Watch out for these 4 Usage-Based Insurance hazards.
Connected cars are changing insurance, and usage-based insurance carriers stand to win big. Notably, insurance telematics can result in faster claims resolution, better processes for customer acquisition and retention, better customer experience, safer roads, lower costs and increased profits. And yet, insurers struggle to enter the space profitably. At Blue Rocket, we conceive, design, and engineer products in the connected car space. Here are the four greatest hurdles insurers face when making the switch to a usage-based insurance, and how to get past them.
Challenge #1: Beating the Lake Wobegon Effect
Most people think they’re better drivers than they really are. Specifically, more than 93% of American drivers rate themselves “above average.” This phenomenon, known as The Lake Wobegon Effect, takes its name from the radio series A Prairie Home Companion. At Lake Wobegon “all the children are above average.” This optimism poses two problems for usage-based insurers.
First, consumers are disappointed when they don’t receive the insurance discount they expect. To combat this, change your communication strategy and product design. For example, you should emphasize benefits other than discounts, set realistic expectations for a typical discount, and clearly lay out what is required to earn those discounts.
Second, your customer is not really motivated to improve their driving. However, they are very interested in improving the driving of other people, including their teenage children, elderly relatives, and their spouse. This opens a space for smart messaging and product design—for example, friendly competition, rewards, and improved feedback during driver training.
Challenge #2: You need better sales support for usage-based insurance
Most American insurance agents lack the support and information they need to properly message and sell usage-based insurance. To illustrate, the most common pitfall for insurers is to inadvertently over-promise savings, without properly conveying what’s required to earn the discount, or the program’s benefits. As a result, customers don’t engage with the program as intended and you bear the cost. To overcome this problem, position your offering as a way to simplify vehicle ownership, improve safety, and make insurance fairer. Emphasize fairness by communicating that the price your customer will pay will depend on driving performance rather than just age, gender, or credit score.
Challenge #3: Deciding on the right features, and building them right
Not all connected-car features are created equal. This means you need to develop the features consumers demand. You can capture consumer interest with features like theft recovery, accident assistance, and quicker breakdown assistance. Then differentiate your offering by integrating data feeds from your Technology Service Provider (TSP) into your customer experience and workflow. This works best when you combine the assets of a TSP, your internal IT department, and a product design and development company skilled in IoT and connected-car applications.
Challenge #4: Re-frame what you do in the mind of your customer
Your customer doesn’t think it’s your job to provide anything beyond traditional policies. You must change their mind. To reach them, position your usage-based insurance product as something altogether different. Let customers know that it is broader, richer, more engaging and more valuable than the old way of doing insurance. Once customers understand that, they will be far more likely to choose you instead of the competition.
Want to know more? Read our Connected Car White Paper. Or say hello. We’re here to help.