitable growth, in order to regain their position. Insurers that are able to tap into digital channels that leverage differentiated and accurate risk profiles can now find and close the right business at the right price, which leads to overall improved performance. In addition to distribution performance, innovation is on the radar.
- Smart, connected cars continue rolling off the line (at about three times the pace of just five years ago) while OEMs and insurers partner to ride the wave of change. Certainly, a keen understanding of the vehicle risk will continue to be a driving factor on insurance pricing, but new partnerships emerge to provide new experiences in purchasing (such as insurance coverage with vehicle purchase) and servicing (such as in-dash driving behavior feedback and connected claims). Insurers must face the reality of change.
Then, COVID-19 hit the U.S. One by one, day by day, conferences and travel were canceled. The entire industry packed up their laptops and in-office essentials and headed home to test VPN strength and hardware distribution capabilities.
And it was impressive. An industry that was almost completely running out of large corporate offices with significant real estate footprint and local community presence went remote. Service continued, and perhaps even thrived!
After the shelter-in-place recommendations, the insurance industry immediately noticed the impact to driving risk – as complex as it’s become – and insurance companies acted fast to return premiums where possible. For many more insurers, they doubled down on telematics as the route to help reflect the change in driving risk.
Arity wanted to help companies weather insurance industry transformations during coronavirus and travel disruptions. So, we started a series of COVID-19 driving data webinars with accompanying reports for the transportation ecosystem that highlight:
- Our more than 190 billion miles of driving data to demonstrate changes to driving risk, including how far mileage has decreased (more than 50% on the aggregate),
- The pockets of increase (up to 29% of drivers have actually increased mileage),
- The change in collisions detected (high-speed collisions are up 1.5x), and
- The nuances in understanding it at a state and regional level (30% variation based on population density).
Knowing and understanding these changes is more important than ever before. Why? Because of the enormous impact COVID-19 has had on personal mobility and consumer behaviors. The ripple effect will likely last some time, potentially creating ongoing insurance industry transformations. Mike LaRocco from State Auto put it this way: “COVID is a harsh awakening that usage-based insurance is a smart choice.”
So where does all of this leave us with our current understanding of the opportunity and challenges in insurance today?
- COVID-19, in essence, is throwing gas on the fire of the entire auto insurance industry’s digital transformation. Nearly every single operation at every single insurance carrier changed their service and working model within just a couple of weeks. Leaders, agents, actuaries, underwriters, customer service, marketing – you name it, they adapted on a dime to a digital world. They had different conversations, found new ways of working, and refocused on the top priority: serving customers and our people. Consumers want digital connectivity. Now is the time to take full advantage of this rare opportunity to wow insureds and keep them loyal long into this new normal world we live in.
- Furthermore, it’s become an opportunity to retain customers during a highly volatile, emotional time that isn’t the claim process. Insurance industry transformations are driven by consumers who have rapidly altered their views on privacy and auto products.
- Consumers and agents have had a whiplash take on privacy and auto products in general. In our qualitative consumer research, we find the mindset seems to be shifting from the privacy-personalization paradox to, “let me prove it to you” and “I’m willing to try.” With the unprecedented change in traditional driving patterns for the foreseeable future, consumers want more control and an accurate personalized representation of their needs, which will provide them extra time and insurance savings.
To be sure, we’ve proven to ourselves we can do hard things, quickly, and we just received the accelerator to adapt our business models to consumer connection and personalization. We believe this, and we’re standing ready to help insurance and transportation-related organizations make it happen.