Insurance companies have much to gain from implementing usage-based programs (usage-based insurance). By having a more detailed picture of their customers’ habits and behaviors, insurers can minimize risk factors and make more reliable forecasts, reducing costs and improving business performance. More importantly, it’s because they are able to put the needs of policyholders at the center of their relationships.
Usage-based insurance (UBI) is based on the increasing data accuracy that is enabled by new technologies. The UBI model enables the development of a range of high value-added capabilities: from enhanced support for multichannel communications distribution and toward customer care processes, to the integration of new touch points into insurance marketing strategies. This is why usage-based policies are a major contributor to creating a new type of communication and designing memorable user experiences. That’s what we’ll focus on in this post.
What is usage-based insurance?
Usage-based insurance uses a device, such as a smartphone or telematic device, to track and measure an individual’s behavior in order to determine the insurance premium.
In recent years, more insurance companies have moved toward usage-based policies, which offer customers the ability to tailor coverage to their actual needs and pay only for what they need, when they need it. This new model, made possible by digital transformation and continued advances in insurance data analytics, is designed to meet the needs of customers seeking more personalized, flexible, and affordable service.
The benefits of usage-based insurance
Usage-based insurance has revolutionized the way consumers purchase insurance coverage. While the path to policy underwriting inevitably passed through a series of off-line encounters with agents or brokers (in-person appointments or phone calls), instead, UBI provides for multiple contact points and channels, most of which are virtual: customers can choose to purchase coverage via smartphone or other devices, via app or company website, depending on their availability and preferences.
With UBI, customers can purchase the policy instantly and tailor the coverage to their specific needs, without having to contact an agent, fill out stacks of forms, or provide the same information to different people each time, perhaps over the phone. Such a versatile and dynamic approach also allows people to purchase insurance when the asset they wish to protect is in use and at risk, for example while driving a car or attending an event, making the whole process more affordable and less time consuming. Among the many advantages of usage-based insurance, the main ones relate to flexibility, cost, and risk assessment. Let’s look at them one by one.
One of the main advantages of usage-based insurance is greater flexibility. Traditional insurance policies tend to be based on a one-size-fits-all approach, which does not give due consideration to differences between customer segments that, while they share some characteristics, nevertheless have irreducible profiles in many respects. UBI allows customers to pay for what they actually used or consumed either over a short period or on a pay-per-use basis. This greater flexibility means that policyholders pay only for the coverage they actually need, and do not have to incur costs that are almost certainly higher because they are provided for by a fixed scheme that tends to flatten out specifics.
Another benefit of usage-based insurance is lower costs. By allowing customers to pay according to actual consumption—and the premium is gradually adjusted over time based on behavior history—UBI is often cheaper than traditional insurance policies. The savings can be especially significant in the case of policyholders who do not use their coverage frequently or who only need coverage for a short period of time.
Usage-based policies make it possible to streamline, simplify, and speed up the traditionally slow, friction-laden, sometimes frustrating process of applying for and purchasing insurance: customers can quickly and easily apply for coverage online. This saves policyholders valuable time because they no longer have to travel to the branch, and on the insurance company side, operating and management costs decrease thanks to the switch from physical channels.
More accurate risk assessment
Usage-based insurance enables more accurate risk assessment because it is based on data collected and interpreted in real time. Incremental knowledge of customers’ habits is crucial in constantly updating risk profiles, developing proposals for cross-selling and upselling services and products, and setting up a relationship that is characterized by mutual listening and trust. By collecting data on how customers use a good or service, insurers are able to better understand the behavior of their policyholders, revise their initial assessments in a timely manner, and possibly modify premiums and coverages.
Each of these three capabilities—versatility, efficiency, improved decision making—contributes to creating a high-quality customer experience. But what are the goals that a UBI program should achieve to ensure the benefits we have discussed so far? And how do these benefits translate into increased value generated by the company and perceived by policyholders? We will elaborate on these points.
The goals of a User-based insurance program that works
In general, a UBI program works if it achieves two macro goals:
- Obtain increasingly accurate data
- Provide value-added features
Sharing constantly updated behavioral and contextual data enables features that increase policyholder engagement and loyalty. The quality of the perceived experience improves, directly impacting the productivity and profitability of the entire organization.
Data accuracy: turning information flow into revenue
While analysts predict that the global market for data monetization will grow from $2.3 billion in 2020 to $6.1 billion by 2025, integrating UBI programs into the digital application map (CRM, Trouble ticket, CDP, etc.) will enable insurance agencies to leverage the enormous amount of data produced and collected.
By investing in usage-based policies, the information obtained can be used to:
- maximize revenues by processing solutions that are in line with the trends and demands of each user
- implement more effective automation systems
- structure targeted communications to persuade existing customers to stay longer, and to renew and purchase new products and additional services.
By running artificial intelligence models and algorithms on data, companies can define unique and distinctive user profiles, which they rely on to produce innovative insurance products, create personalized pathways, and thus maximize revenues.
