Research from By Bits has found that the motor insurance industry is heading towards usage-based pricing models, with 91% of insurers regarding it as a positive change for the industry. Many insurers are now embracing the new normal, which sees many employees working from home for the majority of the week, with occasional commuter trips. That leaves many consumers wondering if the old fully comp plus commuting/business cover is really worth it.
The research, conducted by Insight Avenue in January and February 2021, found that 84% of insurers believe this shift represents an opportunity for their organisations. Indeed, more than two thirds (68%) of insurers predict that pay-by-mile motor insurance will become standard within the next four years.
As the FCA ruling on price-walking and consumer loyalty rewards also looks set to put pressure on the traditional comparison website selling of motor policies, maybe a new, more flexible approach based on actual driver data, not occupations or marital status, is needed?
The research is the subject of a new report, ‘A customer-first future for motor insurance’, which examines the changing relationship between motor insurance and the drivers it serves. It found that 81% of insurers believe that offering pay-by-mile insurance pricing will improve their image to customers, while 78% feel that it will provide a platform for more ongoing and meaningful engagement with customers.
The report also found that, for almost all (97%) motor insurers, customers have been calling for fairer pricing based on usage or mileage during lockdown while 87% claim that customers have tried to cancel policies due to drastically reduced mileage. This is supported by the findings of separate consumer research, conducted by By Bits in parallel with the research among insurers, which highlighted that 62% of drivers think they will drive less over the next five years than they did in the previous five years.
“The message from the research is loud and clear – there is a real opportunity for insurers to differentiate in the market by offering great experiences and fairer, transparent pricing”, said Callum Rimmer, founder, By Bits. “By focusing on what the customer is clearly asking for, insurers will see commercial benefits through improved retention and customer lifetime value while simultaneously extricating themselves from the race to the bottom on pricing.”
The research found that one of the biggest challenges preventing the industry from meeting evolving customer demands , is technology and digital transformation. It found that 32% of insurers are concerned that their existing software stack will be unable to support usage-based insurance products. Additionally, 80% of motor insurers say that delivering digital transformation has been a challenge over the past 12 months, and 79% state that keeping up with competitors offering usage-based policies has been problematic. This is a situation endorsed by the fact that only one fifth (20%) have made any changes to their motor insurance pricing models in the last 12 months.
Rimmer concluded, “While other segments of the financial services industry, such as retail banking, have embraced new business models and innovated, the same cannot be said of motor insurance. But the shift to usage-based insurance represents an opportunity to reset. It provides a platform for insurers to re-invent their go-to-market strategies and to make fundamental and necessary choices about how they serve customers in the future, not just in terms of fair and transparent pricing, but in delivering the open dialogue and engaging experiences that drivers are so desperately seeking.”