The biggest missed opportunity for insurers not using driving behavior data in their pricing models is a failure to realize increased accuracy and granularity in their risk selection and pricing models, preventing them from targeting, selling and retaining better risks at a more sustainable price than they are today. (Adobe Stock)
A recent J.D. Power study suggests insurance-price shopping is on the rise. How might the rise in shopping impact insurer retention strategies?
More people shopping around for auto insurance is a clear sign that consumer behavior is shifting. In a market where buyers have the upper hand, loyalty isn’t something insurers can take for granted anymore. Customers are quicker to switch if they don’t feel like they’re getting real value. Insurers need to utilize both pricing and non-pricing related tools to maximize their competitiveness in a shopper’s market.
On the pricing side, insurers can gain a competitive edge by leveraging differentiated insights into customer risk profiles for both inbound shoppers and their current customers who are shopping the market. For customers participating in the insurer’s telematics program, the insurer has unique risk information not broadly reflected in price quotes from their competitors, allowing the insurer to better prioritize which customers should be a focus of retention strategies.
On the inbound shopping side (or even for current customers that haven’t participated in telematics with the insurer), on-demand driving behavior data is a powerful tool to maximize pricing competitiveness on the best risks and avoid adverse selection for worse-than-average risks shopping the market, even if those risks have a telematics-based price from their current insurer.
However, retention strategies today need to be about more than just offering a competitive price. By offering more flexible billing options, better customer communication, or even rewards for safe driving, insurers can build longer-term brand loyalty and prevent good risks from shopping in the first place. Insurers must focus on making the experience more personal, more transparent, and genuinely worthwhile for the consumer.
The bottom line is: In a shopper’s market, insurers need to use every tool available to translate competitive market conditions into an opportunity to gain market share, improve the risk profile of their book, and build strength through this market cycle.
What follows are some of the issues insurers should consider as consumer insurance shopping continues to rise.
How can driving data be used to build or reinforce trust with insurance customers?
Trust is a big deal, especially when people are making decisions about something as important as car insurance. What we’ve seen is that when insurers use driving data the right way, it can help build that trust.
For example, when drivers know their rates are based on how they actually drive, not just their age, credit score, or ZIP code, it feels fairer. And when insurers are upfront about how that data is being used, it builds confidence. Some insurers let drivers see their own driving scores or get feedback in real time, which helps people feel more in control.
It’s not just about collecting data; it’s about using it to build a more transparent and trustworthy relationship with the customer. When a carrier designs its program in the right way, it can empower consumers to take control of their pricing. If they commit to driving safer, they can count on their insurer to reward them with lower rates. That kind of transparency fosters deeper trust and long-term loyalty.
How does driving behavior data help insurers compete more broadly?
Driving behavior data gives insurers a real edge in a crowded market. It lets them move away from one-size-fits-all pricing and offer something more personalized. That’s a big deal when customers are looking for value and fairness, and it also enables an insurer to create favorable risk selection and avoid adverse selection by leveraging information their competitors may not have — both for current customers and consumers shopping the market.
It also opens the door to new customer segments. Maybe someone doesn’t have a long credit history or lives in an area that’s usually considered high-risk, but they’re a great driver. With driving data, insurers can justify offering them a better rate. That’s good for the customer and good for the business.
Plus, this kind of data can help insurers market more effectively. If you know who’s likely to benefit from a usage-based program as a safer driver, you can target those people directly and then use that data at quote to price them more competitively. It’s a smarter way to grow.
If drivers say they’re open to sharing driving data for a discount, what’s holding insurers back from tapping into this opportunity more broadly?
That’s the million-dollar question. A lot of drivers are open to sharing their data, especially if it means saving money. But not all insurers have jumped on board yet.
Some of it comes down to logistics. Collecting and analyzing driving data takes the right tools and systems, and not every company is set up for that. There are also concerns about how to explain these programs clearly to customers or how to handle situations where the data might be incomplete.
But the technology is there. Mobile apps, for example, make it easier than ever to gather driving data without needing extra hardware.We’re also seeing strong growth in driving data available on demand through telematics participation in non-insurance programs, which eliminates the need for an insurer to manage any internal program at all.
What’s really needed now is a shift in mindset - from seeing this as a challenge to seeing it as an opportunity. For insurers in this position, finding the right partner that can help them leverage this data across the entire shopping funnel, both offensively and defensively, can help remove the barrier to unlocking that value.
What is the biggest missed opportunity for insurers that aren’t yet using driving behavior data in their pricing models?
The biggest missed opportunity for insurers not using driving behavior data in their pricing models is a failure to realize increased accuracy and granularity in their risk selection and pricing models, preventing them from targeting, selling and retaining better risks at a more sustainable price than they are today. Driving data provides unique, proprietary insight into how customers actually drive, giving the insurer a competitive edge on the best risks and the ability to ensure profitability on worse than average risks, even when traditional proxies of risk might indicate otherwise.
Joel Pepera is director of Core Telematics at Arity.
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