The pandemic has triggered a notable uptick in usage-based insurance (UBI), and the auto segment has been working towards developing the best digital solutions to keep money in clients’ pockets.
When a client hears UBI, most do not understand the distinction between milage-based or behavioral-based policies or the benefits each program offers, according to Rory Joyce, general manager at Credit Karma Auto.
UBI only has around 5% market penetration but 85% of millennials say they’re open to these programs. “There’s a major gap but we’re uniquely positioned to accelerate in this market and fill that gap quickly,” Joyce added.
Consumers do not want to overpay for auto insurance, but many are leaning towards behavioral-based UBI models so they are not limited in the amount they can drive.
“Milage-based programs are impactful if you drive under 1,000 miles, but most Americans are within that 1,200 to 1,800 range so they wouldn’t see as much of an impact on their insurance savings,” Joyce explained.
As more driving data is collected, auto policy pricing will not be as generic as the industry has traditionally been. Meanwhile, from a carrier standpoint, UBI programs provide a great opportunity to have more segmentation and build consumer friendly products to retain business.
Credit Karma’s app is an example of the innovative technology that is helping to improve consumers’ credit and save money on their auto insurance.
“We look at credit scores, driving records and if a client has similar characteristics to someone who has a great driving record,” said Joyce. “UBI is a great way to level the playing field and it allows the industry to look at the cross section of people who have below average credit but are good drivers – it’s a huge market.
“What I get most excited about is the development of a good consumer product that hasn’t been prevalent for auto insurance. Not many clients understand why their credit is one of the main factors to their premium,” he emphasized. “Our surveys show that half of consumers don’t realize there is a correlation.”
Taking Uber as an example, Joyce said consumers love the transparency of timing, pricing and options for luxury services, and the same evolution needs to happen when it comes to UBI.
“Putting consumers in more control helps them understand what they’re paying for and why, [creating a more] straightforward approach to insurance,” he said. “We aim to remove any friction by offering fairness.”
Credit Karma launched Karma Drive at the end of 2020, stepping up to the plate and offering telematic programs that give consumers a clear understanding of their auto insurance options, pricing and, most importantly, savings.
“We spent the first six months working through how to collect data via a device that is plugged into our underwriting model. We needed to make sure its high quality and configures to our underlying technology,” said Joyce.
Joyce also noted that a trend to watch is an increase in 30-day trials of UBI programs before a purchase, so consumers can see the benefits and be excited about the value proposition of getting pre-qualified.
Joyce added: “As digitization becomes the default, there will be disruption as more players enter the space.”