In our article Five steps for a simpler UBI transition plan we outlined how to plan for the future and to use UBI as the transition mechanic to ready your business for the inevitable future of motor insurance.
There will, of course, be barriers to doing this around cost, resource, time and understanding yet these can be addressed. Being prepared for these challenges is essential if any plan is to succeed - critically, success may be dependent on demonstrating to the whole business the immediate, mid and long term benefits of the transition to UBI and beyond.
Here are the main challenges, what insurers can do in order to overcome them and the key ROI benefits:
Challenge one: Cultural resistance
Understanding around UBI is still in its nascent stage, especially when it comes to integrating it as a key pillar of operations. To counter this, insurers must build a robust business plan that clearly sets out a path to adoption while debunking myths and misunderstanding around the move to telematics.
Challenge two: Technology integration
Also insurers operate small margins so not all have large budgets for new technology. Additionally, continued profits from existing business on legacy systems means they do not want to disturb those customers. But insurers can deliver pay-by-mile policies without having to overhaul legacy technology. It’s not a case of rip and replace to try and keep up with digital native upstarts but simply adding on simple and intelligent tools to an existing tech stack.
Challenge three: Speed of deployment and time to market
There is an understandable reluctance to adopt a move to UBI based on a perception of time and impact to operations, that it will take too long to integrate, too long to deliver and too long to pay back. This is a misconception. When it comes to adopting and delivering UBI, insurers can go from start to finish in around 12 weeks because there are specialist technology partners that can be parachuted in, in order to do the leg work.
Challenge four: Cost and commercial models
Adopting UBI means redrawing the lines internally too - in terms of how the business is financially held to account and what constitutes success. But business leaders all want to see revenue up, and costs down which is why UBI is such a critical tool because it quickly delivers improved financial results, based on lower acquisition costs and better customer retention.
ROI for UBI
When it comes to return on investment, UBI can deliver some amazing results for insurers in both the short and long term. We know from experience, our customers have seen the following impact:
The cost of acquisition across the divergent social groups will become cheaper and retention higher. As a result creating a new pool of capital that can be invested elsewhere in the business
Early indications from E&Y suggest an effective solution has the potential to reduce claims cost by 40%, reduce policy administration by 50%, substantially reduce acquisition cost and price policies more effectively.
2. Increase revenue
The customers you have will be more loyal and likely to spend with you as a result rather than moving to another insurer.
By Bits research found 62% of drivers think they’ll drive less in the next five years compared with the previous five, while 87% of insurers' customers have tried to cancel policies due to drastically reduced mileage.
3. Attract and retain customers more easily
UBI products means insurers offer fairer and more honest insurance prices. It’s a method consumers can easily understand and therefore engage with.
Our data also highlighted a 31% increase in customers considering pay-by-mile over a six month period (Feb-Sept 2020) with a potential 80% retention on renewal from UBI policies (compared with 50-60% UK market average). Indeed, the average retention rate on a UBI policy is five years.
4. Be fairer
A ‘one size fits all’ insurance policy is seen as unfair. UBI is an opportunity to buck the industry trend and be known as the insurer that is on the side of the customer - there are not many around who can claim that and you will be rewarded as a result.
Our own research conducted in early 2021 found that 85% of insurers think that UBI will become the industry standard in the next five years. It also highlighted that nearly all (97%) of motor insurers reported that customers wanted fairer usage-based pricing during lockdown with three quarters (75%) of motor insurers claiming that increasing levels of customer satisfaction is now a critical priority.
5. Environmental improvements
The combination of improved technology, societal acceptance and a desire by all parties to improve our environment, air quality and roads means its mainstream adoption is a case of ‘when’, not ‘if’ and applications can be both vast and positive. For example, UBI can be used in everything from encouraging users to drive less, or at different times of the day, to helping businesses evaluate the level of emissions their fleets produce and make decisions that would allow them to reduce their carbon footprint.
Something like CityMapper is a great example. Collecting vehicle usage data will have a global value of $3556m by 2026, this is according to research by Valuates Reports.
Insurers are not looking to the future and they should be. The industry is still spending too much time and resource on modelling and pricing for ‘the now’, and not ‘the tomorrow’.
The ability to engage now, make a quick decision and learn outweighs the risk associated with the unknown. Procrastination and worse, wilful ignorance, will cause insurers to fail. Driver’s circumstances vary hugely and personalised insurance policies are seen as the answer to addressing those differences. Where once this just wasn’t possible, today’s technology means that greater personalisation is within the grasp of insurers.
We’re here to help you build your transition timetable and guide you through the path to UBI adoption.
For more information, visit www.bybits.co.uk or contact the team on:
+44 (0)20 4532 0010
2-14 Shortlands, London, W6 8DJ