Taking auto insurance telematics beyond a participation discount
A few weeks ago, I attended InsureTech Connect (ITC) 2023 in Vegas. It was incredible to see and hear about all the different innovations in the industry. As most know, auto insurance is grappling with profitability challenges, stemming from a number of factors, including a rise in severity, continued risky driving behavior, record-high inflation, renewed supply chain issues – and the list goes on.
As a result, insurers have leveraged three main levers to try to return to profitability:
- Increase premium rates
- Reduce operating expenses, including staff expenses through layoffs
- Curb advertising spend
However, an unintended consequence is policyholders have reached a price inflection point – they can’t afford their auto insurance anymore, so they are shopping for better rates. And it’s not just the risky drivers looking for price relief. Loyal policyholders, who are safe drivers – the drivers insurers want to keep on their books – are shopping for better auto insurance rates too.
I forecast that this shopping trend will only continue, and competition for these safe drivers will be fiercer as insurers start to turn the corner and resume their advertising efforts.
Missed opportunities in auto insurance telematics
Given the auto insurance industry challenges, I was a little dismayed about the conversation around telematics at the conference, and frankly within the industry in general. I’m not going to preach about the overall predictive value of telematics, the positive impact on loss ratios, and the retention benefit and increase in customer lifetime value; I think the industry overall pretty much understands and appreciates the benefits.
However, the industry as a whole isn’t unlocking the full potential of telematics across the insurance value chain. Rather, it’s still focused on providing customers with an upfront discount, with a promise of potentially greater savings at renewal, based on the customer’s driving performance.
This is the same approach insurers used more than a decade ago, when such programs were powered by OBD-II dongles! And the reality is that adoption of this type of offering, under this approach, is still relatively low.
Unlocking insurance innovation with telematics data at scale
I get it though. A major barrier to leveraging telematics as a strategic capability across the auto insurance organization is the availability of telematics data at scale. Or at least, it was a barrier – until now.
Do you know that Arity has over 1.3 trillion miles of driving data across the U.S.? And, that we collect over one billion miles of driving data, everyday? This is sourced from mobile apps, in-car devices, and connected cars with a user’s permission to use that data. We also have about 40 million active driver connections, which represents around 15% of drivers in the U.S.; and we keep growing our connections and won’t stop until we have data on every driver in the U.S!
So, I proclaim that we now have telematics data at scale! With availability of telematics data at scale, insurers can start to use this data beyond just providing a participation discount and for renewal pricing.
Telematics can be strategically leveraged across the insurance value chain – from marketing, to underwriting and point of sale pricing, to promote engagement and loyalty with newly onboarded policyholders, and even for crash and claims – to support customers through this key moment of truth with their insurance providers.
My goal is to raise awareness and understanding of how telematics can be used across the insurance organization. Before I came to Arity, I was on the insurance carrier side. I understand the challenges and the potential opportunities too. And, as a director of product at Arity, I’m genuinely excited about the innovative data-driven products and end-to-end solutions we are building to benefit carriers, and ultimately, policyholders too.
At the end of the day, if you’re excited too and decide to partner with Arity, well, that’s just icing on the cake! Therefore, I’m going to continue this awareness building by writing future blog posts that explore the application of telematics-based data at each point in the insurance value chain. I’ll tackle each of these separately as there’s a lot to unpack. Stay tuned!
Want to learn more? Read how insurers can drive profitable growth using telematics.