It took the most extraordinary circumstances, but it appears as if auto insurance customers have fully embraced telematics, pushing insurers full steam ahead on a marketing strategy they have been desperate to see take flight.
Telematics had always been a divisive topic among insurance customers. Using either a device that plugs into a vehicle’s onboard diagnostic port (OBD-II) or a mobile-based app, telematics tracks a driver’s mileage and driving habits. In return, a customer is offered discounts for lower utilization or safe driving. For many customers—for many years—that wasn’t a tradeoff that they could justify.
Whether it was allure of an occasional high-speed cruise on an open road or the specter of Big Brother monitoring their movements, customers were hesitant to fully embrace telematics. That was a point of frustration for insurers. Companies were not only eager to glean insights into valuable transit trends, but not having real-time data on their drivers made it harder to develop risk profiles. Without individual data, policies were written with broad strokes in which, for example, younger drivers are penalized for inexperience and older drivers are given the benefit of the doubt, whether their foot is made of lead or not. The result: Customers that constantly felt like they were overpaying, which created a high churn and huge turnover rate.
Then COVID-19 happened.
The Arrival of Incentive
In the spring of 2020, when states enacted widespread shelter-in-place orders, people found themselves gazing at their vehicle parked in their driveway or garage, but their bank statements were still feeling the hit of that monthly insurance payment. Some companies gave small rebates to make up for the lack of car travel, but by and large, premiums were stagnant despite the obvious lack of risk due to significantly reduced miles driven.
While most consumers weren’t quite thinking about the risk vs. cost equation, the stark disconnect between their lack of mobility and their unchanged insurance bill seemed to have acted as a catalyst for many to seek out new ways to get discounts that reflected their actual activity.
According to annual trends that we track as part of the J.D. Power Auto Insurance Study, consumer adoption of telematics had been sluggish, increasing only a percentage point or two each year. And even amid these modest gains, consumer interest in telematics has declined. Data privacy, premium discounts that weren’t guaranteed, and even the potential for rateincreases, all contributed to this lack of interest.
But as we tracked consumer interest and participation in telematics programs throughout the pandemic, the results started to show a significant departure from the previous trend. Our initial COVID-19 and Auto Insurance pulse survey in March 2020 mirrored consumer sentiment of just a month earlier, with 70% of auto insurance customers saying COVID-19 had no effect on their interest in telematics offerings. But, in the span of just two weeks, interest in telematics offerings shot up to an astounding 40%.
The Pool Expands
What changed in the pre- and post-COVID-19 telematics consumer adoption dynamic? Before the pandemic, carriers saw a relatively set pool of consumer interest. If the level of customers using telematics went up, interest quickly fell, suggesting that the pool of customers to pull from was static.
Today, that trend has very clearly been bucked, as levels of consumer interest and adoption are growing at the same time. And it seems clear that the pandemic was the catalyst. Nearly one year after the onset of the pandemic, not only has interest remain elevated, but adoption has increased two-fold.
The key remaining question is whether the increased interest will remain and for how long. An initial glance at the data shows that it could be for quite some time. Interestingly, telematics customers are significantly more satisfied with price, regardless of whether they receive a discount. That could potentially speak to customers feeling as though they’re gaining control over their monthly premium, exhausting every option to ensure their cost has been tailored to reflect their specific driving habits.
The Long Game
As telematics interest and adoption surges, carriers will have to find a way to convert this new captive audience. Those that signed up for a telematics program were more likely to have been economically affected by the pandemic and, as the world re-normalizes, presumably a large portion of those customers will recover as well.
If carriers want this pandemic-era boom to be more than just a short-term gain, they will need to find a way to continue to add value to these programs. After years of trying to draw eyeballs to telematics, insurers finally have customers’ attention. What they do with it will determine how long-lasting these hard-fought wins will ultimately be.
That will include some hard decisions about rate increases. Based on our research, customers that signed up for a telematics program over the last year were also more likely to have been economically impacted by COVID. Even a 5% increase in price for these consumers is apt to create a shopping/switching catalyst. If insurers want to keep the momentum earned among these hard won, more satisfied consumers, they will need to start thinking about telematics as a long-term investment rather than a short-term gain.
