Robert Passmore has been waiting for usage-based insurance and “telematics” to have their moment in auto coverage for 15 years.
“It’s always predicted that the big boom is coming right around the corner,” said the assistant vice president of personal lines at the American Property Casualty Insurance Association, referring to telematics, the technology used by insurers to measure driving behavior, or innovations like per-mile insurance. “But we never quite got there.”
That may be changing, thanks to shifting consumer needs and driving habits that are partly due to the pandemic.
According to Passmore, COVID-19 has brought with it disruptions to the normally staid auto insurance sector. Chief among the disruptors are insurtech — that’s short for insurance technology — firms, which are rethinking coverage and putting a new spin on old concepts.
Usage-based insurance, in which rates are dependent on miles driven, and telematics have been around for more than two decades, Passmore said. As early as 1998, Progressive Corp. offered consumers a telematics program that used GPS to measure mileage, rewarding safe drivers with lower premiums.
Allstate Corp. and other major insurers followed in subsequent years, but concerns about privacy and data security persisted, he said. Until recently, buy-in remained low.
“When we so abruptly had a dramatic reduction in miles traveled, companies had already been growing their usage-based insurance programs for a long time,” Passmore said. “But there was a lot more interest from consumers during the pandemic because the amount of miles driven plunged.”
According to a 2018 report from the consulting firm Global Market Insights Co., the usage-based insurance market was projected to grow from $34 billion that year to $107 billion by 2024.
A 2021 survey from J.D. Power and Associates found that a significant number of respondents expected to drive less in the future and roughly one-third said they would consider telematics. Sixteen percent said they already had telematics-based plans, which is double the volume seen five years ago and the largest year-over-year increase to date, according to the survey.
Some insurers have already capitalized on changing appetites in the marketplace.
Root Insurance Co., an Ohio-based insurtech firm founded in 2015, says it was one of the first insurers with a technology-first business model to offer telematics-based auto insurance. Since its founding, Root has grown its customer base significantly and raised $742.2 million in a 2020 initial public offering, even as the company’s revenue dipped during the pandemic.
The list of insurtechs that are trying to simplify and modernize the auto insurance industry is growing.
VOOM Insurance is one. The Israel-based company, founded in 2016, first operated as a “new mobility” insurer, offering coverage for high-risk, episodic-use vehicles like e-scooters, drones and small planes. In August, VOOM launched one of the first per-mile motorcycle plans in the U.S. Rates are predominantly based on monthly odometer snapshots that policyholders submit through the company’s website.
Tomer Kashi, co-founder and CEO of VOOM, said the new plan has been met with enthusiasm from customers who wished the option had been available sooner.
“I do think there were already insurtechs in the world that have disrupted the way customers are engaging with companies — we are one of those,” Kashi said in an interview. “It feels like auto insurance is very ripe for innovation.”
Trend or passing fancy?
Some people are still hesitant to adopt the new technologies, even when it might be to their advantage.
“What we have found is there’s definitely innovation around the edges on various types of motor insurance,” Sam Friedman, a research leader specializing in insurance at Deloitte, said. “But for the most part, the market is still dominated by more traditional types of insurance.”
In a policy paper issued in May, the Consumer Federation of America noted the promise of telematics and usage-based insurance but said more transparency was needed from insurers about what data is being collected and how it will be used. The group expressed fears that without adequate regulation, systemic biases like increased rates for people who drive predominantly at night, could emerge from telematic data.
In 2020, Deloitte released the results of a survey in which it asked consumers to respond to different types of insurance concepts, including usage-based insurance. What researchers found surprised them: The majority of participants were fairly conservative and showed preference for older, legacy insurance policies.
“A lot of that I think is just inertia,” Friedman said. “The less you have to think about any type of insurance, the better.”
But that wasn’t true across the board. Younger participants in particular expressed interest in policies in which usage or driver behavior is factored into risk assessment. They also tend to be drawn more to a streamlined user experience, whether online or on their phone.
“As digital natives, it’s our bread and butter to create a delightful user experience and also to have the ability to understand how customers are interacting with our product and to change things fast,” Kashi, of VOOM Insurance, said.
This is true in sales as well as the claims process. Increasingly during the pandemic, legacy insurers and insurtechs have developed technology to expedite and digitize requests for coverage. But many newer companies still need to establish a record of taking care of customers.
“Some of the more advanced insurtechs are definitely pushing the envelope on streamlining the process, and insurers are going to be following their lead,” Friedman said. “Ultimately, ease of purchase and price are very large factors going in, but where the rubber meets the road is going to be what happens when they need you. It comes down to, in a moment that matters, how good was the claims experience? Did they pay? Did they hold back and only give me a partial payment?”
The aversion to newer types of insurance may also have to do with the fact that a large number of policyholders qualify for discounts by bundling their auto insurance with other forms of protection, such as home or life. Unless newer insurance providers, like the VOOMs of the world, are able to expand and offer insurance across multiple sectors, they may struggle to pull a large segment of the market away from legacy providers, Friedman said.
And while convenience is a high priority for younger consumers, insurers are questioning whether it will remain important into the group’s 30s or 40s. For a single person in her 20s who may only need renters and auto insurance, the prospect of an on-demand insurance app may be appealing. For that same person in her 40s, with a family and a mortgage, it may be preferable to find an insurer with an option to bundle life, home and auto insurance.
“What we wonder going forward is, do you age out in this?” Friedman said. “Or is this really the start of a trend?”