Changing the Insurance Outlook for Young Drivers

With less than a month to go until our Creative Disruption Symposium in New York on 13^th September 2012, the Celent team are working hard on pulling together some great content. The agenda and speakers have been confirmed, and hopefully we’ve got the technology lined up to add in a bit of audience participation for fun.

On Monday, I spent a great day with one of the new breed of telematics insurers in the UK that base their model on ‘Pay How You Drive’, called ingenie.  We’ll be featuring them at our symposium in a video. What amazed me about this start-up was the passion and energy not just around delivering the insurance product through new technology, but also the desire to change the driving behaviour of young 17- to 25-year-old drivers. This passion extends to bringing new disciplines into the risk pricing equation, such as behavioral science to understand young drivers’ attitude to risk and also top-end driving science through a partnership that they have developed with the Formula 1 Williams team.  Based upon their discoveries, they have added ~300 algorithms into the risk selection and pricing equation. 

They also use the same information to feedback driving performance to young drivers in a way that they want to receive it, via a combination of a mobile app and push notifications. There’s no point in pushing the data out to a traditional browser-based portal as that’s no longer how 17-25 year olds want to interact with technology. The goal of this model is to influence behaviour in order to reduce the total claims cost, build a long-term affinity with the young driver, and in doing so deliver a stable return.

For years, the traditional UK auto insurance industry has dismissed young drivers as virtually uninsurable, backed up a claims experience that’s hard to argue against. And it’s no surprise that this is the response when you consider that the traditional model has delivered an above-100 percent COR for entire UK auto insurance market over many years. In 2011 alone, which was considered to be an improvement on prior years, the industry made an operating loss of £600m ($960m). 

Through changing the model to focus on adapting driving behaviours and in doing so reducing the frequency and cost of claims, telematics is enabling new entrants to target this underserved market using a viable alternative capable of outperforming the industry incumbents. As a result, it’s no surprise that many of the insurers that we speak to in the UK are seriously looking at how (or even if) they should respond.   

To us, this is a great example of Creative Disruption in Action and one that we will be covering in more detail at the Symposium. There’s still time to register here.

Finally, whether you are able to attend our Symposium or not, why not help us prepare by taking five minutes to complete our survey on Creative Disruption within Insurance. Click here to participate.  Thank you.

This blog has been reprinted with permission from Celent.

Jamie Macgregor is a senior analyst in Celent's insurance practice, and can be reached at jmacgregor@celent.com.

The opinions posted in this blog do not necessarily reflect those of Insurance Networking News or SourceMedia.