In this way, insurance companies transform data about their customers’ behavior into new revenue streams.
Value-added features: from multichannel to customer care
Usage-based insurance plays a strategic role not only in transforming the data management model and restructuring sales processes but also in developing corporate communications.
Above all, UBI makes it possible to develop value-added functionalities: the first concerns the distribution of communications across multiple channels and the design of new touch points; the second shifts the focus to the support offered to customer care services. Let’s go into detail.
Distribution of multichannel communications
While consumers are now very familiar with digital channels, they have also increased their expectations when purchasing insurance online. A seamless and consistent “multiple access” experience across all touch points is now the standard that all companies must strive to meet.
The bar has been raised even higher as insurtech companies enter the market. According to Market and Research, the global insurtech market is expected to reach $152.43 billion by 2030, registering a growth rate of 51.7% from 2022 to 2030. The key point to consider is that the unique selling proposition of these emerging and very fierce players is based on building digitally enhanced and therefore multichannel, fluid, and essentially frictionless customer experiences.
A distribution platform that enables multi-channel (digital channels, web properties, etc.) can prove incredibly effective in maximizing the reach of usage-based insurance.
That’s why every insurer will have no choice but to adopt a multi-access approach, a mode of communication that is much more open, inclusive, and articulate than traditional communication.
According to McKinsey, customers are demanding the multichannel distribution of communications. While insurance companies traditionally relied on agents and brokers to open and maintain the main channel of interaction with their customers, this approach has all but disappeared. Now, customers require multiple access points to interact with their insurers throughout the customer’s journey.
Creating new touch points along the insurance journey
To translate the concept of “multiple access” into reality, insurers need a more granular look at the entire consumer journey. They need to become aware of the fact that customers interact with their insurers across online and offline touch points and within different channels, before, during, and after purchasing a product. Engaging and retaining policyholders in this context of old and new touch points and multiple active channels requires a design effort. A true ecosystem needs to be structured in which to incorporate the different modes of interaction: from traditional, in-person and “offline” contact to telephone, online, mobile, and social media channels. The future of insurance—or rather, the fast-moving present—will be filled with omnichannel customer experiences, with seamless transitions between channels.
In a world where touch points have multiplied and traditional modes of interaction are increasingly becoming less central, opportunities to develop a relationship with customers must therefore be sought and exploited at any point in the customer’s journey, especially in onboarding processes.
Usage-based insurance initiatives are perfectly inscribed within this holistic view of the insurance journey and in fact pave the way for the enhancement and creation of a series of digital touch points at different moments of the funnel: from contract acquisition and dematerialization of the signature process (e.g., through electronic signature solutions), to the creation of personalized onboarding welcome videos or mini-sites (where all the steps to be taken to activate the supply are provided) to the preparation of fully digitized payment solutions (through API integration).
Supporting customer care processes and communication
Usage-based insurance has the potential to improve customer engagement by providing more detailed information. By keeping track of their consumption habits, customers will have the ability to make informed decisions about their insurance coverage. Agents and customer service agents, on the other hand, with access to a complete and up-to-date overview of the customer situation, will be able to intervene even more effectively to resolve any problems. In this sense, a UBI model that is immediately integrated with digital customer care processes becomes a key element in the end-to-end support system of the communication process.
By providing customers with real-time feedback, they are more likely to develop greater engagement with the brand and increased loyalty. A UBI model allows insurers to demonstrate their commitment to customers by proactively addressing riskier behaviors and offering customized coverage options. As a result, customers gain the perception that their insurer is actively working with them and for them and feel increasingly recognized and valued. In this sense, UBI can make an important contribution to creating a more meaningful relationship between insurers and consumers that is destined to last long into the future.
Creating memorable user experiences
While offering low prices continues to be an important marketing lever—it drives underwriting decisions for 64% of customers—offering discounts no longer guarantee policyholder loyalty.
Usage-based insurance offers a better customer experience because it makes it possible to build personalized policies that reflect an individual’s actual behavior. With digital technologies, insurers can offer their policyholders intuitive tools to make it easier to perform a range of tasks that until recently could not be completed independently or remotely.
The increased knowledge gained through the usage-based model also makes it possible to develop personalized quotes for an ever-growing audience, the profiled production of information and insights on policies and services, the multichannel distribution of customized content to guide the user to possible upselling and cross-selling actions, the transmission of omnichannel communications across multiple touch points, and the immediate receipt of feedback to be used to improve maintenance delivery and emergency assistance services.
In conclusion, usage-based insurance sets the stage for a new kind of communication that is direct, personalized, and engaging. Insurers can use the wealth of knowledge embedded in usage-based policies to develop more useful and relevant initiatives. Customers can take advantage of the new opportunities for contact and confrontation made possible by digital technologies to clarify their position, ask questions, make requests, underwrite proposals, and transact business. Only companies that are able to harness the potential of UBI programs will be able to offer exceptional experiences to their customers and see profitability and loyalty grow.