Telematics applications have emerged as game-changing technology for the auto insurance industry. But while the uptake of the technology has steadily increased worldwide, carriers are also seeing rapid drop-off rates from app users, according to one telematics expert.
Also known as fleet tracking, telematics allows users to plot the movement of cars, trucks, and other vehicles using satellite technology and on-board diagnostics, a computer system inside a vehicle that tracks and regulates its performance. Carriers leverage this technology to make informed decisions about a driver’s risk.
Drivers are initially lured to telematics-based insurance policies on the promise of cheaper premiums. But poor engagement on carriers’ apps is leading users to quickly lose interest, said Andrew Brown-Allan (pictured below), executive vice president, growth (EMEA) at Insurance & Mobility Solutions (IMS).
“Several major insurers within North America are seeing some quite alarming drop-off rates or a lack of consistency, where a very high percentage of users drop out of app interaction after the first 30 days,” he told Insurance Business.
“Insurers are investing big in creating these programs to have a tool that becomes impotent after the first 30 days, and it's a lost opportunity.”
Smartphone apps have become the primary method of capturing telematics data as global insurers race to go to market with more personalized approaches to auto insurance policies.
The global market for usage-based insurance (UBI) is expected to reach US$67.8 billion (£53.4 billion) by 2032, growing at an astounding rate (CAGR of 29.2%), according to research firm Specialty Insights.
“The app is the center of around 90% of enacted insurance propositions that we've helped take to market over the past couple of years, and certainly 90% of the inbound demand that we experience on a daily basis internationally,” Brown-Allan said.
IMS is a vehicle and driving data provider that works with around 350 firms worldwide, including mobility operators, insurers, and governments.
Leveraging the application to create real engagement was “absolutely correlated” with a lower road risk in an individual driver, Brown-Allan added.
“The more engaged they are, the more likely they are to be attentive to this safety score,” he said. “The more attentive they are of the safety score, particularly if there's something material in it for them to be safer and improve their score, the better their ultimate performance in loss terms, i.e., the lower their propensity to make a fault-based claim.”
At the same time, IMS has found aggregate safety scores on telematics apps to be a generally poor motivator for drivers.
IMS’ parent company, Trak Global Group, previously owned a UBI provider geared toward young UK drivers, called Carrot Insurance. The business was sold in 2021, but Brown-Allan said their learnings from Carrot helped inform IMS’ app engagement strategies.
“Through that period of 10 years, we found ourselves falling into the catchphrase of ‘scoring is boring,’” said Brown-Allan.
That’s because driver safety scores, which anchor most telematics insurance programs, eventually become static over time.
“If the center of your user interface is a list of journeys made, and the scores for each of those journeys contributing to an overall aggregate score, that’s really volatile when you first start using the app because the app doesn't know anything about you,” Brown-Allan said.
“One trip it could be bad or contain some examples of speeding, and therefore you have a low score. But the next journey might be great. So, your aggregate score has a lot of volatility.
“In a relatively small number of weeks, your score starts to stabilize, and once you realize that you're a seven out of 10, you recognize that your driving pattern doesn't change much week on week. There’s very little compulsion for you to go back into that app because it doesn't provide you with any new information. It remains very static, and I think a lot of the market is caught in that trap.”
Safety scoring also leads to self-selection among UBI users, in that safer drivers are more likely to gravitate towards the policies, while riskier drivers avoid them for fear of higher premiums.
“If you know you drive badly, then you’re probably not going to buy a telematics policy unless there’s a huge commercial incentive to do so,” Brown-Allan pointed out.
As the market for telematics and UBI policies grows, insurance companies need to create more differentiation between their apps to stay competitive. To keep users engaged, they must also take more control over user experience at both the interface and program level, according to IMS.
“We have a great opportunity to create a far stickier proposition and a far more secure relationship [with insureds] than a traditional non-telematics policy,” said Brown-Allan. “There are many, many more opportunities for touch points and interaction, but it's about making those interactions the right quality, in the right variety, with the right frequency.
“It’s about making sure that you're providing interventions and risk management information, promotions, and cross-sells that make the customer feel that they've bought into something that’s a truly connected insurance proposition, rather than just a static dashboard.”
Personalized coaching and content, as well as points schemes with retail partners, are powerful strategies for insurers to create engaging, rewarding experiences for their customers while improving their profitability.
“We certainly see that there's a strong connection between a spend on rewards and an incentive budget with a return on investment in terms of an improvement of loss ratio,” said Brown-Allan.
“You essentially pay someone to drive safer, but they have fewer claims, so your loss ratio improves, and your profitability and combined operating ratio improve.”
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