By Ryan McMahon

As our thinking starts to shift from how we handle the current crisis, to how we will prepare for our “new normal,” it’s imperative that we consider the impact on the future of risk and how it intersects with mobility.

We’re fortunate that from an insurance perspective, the industry has made substantial investments that have allowed the majority of carriers and agents to transition from the office environment to serve customers from home in such a rapid and seamless way. The same forward thinking also prepared insurers to understand and respond to this rapid change in mobility risk and meet consumer demand quickly.

Laying the groundwork

The most forward-thinking insurers began to invest in tools and technology that allowed them to assess and respond to changes in risk in real time. We saw this come to light as insurers were able to rapidly identify changes in driving behavior and process billions of dollars of premium refunds in the span of just a few weeks. Insurers did not need to wait for months of claims data to understand how the precursor of loss was changing, allowing them to quickly respond to consumer demands. How did they do it? Telematics.

Telematics quickly identifies changes in driving behavior on a national level, and that same technology provides feedback to drivers so the roads are safer for all. A wave of consumer interest in these programs was accelerating before the pandemic hit, and that has continued with steady increases in telematics program adoption over the course of the current crisis.

Just as insurers are using their current telematics data to identify trends and predict loss during stay-at-home orders, their economic impact has led to consumers reconsidering their options for auto insurance, driven by their desire to save money and gain more value from their policy. That value is transmitted through various telematics-based business models, including up-front and at the time of renewal.

How it works

Telematics technology helps carriers better understand policyholders and their risk profiles, as well as glean insights into regional and nationwide driving trends. However, the reason insurers are now motivated to offer telematics-based programs is, these programs have grown from simply measuring risk to reducing it. This is made possible by direct and immediate feedback to drivers via their smartphones, giving them insight on their driving behaviors and how they can improve. Because of these capabilities, insurers are in the lead position to help address distracted driving, one of the single largest causes of crashes on the roads today, according to CMT’s analysis.

This is particularly pertinent now due to COVID-19. With the changes spurred by stay-at-home orders, it’s no surprise traffic patterns throughout the U.S. have altered dramatically. Throughout the pandemic, we have seen multiple sources highlight the increase in roadway risk. With telematics, we know that those behaviors can be reduced.

In light of the current crisis, many people have transitioned to a more full-time work from home schedule. Coupled with the declining use of mass transportation, 93% of people say they are now using personal vehicles more. While this has led to automotive sales improving, there is still a large portion of the population paying premiums that cover their pre-pandemic driving behavior.

Connected insurance programs, built on data derived from telematics, are the most effective way to translate smartphone-based driving analysis into positive behavior on the roads. With these programs, drivers can ensure their premiums are based on actual driving. This is an improvement on traditional rating factors that approximate risk based on elements that are correlated to claims activity but not directly related to an individual’s driving behavior.

J.D. Power has highlighted how the economic uncertainty caused by COVID-19 has impacted drivers: 42% of drivers surveyed felt the worst economic impacts were yet to come, and 59% believe their average miles driven will remain lower post COVID-19. This dynamic has led to a marked increase in drivers adopting telematics as they see it as the perfect time for them to take advantage of the upfront discounts on their premium or regular cash-back rewards that are the cornerstones of most connected insurance programs. The immediate feedback will improve their driving, thus reducing their risk for insurers now, and when more drivers are back on the road post-pandemic. That’s why companies leveraging telematics-based programs now will be much better positioned post-COVID-19 – their books of business will feature safer drivers who are aware or risky driving habits and incentivized to improve in order to realize more discounts or rewards.

This effect is made possible through the ability to first measure risk, analyze it to determine what behaviors lead to crashes, and ultimately test multiple different strategies to build incentives that encourage drivers to change behavior. As more drivers see value in telematics, historical results indicate that this trend will have positive benefits on insurer financial results, but more importantly, on drivers and society as a whole.

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