Insurance companies predicate prices based on a wide variety of factors, including age, gender, credit score, driving record, and a plethora of other demographic and psychometric data. And, that data has been shown to be semi-accurate at identifying insurance risks broadly. But what if there was a way to determine the risk of each individual person — instead of wide groups of people?
In the increasingly competitive insurance market, finding ways to shift risk analysis from broad to personalized can help insurers create more detailed and accurate cost portfolios. But how do you customize insurance plans for each person, and why is it important?
Understanding Usage-based Insurance (UBI)
Imagine being able to distribute pools of resources to customers based on how they actually perform on the road. Their driving behaviors, speed, vehicle condition, location weather factors, and other types of personal data can help you discover a much more granular assessment of risk. This is Usage-based Insurance — a form of telematic insurance coverage.
By 2020, 70% of insurers will be leveraging telematics and UBI to create personalized insurance plans. The average Latin American takes over 3 car trips per day. Each of these trips presents an opportunity to understand their driving behaviors and leverage those behaviors to deliver hyper-personalized plans that help save them money without biting into your profits.
Let's look at some of the benefits of UBI for insurance companies looking to upgrade their risk infrastructure to meet modern consumer demands as well as the rise of data and predictive analytics.
3 Benefits of UBI for Insurers
While there are upfront costs of deploying a UBI model (including the data analytics, equipment, logistics, etc.,) the benefits of better risk analysis runs deep into your insurance business model and provides benefits such as:
1. Reducing Claim Costs
According to McKinsey, the profitability of insurance companies in today's harsh economic climate is barely above equity across-the-board. Finding ways to increase profitability by reducing claim costs is becoming a key competitive advantage.
UBI gives you the ability to create broad claim reduction by identifying risks person-by-person to deliver insurance costs that are amicable for both parties. This gives you the ability to enhance price models and create value-added services to position to customers based on behaviors — not guesswork.
2. Customer Personalization
Customers expect insurance companies to offer them convenience, support, and most of all, personalization. 91% of customers want brands to personalize their offers. And insurance companies that offer customers dynamic offers based on their behavioral and usage data stand to gain consumer trust.
Insurance should enable (not disable) the driving experience. UBI puts the power back in the consumers' hands. If they drive safely and effectively, their policy should reflect that. In traditional models, who they are dictates their rates — not how they drive. Flipping this script helps drive customer loyalty and value into insurers while giving policyholders the freedom to express risk by behavior, not demographics.
3. Reduce Costs for Low-risk Drivers
Simply put, UBI reduces the overall costs for low-risk drivers. This can be a major selling point for insurers looking to grab these drivers, which generally produce the highest overall profit for their company. At the same time, insurers will get more accurate rates out of high-risk drivers, helping them maintain costs and generate revenue above claim costs for risky customers.
It's a win-win scenario for insurers that allows them to focus on generating revenue with add-on services and customer service instead of spending all of their time on risk reduction.
Is Your Insurance Agency Ready to Drive Value With UBI?
At Location World, we're dedicated to bringing value to Latin insurers through powerful analytics, data gathering, and UBI resources. Are you ready to upgrade your Latin insurance agency with best-of-breed UBI capabilities? Contact us today.