Do consumers want to 'think' about insurance more often?
AI could provide another way to personalize insurance and provide cost savings for drivers.
The insurance community is in the midst of figuring out the future of distribution. Some say embedded insurance will be a key factor going forward, while others want to make insurance “more relevant” and get closer to the consumer, like McKinsey’s report that discusses “re-establishing their vital role in customers’ lives.” Some are taking the approach of heavily investing in the prevention side through the use of Internet of Things (IoT) devices or telematics, but do consumers want to think about insurance more often?
Many consumers are used to alerts on their vehicles for things such as low tire pressure, check engine and the number of miles until empty. More advanced vehicles are now tracking the useful life of your engine oil, how much wear exists on your brake pads, as well as informing you (and possibly even slowing your vehicle down) to hazards it detects in front of the car.
How smart is your car?
The logical next step from an insurer’s perspective would be to tie that data to your insurance premium. If you have several hard braking incidents, keep using oil past its useful life of 10,000 miles, and run your brake pads past their useful life, that would directly correlate to higher insurance premiums. Many vehicles already have multiple seat positions that are saved in their memory, so cars can report on whether dad, mom or a 16-year-old driver were driving, how many miles, and how well (or poorly) they drove during that time.
What if your vehicle sensors detect that one of your headlights doesn’t work? Functioning blinkers and lights are part of the annual inspection. If your vehicle is past its annual inspection date, then it will not let you drive until it gets an updated inspection. As these cars get smarter, do we want them to?
What if a car sits outside of a bar for five hours, say from 9 pm until 2 am? Should the car require the driver to take a breathalyzer before it allows that person to drive home? When we talk about real-time updates, if someone has a suspended license, what if that vehicle doesn’t let that person drive at all or only during whatever specific times the judge has granted?
What if a person doesn’t have a current auto insurance policy? Many folks in society argue that for the 95% of the population that maintain auto insurance, they support the idea that the 5% who don’t shouldn’t be driving. That would allow all uninsured motorist (UM) coverage to be nullified. Looking at our bill that would save $83 or less every six months. It’s combined with underinsured motorist coverage, so it’s not possible to determine without more transparency.
Smart data for smarter coverage
From a fraud perspective, simply correlating the vehicle information with the policyholder’s mobile phone is not very difficult anymore. How many people don’t have their phone on them at all times? So, if a policyholder is reporting an accident after the fact, tracking their phone location and usage helps determine whether the collision was staged or intentional.
With the addition of all this available data, it would allow states that have historically been no-fault states to amend their laws and allow for subrogation and litigation against the at-fault party. That would then allow policyholders to cancel their Personal Injury Protection (PIP) coverage on their policy, which equates to another $42 a year in savings.
However, the big money is in the coverage limits. Historically, many consumers simply purchase a sizable limits auto policy for security, such as a 100/300 or 300/500 policy. That comes with $250,000 in property damage liability available for each accident. Policyholders rarely calculate the replacement cost of their current vehicle or consider the other vehicle. A $250,000 policy would replace a brand-new Ford F150 and a 2016 Ferrari. What are the odds that you are going to crash into a Ferrari?
A more consumer-focused alternative would be to have about $80,000 in property damage coverage and then an excess policy for anything on top of that. Insurers have detailed information available regarding claims payouts and could provide an “average” of this type very easily to allow the actuaries to segregate a primary cover and an excess layer. This $250k coverage costs about $428/year, so it’s a significant portion of the annual insurance costs. The same concept applies to the bodily injury portion, as it costs about $464 per year for the 300/500 coverage.
Through education into better and safer driving habits and the use of this available data, consumers can take greater control over their insurance premiums. It would be great to see various tiers of “safe drivers,” the characteristics that are common for each of those groups, and the premium costs for those drivers.
For the consumers who want to take proactive steps to drive safer, update their monthly spending patterns to prioritize preventative maintenance, and be a good member of society by ensuring they are up-to-date on annual inspections and always have an in-force policy, they would be rewarded with lower premiums. Tying personal savings to better risk management is one way that consumers may be willing to think about insurance more often.
Timothy D. Christ, MBA is a well-known thought leader and speaker in the insurance industry, with over 20 years of experience in forensic engineering and claims investigations, including two published books. Much of his consulting work centers around the future of claims and the impacts of technology. He can be reached at timothydavid.christ@gmail.com.
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