Throughout the course of the pandemic, it’s safe to say that the car insurance industry has had to make a number of adjustments in order to adapt to the changing wants and needs of the consumer.
With a large proportion of the adult population working from home and restricted to essential travel only, car usage is predictably down on previous years. And while there’s the potential that many things will return to normality after the pandemic, car usage could prove to be an exception to this rule.
However, it’s important to note that this trend had appeared long before the Covid-19 pandemic, with the resulting lockdowns simply accelerating this trend.
According to the Department For Transport data over the past 10 years, there’s been a steady decline in car usage in the UK before plummeting in 2020. With this reduction in car usage, you’d expect the costs of car insurance to decline in tandem – but sadly, this has not been the case and customers are on average paying an extra 43% on their premiums.
With the recent pandemic shining a spotlight on this issue, the FCA intervened on several occasions throughout the course of 2020, requiring insurers to reassess their customers latest risk profile and offer them a more suitable product based on their usage. There were also calls for insurers to do more in regards to refunding customers for “unused”
If you take the decline in car usage coupled with the recent guidance from the Financial Conduct Authority, it’s obvious that change needs to happen, and it needs to happen quickly.
How is the traditional car insurance sector responding to these shifts?
While there is some innovation amongst traditional providers, some believe it’s not enough, given the huge changes in the way the UK is living, working and travelling.
The traditional model of car insurance relies on a customer estimating an annual mileage and their class of use as a key component in returning a quote. If the driver’s annual mileage drops by 5,000 over the course of the year or they no longer have to travel to work, then this is an obvious flaw when it comes to the pricing model.
That’s not to say that traditional providers haven’t been making adjustments to their strategy. Providers such as Admiral, LV and Direct Line have all undergone digital transformation projects and created products that are tailored towards “pay as you go” and “usage based” insurance.
For example, LV Flow is a relatively new product that provides subscription based car and renters insurance. Also, Admiral have created Veygo which is tailored towards learner drivers and consumers who want temporary cover.
But in general, these changes have happened recently “out and out” InsurTech firms that are making serious waves in the industry when it comes to usage based insurance.
How have InsurTech and “usage” based insurers adapted to the changing attitudes of consumers?
For many “out and out” usage based car insurance providers, the changing attitudes in insurance is nothing new and the pandemic has just accelerated their growth.
Their business model isn’t a “knee jerk” reaction to the pandemic – it’s been embedded in their business model since their conception.
InsurTech providers such as By Mles seek to address the flaws in the traditional pricing model found in car insurance by offering 100% “usage based” insurance – where the consumer pays a flat fee for when the car is parked and anything else on top is paid for by the mile. The driver’s miles are tracked through the use of a small telematics device, and visible through a mobile app – so the driver knows exactly how much they have to pay.
James Blackham, CEO of By Miles, also has the viewpoint that insurance “could be at the front line of incentivising positive behaviour change and reducing CO2 emissions, by actually financially rewarding people for driving less.”
Are usage based car insurers here to stay?
Without a doubt, usage based insurance is here to stay. It’s just a case of how and when it will be developed on a wider scale.
InsurTech providers have the upper hand at the moment with advanced technology and a growing loyal customer base, but over time the more traditional providers will have to catch up and adapt in order to survive.
Of course, there are caveats to understand too. Usage-based insurance is heavily reliant on cutting-edge technology and the use of a smartphone. If the technology isn’t exceptional, then the provider will struggle to perform in a growing market where the consumer expects absolute perfection.
There’s also a reliance on “telematics” which hasn’t taken off fully in the insurance industry. Historically, telematics has been catered for the “younger driver” and this will naturally take time for this attitude to change. There’s also a reluctance about sharing information about your driving habits directly with your insurer – which is a justified reason.
Over time, smartphones will continue to be the catalyst for further technological advancements in insurance. With mobile applications improving dramatically over the years, not only will technology be used to collect data about an individual’s driving behaviour, but also other useful information that can help keep them safe on the road or save money.
Mobile apps will only get stronger and engage consumers more than ever before which will drive them towards providers that offer them the best features.
In summary, the car insurance industry is being forced to adapt and under-go huge digital transformation projects to survive in a world that is built for the on-demand generation.
Consumers want to be treated fairly in regards to price and with the majority of drivers in the UK on the road less, it’s the Insurtech providers that are thriving in this new marketplace.
By Danny Butler, insurance specialist at finder.com