The Changing Face of Auto Insurance: Telematics and UBI

Many experienced professionals in the insurance industry may be feeling overwhelmed by changes that are making some traditional products seem barely recognizable.

Auto insurance is one of the most obvious examples: This staple of the industry will soon be changing dramatically and rapidly as new tools such as telematics come into play to help assess risk, creating new sales strategies like pay-as-you-go and usage-based insurance (UBI).

How can agents best keep up with trends in auto, and then convey that knowledge to their policyholders and prospects to sell coverage that fits into this new environment?

The New Normal

Telematics devices can either be part of the original manufacturing process or added to a vehicle after-market. These devices measure and track driver behavior such as miles driven, time of day the vehicle is driven and where, hard braking, acceleration and air bag usage, among other things, according to recent research by the Center for Insurance Policy and Research at the National Association of Insurance Commissioners (NAIC).

The NAIC also found that, although the technology was developed more than a decade ago, new advancements have improved “the effectiveness and cost of using telematics”—resulting in more usage-based types of insurance products reaching the market in recent years.

Telematics devices provide insights into driver behavior that insurers have never had before. By monitoring driver behavior in real time, they can analyze and rate risk with much greater accuracy. And for consumers, UBI policies are beneficial not only because they can lower rates, but also because they can create safer driving habits.

In a 2017 survey by Willis Tower Watson, 13% of those polled had an insurance policy using telematics at some point. More than 80% of those individuals rated their experience with telematics positively, and 76% reported that having a policy based on telematics changed the way they drive. Only 7% disagreed that UBI is a better way to calculate insurance premiums.

Those surveyed by Willis Towers Watson reported they liked monitoring their children’s phone usage while driving and being notified immediately if their child’s vehicle was in an accident. Policyholders also enjoyed theft tracking and breakdown notification, as well as rewards and vouchers for using the systems.

Although not everyone is or will be on board with allowing their insurance company to monitor their driving behavior, the trend is catching on, particularly among millennials. In its survey, Willis Towers Watson found that 81% of those polled would be willing to share their driving data. While global UBI market penetration is currently less than 1%, market penetration in Europe, Asia and America is expected to reach 15% by 2020, according to EY.

The Agent’s Role

Independent agents are in a unique position to win market share as these technological advancements and corresponding new products hit the market. Working with multiple carriers, they can offer competitive rates on new technologies and UBI products offered by those insurers

In order to best take advantage of the opportunity that new technologies and products provide, agents need to educate themselves about their clients’ preferences in relation to insurance. Some clients are more traditional in the insurance products and services they prefer, while others, particularly millennials and city dwellers, are looking for something new that might better suit their urban lifestyles.

Once agents develop have an understanding of these technologies and insurance trends, they must let their policyholders and prospects know through marketing efforts—a traditional mailer, social media postings, website information or networking at community events. This is an important part of staying ahead of the curve and showing others how you approach a changing market.

For the independent agent who keeps up with it, technology presents a tremendous opportunity to offer policyholders new products and services. If agents are concerned that technology might diminish their market share in the auto space in the future, the safest way to protect their business is to diversify.

Diversifying your client and product bases is key to sustained profitability. Successful independent agencies strive to have a client roster that includes young people, families, retirees, small business owners and more. At the same time, they provide a variety of products and services to these clients beyond auto and homeowners, such as life insurance, small commercial and small group benefits.

Regardless of what the future holds for the independent agent, one of the best ways to keep an agency operating successfully is to stay informed.

Matt Masiello is CEO of the Strategic Insurance Agency Alliance and SAN Group.