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Insurance Telematics – The Key to Client Retention

 

Usage-based Insurance (UBI) Programs Have Demonstrated Significantly Greater Levels of Customer Satisfaction Than Typical National Levels of Insurance Satisfaction

Customer attrition in the insurance industry can be steep, with sometimes more than 10 percent of the customers leaving each year to obtain what they initially believe to be a less expensive premium. Customarily, it costs, on average, five times more to acquire a customer than to retain an existing one. Because margins in the insurance industry are so thin, client retention is extremely important.

With UBI programs, insurers can lower the attrition rate by capitalizing on the investment that drivers have made in the program—demonstrating safe vehicle operation over a period of time to obtain better rates. Once they have lowered their rates in this manner, it is unlikely they will goto another insurer where they would have to prove themselves once again.

The Snapshot program, introduced by Progressive Insurance, incorporates a broad mix of data including both traditional and telematics data—to refine and sharpen segmentation and more accurately gauge risks.

In respect to retaining Snapshot customers, Progressive Insurance CEO Glenn Renwick said:

If we can get people to a rate that was reflective of their pure premium and perhaps lower than what the market would be able to recognize without the availability of that rating variable… why would I shift because I simply can’t find that rate or better anywhere else and that is certainly proving to be true.

The Snapshot approach has definite benefits in terms of client retention. Glenn Renwick continued:

For those that get a substantial discount, we’re seeing retention that can lift as much as 40%, and those numbers are not that shocking when you realize that you’ve probably taken someone to a price point in the marketplace that is simply not available at a new-for-new comparison.

Progressive indicates that it has reached its best predictability rates ever through the Snapshot plan, and, in turn, has been able to boost client retention at the first renewal and achieve higher levels of customer satisfaction, as shown in Figure 2.12 The Net Promoter Score measures customer loyalty by asking, “How likely is it that you would recommend [Company X] to a friend or colleague?” Results are gauged on a 0-to -100 scale.

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By design, usage-based insurance programs create a number of channels that improve communication, providing monthly, weekly, or even daily touch-points with the customer. These regular interactions can include incentives that reward loyalty and good driving behavior and also enhance overall customer relationship management.

Retaining families is another important aspect of customer loyalty and an area where telematics can improve on traditional insurance offerings. When younger family members reach driving age and are added to policies, this addition usually causes the family premium to rise sharply. This, in turn, can motivate families to shop around for a different insurance provider and sometimes take their entire portfolio of business to another company. Telematics can help effectively manage the risk of younger drivers through coaching, education, and communication—all of which encourage safer practices and help the insurer retain the entire family portfolio.

In terms of overall customer satisfaction, UBI programs have demonstrated significantly greater levels of customer satisfaction than typical national levels of insurance satisfaction. For example, in Canada, as highlighted by a 2015 J.D. Power Study, the average customer satisfaction is indexed at 750. However, when a UBI program is offered, that level jumps to 767. When UBI is not offered, the measure drops to 744. Valerie Monet, Director of the Insurance Practice at
J.D. Power noted:

While price is a primary reason to participate, the interactive nature of the product paves the way for more frequent communication with customers. Here, the insurer can educate customers on how their premium is calculated and simultaneously discuss how their driving habits may be affected by their rate.

 

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