The auto insurance industry is in the midst of major disruption powered by technology and vibrant new players. Disruption gives way to fresh ideas that can have both profound and positive impacts on our lives and businesses. But, through the noise, we need to ask ourselves: what will actually make a difference in the long-run?
A few weeks ago, we saw Root Insurance become a unicorn with its latest round of funding and a $1 billion valuation. This proves what we have seen over the past several years: that smartphone telematics, big data and analytics are the future of insurance.
While we are eager to see how insurance startups like Root, Lemonade and MetroMile will advance the industry, it’s important to not get lost in the hype. Real change in the industry will take more than startups — it will take a systemic shift in how the big players do business and how they use technology to make it happen.
A technology that is leading change in the insurance industry today — and powering models like usage-based insurance (UBI) and behavior-based insurance (BBI) — is smartphone telematics. Of the top 10 largest U.S. insurance providers, nine are using or at least testing some form of smartphone-based telematics program.
The various use cases include building better risk and pricing models, offering behavior-based discounts and rewards, and providing feedback and gamification to motivate customers to become better drivers. With the top three auto insurance providers making up 40.8 percent of market share, and the top 10 taking 72.3 percent, it’s up to them to engrain smartphone telematics into the core of the industry.
In a survey conducted last year, 73 percent of driving consumers said that they would prefer rates be based on their driving behaviors, but only 22 percent have been offered a smartphone telematics program from their insurance providers. The foundation is set to mainstream smartphone telematics adoption. So, what needs to happen?
Powering new thinking
Insurance companies are facing tighter margins, higher and more frequent claims costs, and low customer engagement. Smartphone telematics is a logical and vetted option. Solutions affect the bottom line by driving better measurement of risk and superior pricing models, as well as improved behavior and subsequently lower claims costs.
Smartphone telematics also provide a regular touchpoint with customers, which drives greater retention and engagement. The potential hard benefits and measurable improvements like these are one of the bigger factors driving outside investments in this technology.
Some of the top barriers of telematics adoption for insurance providers lie in incorporating telematics data into actuarial scoring models, integrating the technology with claims processes and achieving sustained customer retention and engagement with the programs. There’s also the task of rolling out the program externally to the thousands of independent agents working on an insurer’s behalf.
As the industry evolves in its use of data-producing technologies like smartphone telematics and artificial intelligence (AI), we’re going to see more disruption. AI-powered claims automation enables insurance companies to collect and analyze telematics data and photos of damaged vehicles to help determine crash severity, total loss and repair estimates. This information can be transferred to an insurance company, automate parts of the claims process, and decrease processing time, costs and resources for the insurer and the consumer.
Insurance industry startups are inspiring the industry to push forward with innovation.
As smartphone telematics and AI capabilities become more widely adopted, we’re going to see faster change that will strengthen the industry and produce safer roads, better drivers and more transparency and trust between insurance carriers and consumers.
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