Should I cancel my car insurance?
The COVID-19 virus has had a global impact for people and business alike. The insurance industry is no exception to the impact of the dramatic changes in people’s behavior and business disruption in this time of uncertainty. Insurance executives globally are seeing the same driving trends and the huge shift in customer expectations.
With people ordered to stay at home they drive less, and less time on the roads means less accidents. In some major markets there is an average reduction of 40-65% in driving with spikes of over 80%. Less driving means less accidents and we see that claims are down 85% (ValChoice). Unfortunately, open roads mean more speeding, up 40% (US market), and more severe accidents, up 15% (US market) so insurance is still needed.
Customers that aren’t driving don’t feel they are being treated fairly with no change to their monthly premiums or policy. This is a large group of disgruntled shoppers who have been pushing for discounts, rebates, delayed payments, or a better deal. For insurance companies the additional, and very real risk, is that a large majority won’t complain and won’t ask for anything, they just leave. Factor that in with a customer’s expectation that every company that they do business with should do something meaningful to help during a crisis and we have the potential for significant impact to the business.
In markets that did get cash back rebates, like the US and UK, people still left their insurance providers anyway. People were ultimately seeking help and wanting to have trust through transparency and flexibility. A JD Powers consumer study of over 4000 people showed that there was a 2x increase in customers cross shopping. The real data to learn from in the survey is the customer behavior. Customers feel that their driving habits will change post COVID-19 in some significant way. 50% of those drivers are now interested in the transparency, cost savings, and flexibility that telematics provides, like the Usage Based Insurance telematics program Pay As You Drive (PAYD).
What is the insurance industry’s best short term and long-term strategy to reduce churn, stay competitive, and provide a compelling offer?
The first option is to do nothing and wait it out. Unfortunately, the risk here is that consumers don’t find that response as helpful or fair since they pay the same as they did last month. This leaves the business open to risk from competitor offers.
The second option is to provide a short-term fix to keep customers, the easiest to implement and execute is a refund or discount. The amounts we’ve seen are 15-20% but can be adjusted as needed and returned to normal rates when driving behavior revert back to pre-COVID patterns. State Farm has refunded $2 billion dollars (USD) back to their auto insurance customers, and Allstate is providing $600 million dollars in refunds. Liberty Mutual, PEMCO, and Safeco are providing 15% of their premium back to customers. PEMPCO is providing the 15% discount to all 200,000 customers for 3 months. In France Maif has provided EUR 100 million to its customers. Mapfre in Brazil has donated € 3 million to support government and health organizations who are working on COVID-19 response and prevention. Mapfre, BB Seguros and Chubb in Brazil will pay indemnities in the event of death due to COVID-19. The insurance industry in Costa Rica removed their exclusions in their coverage related to pandemics. This is changing and evolving from day to day, you can see a good list global list of insurance responses at A2ii.org. Unfortunately, not everyone is happy with this nor does it fit everyone’s financial situation, those people will want more and feel they deserve more.
What is enough?
It isn’t only about money, it’s about the experience. By dismissing a request from a customer with no resolution or a less than ideal solution, they feel the experience was bad. This type of customer is 4 times more likely to leave to a competitor and to tell between 9-15 people about the experience. Those are just the ones that you hear from, for every complaint there are 26 more unhappy customers who will remain silent. For many people customers a 15% rebate isn’t a good customer experience. Their expectations are for something more helpful with many calling for a complete removal of monthly premiums and for the company to offer it without them having to ask for it. You don’t have to look far to see this opinion, social media is full of people voicing their concerns. The short-term risk is these customers leaving, along with sharing the experience online. The long-term risk is that they also cancel other insurance products that they have with your company and never come back.
What to do?
Develop a policy for people who have are not using their vehicles at all or who may need some assistance with delaying payments. For customers that are driving less but still need insurance technology can help here. Usage Based Insurance (PAYD) is an ideal solution, specifically policies based on a Pay As You Drive (PAYD) program and can have a savings of 30% for customers.
PAYD is a proven telematics insurance tool to benefit customers who use their vehicles infrequently or don’t drive far with a lower monthly premium. Driving telematics data give the insurance company a clear record of driving time so they can reduce risk. It can be used to help satisfy customers who want a reduction, but still need insurance, and to capture customers from competitors who aren’t offering a solution to their customers. When driving habits change the policy evolves for those needs as well. PAYD solves two problems at the same time: the insurance company’s risk is known and coverage is provided accordingly to match the risk, along with satisfying customers need for lower insurance premiums. It’s a win win.
To learn more about Pay As You Drive please visit the Scope Technology website.