3 Ways Auto Insurers Should Adapt to Drivers’ Changing Road Habits

By Seth Birnbaum | November 7, 2016

For a historically slow-moving industry, changes are occurring at a rapid rate in today’s auto insurance world. Drivers’ road habits are shifting and auto insurers should adapt to the changing behavior behind the wheel.

The National Safety Council released estimates that traffic fatalities were up 9 percent in the first six months of 2016 since 2015 and up nearly 18 percent since 2014 in the same time period.

While a stronger economy and lower gas prices will likely result in more miles driven, there is still an increase in traffic fatalities once that is accounted for. With all the safety technology out there, what’s causing the jump?

The truth is that driver inattention on the road is growing as motorists become more distracted. Some states have even seen distracted driving fatalities doubling.

Things on the road are changing. Insurers and agents should keep up and remain aware of ways to adapt to the shifting industry.

Agents and insurers should adapt to these changing road habits in three major ways.

Implement a ‘Pay How You Drive’ Model

Usage-based insurance is expected to increase globally in the next few years, from 12 million to 142 million customers. Insurers should consider adopting a “pay how you drive” model – if they haven’t already – to save themselves and consumers money, and agents may want to encourage the use of it.

“Pay how you drive” is more efficient and accurate than previous risk pricing models and will make insurers more aware of shifting driving habits. Instead of responding to behaviors after an accident has occurred, carriers can make informed decisions and determine a premium price based not only on location, age or driving record, but also on individual driving behaviors and patterns.

With less bias, UBI’s adoption may even raise consumer satisfaction. While data has previously been used to price premiums, it has operated under generalizations. A more personalized model will be appealing to drivers who have previously been frustrated by auto insurers’ assumptions. In other pricing models, 23-year-old drivers may have a risk profile that does not accurately represent them and is based on the average data for all 23-year-old drivers in their city.

With UBI, they can be priced accurately based on their risk and that will offer a value to them. “Pay how you drive” will help keep drivers safe by providing peace of mind and highlighting driver improvement areas. The driver can then work to improve his or her habits for a safety and cost benefit.

Providers will also understand driver habits to a greater degree. If a driver is found to be speeding 10 mph over the limit on most drives, their premium may be adjusted to reflect that risk. Similar adjustments may be made for behavior such as harsh braking or unsafe acceleration. For agents, recommending “pay how you drive” may help keep your customers safe and save them money. Additional unique services can also be offered through this technology, such as vehicle diagnostics, real-time navigation and in-vehicle entertainment systems, which may boost customer satisfaction.

Use Technologies Available Now

Not all insurers have adopted telematics or “pay how you drive” yet, though many are at least in the process of developing it. However, the insurtech industry is booming and technology is available now for drivers to use.

Insurers and agents should consider building up their current customer pool with these technologies to account for drivers’ changing road habits.

Agents can recommend technologies to help their insured become safer drivers on their own. Safer drivers mean less accidents, and in turn, lower costs for all. By encouraging independent use of these technologies, drivers may be more motivated to improve their own skills and become better drivers.

There are apps such as CellControl and LifeSaver that help stop distracted driving by blocking incoming calls and texts when a driver is behind the wheel. Other apps like EverDrive give drivers an overall score on trips and suggest improvement areas. They measure driving skills such as speeding, braking, acceleration and phone use. These apps can make drivers more aware of their own habits, and give them feedback to improve. Additionally, there are various hands-free devices available as well as backup cameras to help drivers operate safely on the road.

There is safe-driving technology available now that insurers and agents can recommend to build up their current customer pool. Drivers that improve their skills are less likely to get into accidents and file claims, which will cut costs for everyone involved.

Stay Flexible

Auto insurers and agents may want to remain flexible and look ahead to semi-autonomous and fully autonomous vehicles as they will change drivers’ habits and perhaps, make them obsolete. The car technology is coming, and while it may not be widely adopted for several years, insurers may want to consider preparing for the paradigm shift now. How insurers adapt to this transportation disruption will determine the severity of its effect on the industry.

While the government may still implement their own laws, insurers and agents should determine a roadmap to prepare for further integration of the Internet of Things. The National Highway Traffic Safety Administration stated that they are not planning to determine strict guidelines, but rather remain flexible and nimble as the technology proves itself.

By 2035, auto insurance premiums could drop 20 percent under 2015 levels with a moderate pace adoption of autonomous car technology. Car insurers may not be dealing with driver negligence anymore – instead, there may be an increase in product liability claims. Risk profiles may rely predominantly on the make and model of the vehicle rather than the operator. That said, computers make errors, too, and there will be new risks to insure for – possible hacks, satellite failure or sensor damage.

If sensors are placed on the bumpers, they’ll be one of the first things damaged in small collisions. Will providers decide to create a baseline coverage rate or follow a no-fault model? Will auto insurance become similar to a utility cost? The role of the agent could also change dramatically if coverage shifts to insuring technology.

There will also be an “in-between” period before this technology is fully adopted, which may also present unique claims and coverage needs. How well will driver-operated cars interact with fully autonomous vehicles? Pittsburgh’s self-driving car passengers have already noted the slower speed of the vehicle, and its inclination to brake when it may not be necessary. That kind of behavior many not only frustrate other drivers but could lead to rear-end accidents or other minor collisions. For a while, drivers will still be predominantly responsible for keeping the vehicles in control and stepping in when necessary.

Driverless cars will happen, so insurers and agents may what to do what they can to prepare for them. Just don’t disregard the changes in driving habits that have already occurred.

Things on the road are changing. Insurers and agents should keep up and remain aware of ways to adapt to the shifting industry.

About Seth Birnbaum

Birnbaum is the CEO of EverQuote, an auto insurance marketplace with nearly $100 million in revenue and more than 5 million unique visitors per month.

From This Issue

Insurance Journal West November 7, 2016
November 7, 2016
Insurance Journal West Magazine

Focus on Professional Liability / PLUS; Habitational / Dwellings; Agents’ E&O Survey