Take a look at these forces at work in the motor insurance markets in the Middle East and elsewhere in the world:
- Firstly, cars clocked fewer miles during the height of the pandemic last year, and this has prompted customers to seek premium reductions and other incentives for lower claims.
- The rise of climate awareness has prompted a younger generation of potential drivers to question car ownership and cost.
- Insurance aggregators are creating downward pressure on motor insurance premiums in many markets (the UK where 50% of the motor business comes through this channel, UAE, India & the US are notable examples)
- We can see that electric vehicle manufacturers such as Tesla are creating their in-house insurance programs.
Where does this leave Middle eastern motor insurance companies who rely on motor premiums to fund their working capital? The key is to study the data-value exchange that customers are happy with.
The way forward could lie in understanding customer needs closely. Today’s customers will not mind sharing data if insurers can give something valuable in return- this is the fundamental premise of usage-based insurance. Take a hint from the vast amount of data we are ready to part with social media networks. Let us take a step back to study the size and scope of the overall Telematics market.
An NTT Data report on the automotive sector revealed these startling (for me at least) statistics :
- $62.6B is the size of the global telematics solutions market predicted for 2025.
- Global telematics and IoT Telecom Services market is expected to expand at a CAGR of +43% over the forecast period 2020-2026.
- Telematics help in reducing 50% of the claim resolution time.
- In 2018, the loss ratio was 12% to 18% lower for the motorists using telematics than those who were not.
- Consumers showed 2.7 times more interest in telematics in mid-April of 2020
- Telematics portfolio showed 20% lower claims frequency than non-telematics portfolio utilization rates.
Translating to Customer Value Propositions:
One of the insurtechs enabling UBI is Cambridge Mobile Telematics (CMT). Interestingly, CMT received funding to the tune of $500M from Softbank in their last funding round. So what are the typical value propositions that an insurer can offer? CMT draws out these four variants of propositions:
This is a fundamental proposition under which the premium is a function of the mileage driven. The lower the miles, the lesser is the probability of an accident. Usually requires a device plugged into the vehicle or a smartphone app. Beema uses a variation of this in the UAE.
• Customer may be asked to pay at the beginning or at the end of the insurance period based on exactly how much they drive
•Customers may get extra benefits for not claiming
2. Behavior-based insurance with delayed gratification:
In this type of a product proposition, the insurance premium changes as per your driving behavior. Insurers can tweak this model based on when data is collected, when discounts are eligible to be paid, and how frequently feedback is provided to the driver.
• Customer may get a small discount upfront (5%) at the time of signup and a more considerable discount (max. 30%) at the time of renewal depending on their driving behavior. Percentages are as quoted in the report.
3. Behavior-based insurance with periodic cashback:
The distinction with this proposition is that drivers can receive incremental bits of premium repayment throughout the program in the form of a dividend based on usage based data and claims history.
• Customer may get a small discount upfront (5%) at the time of signup with a more significant discount (max. 20%) at renewal depending on their driving behavior
• Customers may get extra cashback monthly based on driving behavior (max. 15%)
4. Rewards-based insurance with positive nudges:
This proposition awards customers with non-cash rewards for safe driving. The idea is to drive loss mitigation and risk reduction. This insurance proposition is designed to lower claims frequency and severity by offering variable incremental benefits based on continuous engagement with the customer.
The added social advantage is that customers get pointers on safer driving, such as slowing down before a traffic light or avoiding hard acceleration or braking.
• Customers usually receive vouchers on monthly gas bills or vehicle servicing based on driving behavior (max 50% of premium value in the US)
• Customers may also get an additional discount at renewal based on driving behavior
Customer Research findings:
CMT conducted market research on US customers in early 2021, and a report published by them discusses their findings. (When asked about the type of value-adds that respondents wanted on top of their plain vanilla motor insurance)
- Over half of the respondents chose a "Rewards based on safe driving” as a value-added service to their insurance policy.
- Automatic roadside assistance was the second most popular service, picked by 36% of respondents.
- "Help with claims processing" (27%), bringing the whole category around claims services to a close third. An example of this could be a "Certified report in case of a crash" that you can use in the claims process-ideally generated by the smartphone app based on the accelerometer and crash data.
- Location-based services such as functionalities to find one's car or maintenance reminders (26%) were the close second category of services. Examples of this could be a ‘Car finder’ (find out where your car is parked), Car maintenance reminders, or localized weather information.
CMT research shows that younger customers are more likely to prefer a distance-based or behavior-based insurance program. The age group of 45 and above are more likely to prefer a behavior-based discount, presumably because they consider their driving habits to be better.
While the research was conducted in the US, it does offer valuable pointers for what the customer is thinking in other markets. At the very least, there is a need to talk to customers to understand how their needs have evolved. Translating these into the Middle eastern market like the UAE and KSA, we can get creative about value-adds that can make UBI even more attractive.
Value-adds that Forward-thinking Insurers could consider:
- Linkage to Alexa or Google Assistant for voice integration into your car,
- Contactless payment of parking /road-tolls /fuel station from account through integration with payment wallets
- Integration of other services (public transportation (Dubai Metro), ride-hailing like Careem, grocery delivery like Instashop, food delivery like Deliveroo)
Middle eastern insurance companies could adopt several of the above pointers to refresh their value propositions to their end customers. Insurers can use the power of mobile technology to think beyond the "usual" coverages.
Constantly lowering motor insurance premiums to attract customers in this highly competitive marketplace is not a fait accompli they must live with forever. As the research from the US shows, usage based insurance could illuminate the way forward.