Mileage-based programs are seeing a resurgence. New developments in mileage-based insurance telematics are giving insurers an additional edge while being on trend with what policyholders are looking for.
The transformative digital age has already disrupted many industries from car sharing to banking and more recently, insurance. The reality is that this digital shift is resulting in new and better solutions as well as new and better ways to do business. The net result is more value to the insurance consumer. Consequently, insurers know that in order to drive demand for insurance products that offer greater value, build trust with policyholders and provide rich, engaging experiences, it’s necessary to offer more personalized insurance programs and services to policyholders. Such programs that have seen tremendous reinvention and resurgence are mileage-based insurance telematics programs.
Mileage-based insurance programs are regaining traction with insurers who are looking not only to compete, but thrive in developing innovative insurance telematics offerings in a mature market. Mileage-based programs are often referred to as the Pay-As-You-Drive model, a model where policyholders pay based on how many miles they drive. These programs are of great interest to the $70 billion market comprised of 95 million people who have been identified as low mileage drivers. In the past, mileage programs simply collected data on a policyholders reported mileage. More personalization and new technology developments are now enabling these programs to vary greatly with respect to mileage context used, rate determination and billing model. As a result, they are quickly generating new interest as well as capturing market share. As an example, a policyholder can be charged a flat rate fee every month based on typical insurance costing factors plus an additional fee per mile driven, up to a certain number of miles after which point they may not be charged. Alternatively, they can pay for insurance by purchasing blocks of miles, similar to how consumers pay for prepaid cellphone fees.
Pay-per-mile programs offer auto insurers a number of benefits – they are quick to implement, offer more transparency and provide policyholders with options for insurance that meet their lifestyle needs and values. What is more, they also help increase policyholder retention and encourage safer driving through behavior based coaching. In fact, research shows that telematics programs overall increase policyholder retention by 18 percent - 20 percent through regular engagement and driving feedback. In addition, in the case of certain mileage-based programs, policyholders can immediately enjoy what is known as an introductory discount of 5 to 10 percent just for signing up which applies until the incoming data is used to calculate the discount for the policy renewal. In the case of a renewal, the savings can be as much as 30 to 50 percent if they drive infrequently, or at low mileage levels. This can translate to average savings upwards of $500 per year.
Furthermore, value-added services such as driver behavior coaching, roadside assistance, theft tracking and telematics-driven claims in particular, extend the benefits and opportunities for interacting with mileage-based policyholders. Encouraging safer driving behavior lowers the frequency and severity of accidents and claims which means safer policyholders and savings for the insurer.
The Emerge of the On-Demand Economy is Driving Interest in New Mileage-Based Programs
While a pay-per-mile program may seem only of interest to low mileage older drivers, age groups such as millennials are also the target demographics driving the increased demand for mileage-based programs. This is because of a shift to an on-demand economy where services are increasingly on an on-demand basis as in the case of TV programs, ride sharing and cellphone data usage. In fact, the on-demand economy has grown to 22.4 million consumers annually, worth $57.6 billion in spending.
Given this information, it’s no surprise that insurers are already re-thinking their insurance program portfolio and adding new mileage-based insurance programs as available offerings to their book of business. For example, Amica Mutual Insurance Co., a top 25 automotive insurer in the United States, announced just last year the introduction of such a pay-per-mile program called FlexMile which allows policyholders to purchase a set number of miles upfront and lock in a rate good for up to 2.7 years. By doing so, they are able to offer flexible, personalized and innovative programs that deliver unique and engaging experiences demanded by policyholders, which also help better control claims ratios and costs for the insurer.
Staying Competitive With the Latest in Mileage-Based Insurance Telematics Programs
Below is a breakdown of the different pricing structures that can be implemented in a mileage-based insurance telematics program, starting with a traditional “Basic Rate” pricing structure, followed by a “Personalized Rate” and finally, a more comprehensive “Variable Mileage Rate”:
In addition to the flexibility and personalization around pricing structures available, a variety of billing options also exist ranging from a traditional “Prepaid Mileage” plan to “Post-paid Recurring Billing” and finally, “Post-paid Ad-hoc Billing”. Here is a detailed breakdown:
Given the flexibility when it comes to pricing and billing structures, along with their proven capability to provide a richer experience to policyholders and as a result, attract and retain them, it’s no surprise why new mileage-based insurance telematics programs are ideal programs for insurers looking to drive more ARPU from their existing book of business and attract new consumers by offering what they are looking for in this new world of on-demand needs.