In this first of two features, IE looks at PAYG car insurance which is becoming the default setting after Covid and endless lockdowns.As regards the UK car market, the old policy options of TPF&T, or Fully Comp, with optional commuting cover, don’t really cut it anymore for millions of drivers. So where are we heading and how can the industry build new PAYG products that will sell?
The New Kids On The Block
Usage-based or PAYG car cover has been on the backburner for a few years now. Early pioneers like Cuvva – founded in 2016 – or Metromile in the USA, blazed a lonely trail, although big insurers like Axa and Zurich took enough interest to form partnerships. In some ways, PAYG was seen as something of a bolt-on for brokers, MGAs and insurers. Then everything changed one year ago.
For the first time since World War Two, UK citizens were effectively placed under house arrest, with fines and physical arrest by the Police laid out in the Coronavirus Act. The result was that millions of cars remained parked and customers began to wonder on social media when they were getting a refund on part of their policy.
Car use dropped, but it did recover, as Steve Kerrigan from LexisNexis Risk Solutions notes;
“There was a drop of over 50% in number of trips per day and in distance driven per day during the first lockdown. While both measures recovered, they have never returned to normal levels.”
Rich Tomlinson, CEO at Percayso-Inform also noticed the sea-change in attitudes that looks like it’s here to stay;
“We’ve been seeing a gradual shift in personal use over the past couple of years, but the pandemic and changing working patterns now means that, in many cases, individuals may not need the car Monday to Friday as they once did.
Many may only want insurance just for the weekend or to cover longer drives where public transport doesn’t work for them. At the same time, we’ve seen the emergence of new niche insurers who operate in the gig economy space catering for the likes of Uber and Deliveroo drivers, who may only want specialist cover for when they are working in a week”
PAYG car insurance now seems like a great idea in the New Normal. By Miles says it saw a 75% increase in sales by May 2020. Liberty, Progressive, Allstate and more joined the PAYG party in the USA. In India, Policybazaar started selling usage-based policies in September 2020, with data gathered by a black box.
But telematics devices are kinda outdated. People prefer to share their smartphone data, or perhaps fit a USB stick into the lighter/power socket in the car. It’s cheaper, no waiting around for a technician to fit the gadget and generally more convenient. That’s really the whole point of PAYG cover – it should be unobtrusively built around your driving lifestyle, rather than offer a daily driving test with an exam score at the end of it.
How Does The Industry Build PAYG Better?
Sten Saar CEO at Zego once told IE magazine that `insurance should be a utility, like water, that you can switch on and off via a tap.’ That tap is the smartphone of course, but insurers and brokers need to be aware that voice search via Alexa, smart TVs or phones may one day replace browsing websites on a Samsung or iPhone.
But however consumers search for insurance, what they want is flexible insurance cover, on-demand. That cover may vary according to the trip; family holiday vs solo journey to workplace for example. So how can the insurer gather the correct data in order to quote within seconds?
Andre Symes at Genasys Technologies offers these insights;
“Insurers are going to have to get their head around how they can develop product solutions for the increasing demand for usage based insurance. The biggest stumbling block isn’t down to the design or underwriting, but the tools to deliver the product to the consumer. Unfortunately few have a tech stack that is able to deliver the nuts and bolts of a pay as you go type policy.
Most legacy platforms don’t have the ability to allow you to set the collection date or inception date on anything beyond a monthly or annual basis.
Usage based policies need a platform that can cope with policies paid daily, perhaps even on an hourly basis if we’re to take it to the ultimate level of a switch-on, switch-off proposition, and that is an incredibly difficult challenge to overcome. You can’t just go to the front end and apply whatever option of payment you like. It all feeds back into financial models, collections, month-end cycles and reports and the like.”
Gathering the right data is crucial then. But how? The smartphone can tell you most of the story as regards the main driver, assuming they always take it with them when they drive. But perhaps the new generation of connected cars offers a better way for insurers to accurately underwrite risk-per-journey?
Steve Kerrigan, from LexisNexis Risk Solutions, thinks the modern car is a useful data platform;
“PAYG insurance will really come into its own with the connected car, supporting usage-based insurance (UBI) without the operational issues associated with aftermarket devices.
The infrastructure has been created to make this possible in the form of a connected car data exchange that brings connected car data from the vehicle to insurers with consumer consent processes at its heart.
The power of connected car data in understanding risk means that, just like a telematics after-market policy today, driving behaviour will be an important measure of risk along with mileage and start/end location. Therefore, from a multi-driver policy perspective, this insight will be based on driving data from the vehicle regardless of which named driver is operating the car.”
That point about tracking the driver, rather than the vehicle is a crucial factor. Sure, the vehicle’s performance, salvage value, repair costs, insurance group etc all matter, but if PAYG is really going to replace traditional policies, then the accumulated layers of data generated by drivers over time, perhaps using several different vehicles, may well form the basis of a portable NCD score in the future. Maybe MCE could quote motorcycle insurance partly based on that rider’s car-driving history in a company, or private vehicle too?
Then there’s the data from ridesharing, cycling or using other hired/borrowed vehicles to consider, because that could be cross-matched, depending on customer consent at the point of use of course. Drivers who are navigating heavy traffic in different locations, using different modes of transport, may well be seen as a slightly higher risk than those who simply follow the same quiet suburban routes to local shops, schools or leisure facilities. It depends how you assess risk of course. But data, with decision-making powered by AI, is the key to understanding multi-strand risk, surely?
There are still lots of questions in the world of mobility insurance as the car market changes into something leisure based, rather than commuter based. In part two, IE will look at new mobility tech, the politics of car usage and road test a few apps to see how easy it is to bolt-on some commuter cover as and when its needed.
Stay mobile, stay tuned.