More Americans want auto insurance pricing to be based on how they drive vs. what they drive and other factors, according to new research by Nationwide. But there are still a few speed bumps along the route to full acceptance of telematics-based insurance models.
- Two-thirds of drivers now say they’d let telematics devices track their driving in return for insurance discounts.
- The coronavirus pandemic has refocused consumer interest on insurance cost savings, helping fuel this trend.
- Yet nearly three-quarters of drivers don’t know what telematics is—and 40% of insurance agents don't feel informed enough about it themselves.
Do Discounts Trump Privacy Concerns?
When it comes to car insurance, they just might, according to Nationwide’s latest Agent Authority poll. Among the key findings:
- Drivers appear ready to give it a try: 65% of consumers say they’d allow a telematics device to capture their driving behavior if it meant getting a discount.
- There’s a big knowledge gap: Only 27% say they know what telematics is, and half of those polled (51%) think a lack of facts about the technology is the key barrier.
People need more education about how telematics works—and they’re receptive to getting it now, according to Teresa Scharn, vice president of personal lines product development at Nationwide. She points out that rising insurance costs are a prime concern for more than half (58%) of consumers. What’s more, she says, agents are seeing that even more dramatically, with 76% identifying rising costs as a top worry among customers.
“Insurance is typically viewed as a commodity, but customers want something they can control," Scharn told Independent Agent magazine.
Telematics devices installed in vehicles use GPS and on-board diagnostics to record and track driver behavior and car conditions, including time spent behind the wheel, time of day and on-road activity like braking, speed, and acceleration. These details are collected, analyzed, and used to more precisely price coverage.
Carriers offer different types of telematics options, including safe driving and pay-per-mile programs. But 67% of consumers say they’ve never talked about telematics with their agent, according to the survey.
COVID-19 Pandemic Accelerates Cost-Consciousness
One effect of the COVID-19 pandemic and accompanying economic slowdown appears to be an increased cost-consciousness on the part of insurance consumers. Notably, according to research cited by the Insurance Information Institute (III) from the mobility data and analytics firm Arity, the pandemic could be helping drive the trend in several ways:
- As driving decreased considerably this year, some insurers offered refunds to policyholders.
- Those rebates led customers to expect price reductions if they drove less.
- Overall, people are more price-conscious this year—and insurance is one area they’re scrutinizing to find savings.
“Private-passenger auto insurers returned around $14 billion in premiums this year to the nation’s drivers as miles driven dropped dramatically in the pandemic’s early months,” James Lynch, III's chief actuary, noted. The result? A 5% drop in auto insurance cost for the typical driver in 2020 compared to 2019.
That’s meaningful savings for financially sensitive insurance customers, who are craving better rates.
Navigating Obstacles Ahead
The Nationwide survey's findings suggest the opportunity for insurers is ripe—not only to expand reliance on telematics in setting prices, but also to entice drivers to take part in the programs through the lure of pricing discounts.
Nationwide, for instance, projects 70% or more of new business will come from such "usage-based" insurance programs by 2025, Scharn says.
Yet nagging perception issues remain: The Nationwide survey found that 40% of insurance agents don't feel knowledgeable enough to counsel clients on telematics. And privacy continues to give consumers pause: just over six in 10 (62%) say they have privacy concerns about the information telematics records and how insurers use it.
The Bottom Line
Usage-based insurance is gaining a significant consumer confidence boost, but there’s likely more work to be done to help overcome issues surrounding data privacy, pricing transparency, and potential benefits—for consumers and insurers alike.