Usage-based technology to fuel profitability of motor insurers
Usage-based insurance (UBI) will help motor insurers to reduce expenses by facilitating claims processes and combating fraud. Moreover, the technology will allow for the addition of services to the insurance product and enable higher premiums, said Pravar Gautam, vice president Asia & EMEA at Scope Technologies.
Insurance carriers are increasingly deploying items such as telematics that track the driving behaviour of insureds, which allow for more tailored products based on the principles of “pay as you drive” or “pay how you drive” as well as “mile-based auto insurance”.
By monitoring and measuring the way people drive, insurers can create a more accurate risk assessment of their clients.
“Traditionally, insurers would assess the risk by looking at the vehicle model and at the driver’s age, education, medical status, etc, which provide sort of a proxy as to the risk associated with a certain person,” Gautam (pictured left) said.
“These proxies have however proved to be highly inaccurate, especially if you have UBI statistics next to them,” he said.
While the new technology allows for a more precise risk assessment, it is also exacerbating price competition in the sector. This adds to higher competition from new entrants such as China’s e-commerce provider Alibaba, which has gone into insurance, and the vehicle manufacturers themselves, Gautam said.
But traditional motor insurers have the opportunity to develop a competitive advantage through UBI by reducing costs, and enhancing customer loyalty and income.
“Costs can go down as UBI notifies the carrier in real time about an accident as well as its severity and likely damages while allowing for a faster resolution of claims,” Gautam explained. The fact that insurers will receive electronic data on the event will also enable them to avoid fraud, he added.
There are other opportunities for insurers. UBI allows carriers to engage with their clients in a more meaningful way and increase client retention and income.
Generally insurers get in touch with their clients once or twice per year, but this is likely to change with the introduction of what is referred to as an ecosystem around the vehicle.
“The technology that monitors the drivers’ behaviour will be able to notify the insured about a needed service for the car, for example,” Gautam said.
“In addition, the carrier may have arrangements with service operators that offer discounts to customers.
“The client will therefore not only be notified on pending services, but also about the type of service that is needed and the estimated cost,” Gautam said.
The technology will also allow the insured to engage electronically with any of the garages available in the chain and schedule an appointment electronically.
“This is an example of meaningful engagement with customers that adds value to the insurance product,” Gautam noted. He believes that such additional services will allow insurers to charge higher premiums. “It’s all about playing a smarter game,” he said.
