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Blog: Pay-as-you-buy insurance – a customer choice-based concept   

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Telematics has created an acceptance of data sharing that paves the way for insurers and their customers to access the benefits from open banking data, argues Sara Costantini, managing director of Crif Decision Solutions.

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Sara Costantini, managing director of Crif Decision Solutions

We are all familiar with the terms pay-as-you-drive and pay-how-you-drive linked to telematics motor insurance products, which are known as user-based insurance. Many acknowledge the concept revolutionised the industry, and telematics policies, which started out as niche products provided by specialist telematics insurers have since become a mainstream offer.  

Changes in mobility trends during the pandemic have further increased consumer demand for UBI and insurers are leveraging personalised behavioural data to enable more sophisticated and dynamic pricing.    

With telematics being first introduced in 2009 the target audience was young drivers who were struggling to get affordable motor insurance through standard policies. By agreeing to share their driving data with insurers through ‘a little black box,’ fitted in their vehicle as an aftermarket product, they were able to benefit from a significantly reduced premium. The telematics data enabled insurers to price their policies more competitively as they were able to accurately reflect the risk they were covering.   

Today’s telematics products have become increasingly sophisticated allowing insurers to offer dynamic, personalised pricing based on multiple criteria that may include vehicle location, driver behaviour, engine diagnostics and vehicle activity. And demand for usage-based motor insurance has increased with interest from older drivers adding to the uptake. The opportunity has been recognised by eager vehicle manufacturers which are now partnering with insurers to offer their customers usage-based insurance utilising the on-board connected vehicle systems to supply insurers with driving data.  

Motor insurance consumers were initially sceptical and concerned about sharing their driving data and historically there were numerous debates about who owned the data and what constituted permission to share the data, with for example the police in the event of an accident. However, once educated, reassured and experiencing the benefits of data sharing, those concerns have eased, as evidenced by the historical and projected growth of telematics policies. Today, more than a quarter (27%) of the five cheapest motor insurance quotes derive from telematics firms – the highest figure recorded by market research firm Consumer Intelligence since it started collecting this data in October 2013. 

The evolution of telematics has also led to insurers building more connected relationships with their policyholders through increased customer insight. Driving performance updates give insurers regular touchpoints with their customers, where previously communication would have likely been limited to a claim scenario or renewal.  And these communications are valued because customers know they directly correlate to the price they pay for their insurance cover. There are also new opportunities for insurers to market to their telematics policyholders using the customer understanding gained to add value through tailored offerings and ecosystem partnerships.     

Telematics has given customers confidence in sharing their data with insurers and an understanding of the benefits they gain.  This acceptance of data sharing paves the way for insurers and their customers to access the benefits from open banking data. 

Access to open banking data enables an insurer to better assess risk and differentiate their pricing, making it proportional to the information that a customer is able and willing to share. Offering the customer choice, as proven by the experience of the telematics market, represents a collaborative approach and reflects post pandemic customer sentiment.  This pay-as-you-buy concept is already available and ready to be harnessed and can be applied across both commercial and personal business lines by insurers, brokers and managing general agents. 

The European Union revised Payment Services Directive (PSD2) came into force in the UK in January 2018 and banks lost exclusive ownership of their customers’ payments data. Organisations with regulator permission – AISP Certification - can access the information and see the buying habits of account holders.  The process is regulated and subject to customer consent. The insight available can provide insurers the ability to give the customer, whether they are commercial or personal, a truly individual and tailored experience to include proactively anticipating their insurance needs, accurately assessing their risk and designing competitively priced cover that fits their requirements. Open banking data allows the customer experience to be prioritised, shifted to highly individual and customer or business centric, thereby encouraging the creation of an embedded, long term relationship.  Post-sale cover personalisation and tailored cross-selling becomes possible along with the ability to deliver improved claims management linked to specific customer knowledge.   

Open banking solutions already exist and like the arrival of telematics data back in 2009, open banking data will revolutionise the market.  The competitive advantage to be gained is ground-breaking and forward-thinking insurance providers are seizing the opportunity to educate and reassure customers by generating appetite for and confidence in the derived benefits from sharing their banking data.   

Based on the historical experience of the telematics market, the question is not if, but when will the pay-as-you-buy insurance concept become mainstream?  

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