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Revolutionizing Auto Insurance: How InsurTechs are Lowering Auto Insurance Costs with Usage-Based Policies

Usage-based insurance, often referred to as UBI, has shot to popularity due to its immense potential for insurers when it comes to customization and cost savings. In-car technologies and the surge in connected cars significantly contribute to the growing market size of usage-based insurance. From $45 billion in 2022, it is expected to increase at a CAGR of 23.5 percent between 2023 and 2032.

The rapid proliferation of Artificial Intelligence (AI) and the Internet of Things (IoT) enables InsurTechs to offer personalized and cost-effective coverage options based on their driving behaviors and vehicle usage patterns. Auto insurance providers offer Pay How You Drive (PHYD) and Pay As You Drive (PAYD) to drivers based on data acquired from appropriate AI and IoT-based telematics plug-in devices or software applications.

Due to the rise in the gig economy, drivers who work for a few hours a day are now leaning toward Pay As You Drive or Pay Per Mile insurance to curtail insurance costs. While the potential of UBI is undisputed, modern InsurTechs have too much on their plates, with challenges and obstacles about regulatory compliance, customer data privacy, system integration, user experience, and data analytics being their top concerns.

A Chicago-based Tesla insurer who had insured both his Teslas under the UBI plan of a prominent insurance company recently sued it for raising his premium based on false forward collision warnings. Having put technology in the driver’s seat, it has become imperative for InsurTechs to seek reliable tech support. They must stay afloat amidst risks and challenges while keeping a pulse on usage-based insurance trends and innovations.

Here’s a quick lowdown on the top challenges they are currently grappling with:

Regulatory Compliance

All UBI products and offerings must comply with state privacy laws governing data collection and usage. There are consumer protection laws to comply with and industry standards to avoid unfair penalties or discrimination.

For instance, the Consumer Federation of America (CFA) made specific recommendations to ensure consumer protection while stating that the current telematics for usage-based insurance programs have some pitfalls and lack rules regarding pricing transparency and consumer privacy. Not surprisingly, one of the top InsurTechs in the US that used a plug-in device to track driving behavior ended up paying $250,000 as a fine for violating the New York Insurance Law that prohibits collecting and using personal information without prior consent.

The California Consumer Privacy Act (CCPA), the Securities and Exchange Commission (SEC), and the Financial Industry Regulatory Authority (FINRA) regulate the InsurTech landscape to ensure fair practices. As a result, InsurTechs need to take concrete steps to build comprehensive programs that help secure data and manage risks while achieving regulatory compliance.

A San Fransisco-based insurance company suffered a security flaw that allowed a hacker to steal personal information, including license numbers of individuals. Such breaches and data leaks are not unheard of and call for immediate and effective containment and remediation measures. Such instances, however, can be avoided if InsurTech companies work with the right technology partners who are well-versed in state laws and have the expertise to secure the UBI infrastructure.

Data Protection and Maintenance

One of the largest insurance companies in America had to pay $40 million in ransom to regain control of its network after a trove of company data was stolen. With customer data being collected and stored constantly, the onus is now on InsurTechs to ensure they are transparent about how this information will be used. Any potential risks associated with its usage should be notified to customers. This will help foster trust, especially when voluminous data is collected via IoT devices, sensors, and apps.

InsurTechs need a holistic and agile data management and warehousing solution that manages everything from data storage and processing to big data analytics and security. Technologies like Blockchain play a significant role in risk management and fraud prevention in the insurance sector. An increasing need for data scientists who can mine, organize, and make sense of the enormous amount of raw information stemming from disparate data streams is felt.

While data throws light on various driving variables like location, speed, rate of acceleration, braking, mood, and driving frequency, a vast percentage of drivers, 47 percent to be precise, are opposed to having their driving monitored under any circumstances. As the Automotive Education and Policy Institute president, Erica Eversman, explains, “I think it is incredibly intrusive. It provides a significant amount of data to insurers, and we don’t necessarily know what they are doing with that data and whether they are being responsible with that data.”

An insurance giant in the US recently became a victim of a massive data breach that compromised the information of 2.5 to 2.7 million individuals. Data undoubtedly helps improve underwriting for personalized pricing, but convincing reluctant customers to opt in can be an uphill task. A tech partner who can help ensure data quality across the value chain while applying stringent security measures can help improve the effectiveness of systems and processes while building trust and confidence in customers’ minds.

Integration

It is one of the most critical components for InsurTechs offering UBI products. Integration is necessary for smooth functioning since it facilitates seamless communication between various systems and stakeholders. Several disparate systems must be factored in, including Telematics, insurance policy, and claims management systems.

Seamless integration empowers teams to work efficiently irrespective of the use cases, be it underwriting, claims processing, or policy administration. Together, they facilitate a robust ecosystem that continues to evolve to enable data sharing, platform interoperability, and customer engagement. As such, integration is the lynchpin in the value loop.

The complexity of insurance systems comes from multiple layers of technology that include front-end interfaces, back-end databases, and middleware that are required to work in sync to avoid delays in problem resolution. InsurTechs that deal with different processes, procedures, and legacy systems require more real-time integration and often need to improve their efficiency and efficiency.

A shortage of workforce skilled in technology and insurance often aggravates the problem. InsurTechs can, however, seek support from technology providers and collaborate with them to leverage collective expertise for developing solutions, streamlining operations, and reducing costs.

User Experience

Adoption and user engagement are necessary for an enriching user experience. For UBI programs to succeed, InsurTechs must go the extra mile to understand customer needs and reward behaviors with appropriate incentives such as discounts and cashback. But it all starts with onboarding, and any friction in onboarding and adoption can drive potential customers away.

The modern customer is used to instant gratification, and a one-size-fits-all approach will not work. Customers are no longer appeased with small discounts and will agree to data sharing only if they see substantial value. As users agree to install telematics devices and connected apps in their cars, they need to understand how data is interpreted and what’s in store through user-friendly platforms and data visualizations.

Designing a memorable user experience is essential to keep customers returning for more. It will ensure profitability, growth, and retention for InsurTechs and better equip them to address evolving customer preferences.

An efficient technology partner can help curate exceptional user experiences via easy-to-use interfaces, interactive analytical dashboards, and value-added features while keeping customer centricity at the core of all offerings. Technology support will thus be a good business decision since it will empower InsurTechs to handle all kinds of customer queries and concerns 24/7.

Lead the transformation in usage-based insurance with Trigent

InsurTechs are eagerly adopting transformative technologies to automate their business and stay competitive to cater to the diverse needs of customers. Whether you want to tailor your offerings for the gig economy to offer the flexibility to turn the coverage on and off at will or wish to create new UBI product offerings for the tech-savvy customer, our unbundled insurance stack can give you the edge. Having helped some of the leading InsurTechs, we know what it takes to empower your customers.

Deliver on-demand protection with tailored usage-based Insurance with Trigent

Author

  • Abishek Bhat

    Abishek Bhat is the Vice President of Business Development at Trigent Software. He enables businesses to adopt strategic outsourcing to make their processes and workforce more productive and improve ROI. A passionate advocate of digital transformation, he guides organizations on their journey towards digital maturity and excellence with a keen focus on QA.



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Revolutionizing Auto Insurance: How InsurTechs are Lowering Auto Insurance Costs with Usage-Based Policies