Driving behavior data can determine personalized insurance policy rates and terms

Financial Services Writer

In the past, car insurance companies had little driving behavior data to use when determining customers' premiums. They relied on drivers' accident and ticket history, gender, educational background and age. Now, big data and insurance analytics technologies are giving insurance companies more insight into their customers than ever before, beyond these simple stereotypes. With the assistance of telematics, providers can collect data on clients' habits to determine premium rates and terms.

If insurance companies aren't using telematics already, now is the time to start. According to ABI Research, cited in a report by the National Association of Insurance Commissioners and the Center for Insurance Policy and Research, customers are increasingly willing to sign up for telematics programs. By 2018, 107 million customers globally will be telematics users. By 2020, insurers will earn $30 billion, or more than 25 percent of their premium revenue, from telematics insurance programs.

Car insurance companies need to utilize driving behavior data in order to stay competitive. Here are a few ways they can use the information gleaned from telematics programs as a strategic advantage.

Using driving behavior data to improve customer service insurance companies have specific data on individual policyholders, they can use that insurance business intelligence to improve their customer service. For example, if a driver always slows down when making turns, and that person has never even tapped another car while parallel parking, an insurer can reward the policyholder with special offers. This can increase customer loyalty and retention.

Alternatively, perhaps a customer keeps breaking down on the road but thinks insuring a new car would be too expensive. Insurance companies that receive telematics data pointing to car troubles can proactively inform the customer about better rates for clients with newer, safer cars. The customer would be happy with a new purchase, and the insurance company would benefit from insuring a less-risky automobile.

Telematics increases customer satisfaction

Customers may be hesitant to join telematics programs until they understand how they can benefit. "[Insurance companies] could say that there is a very strong correlation that if you drive less aggressively, then you will save money on fuel," said Gary Hallgren, senior vice president of corporate strategy at Telogis, in a recent interview with the IBM Big Data & Analytics Hub. "There has to be a value proposition."

After signing up for telematics programs, customers may be more satisfied with their car insurance carriers. According to a J.D. Power Insights case study of Progressive's Snapshot program, which incorporates insights gleaned from telematics to determine insurance rates, customer satisfaction was significantly higher among those who participated in the program. On a 1,000-point customer-satisfaction scale, Snapshot users rated their policy offerings at 815 points, while regular Progressive customers only rated their policies at 786 points.

Market to your customers more effectively with their data at your disposal

Insurance companies analyzing driving data can also better target their customers with cross-sell and upsell opportunities. The information delivered to the insurer can prompt a representative to reach out to the policyholder in a number of situations. For example, notification of an accident can prompt the company to call emergency services. If a policyholder crosses an international border or enters another area in which they are not covered, the insurer can reach out to offer an upsell for additional coverage during their trip. Customers that sit idle for several minutes in a coffee shop drive-thru every morning can receive information on the benefits of limiting their gas usage.

Always be transparent or risk customer dissatisfaction

Insurance companies must be completely transparent about what data they're collecting and how it's used. Customers should have the chance to log into the insurance companies' sites and look at their driving habits. With access to this information, they can see the truth about their driving firsthand, and they might change their habits in order to save money.

Telematics programs should be a win-win for insurance companies and their clients. Drivers should have the chance to participate, and the insurance companies must responsibly communicate to their customers the nature of the data collected. With this transparency, insurers and their clients can benefit. At the same time, drivers can look at their habits and make safer decisions on the road.

Learn how insurance analytics is enabling insurers to leverage data and analytics to create a customer-focused enterprise with the transparency and oversight necessary for success.