Personalized car insurance has unexpected effects on customers behaviors

A recent article in a French magazine sheds light on progresses made by insurance company Allianz in the field of personalized car insurance.
Like many other firms in the field, Allianz believes in the usefulness of telematic units (black boxes) to monitor drivers’ behaviors and better evaluate risks. 20000 customers of Allianz have already opted in France; a rather small number that reflects the risks perceived by customers (as for instance on the Norwegian market)

Is it really profitable for insurance companies ?

Two interesting insights are shared in this article.
The first one is the average discount on this type of contract : 15%. In other words drivers opting in (probably the most responsible drivers, hence the less risky and more profitable ones) currently get 15% off their bill.
The general manager of Axa Global Direct even mentions 21% as the average discount for his customers. Not unsurprisingly he also notes that Axa Global Direct makes cautious progresses and evaluated the profitability of this scheme.
What happens in reality is that the first customers attracted by such offers are those who have the least to fear from their own driving behaviors. Being already the least risky of all makes them more profitable than other customers ; when you give them a discount you obviously also cut on your profits.

These personalized pricing schemes will probably become profitable for insurance companies once they have been applied to everyone or when customers not willing to be traced accept to pay a premium.

New touchpoints with customers

Another very interesting insight regards the use customers make of their data. Allianz has made a mobile app available to its customers to follow their own driving behavior. This app gets consulted 10 times a month which is a amazing result. Whereas customers had in the past at best 2 contacts per year with their car insurer (one to renew their contract, and one maybe when they had an accident), they are now in touch a hundred times more often. This obviously gives birth to new opportunity to enhance customer loyalty and sell new products (hopefully insurance companies will find the right balance between increasing customer loyalty and spamming them with commercial offerings).

Conclusion

In short the personalized car insurance business is still in its very infancy and I don’t necessarily agree with Deloitte when they write that first-entrants will have a competitive advantage. There is still a lot of uncertainty around that business, about the predictive power of data collected, about the profitability of personalized pricing schemes. However first results show that insurance companies can increase dramatically the number of exposures to their clients (through mobile apps to monitor driving behaviors for instance) which opens the way to new exciting opportunity to reinvent their marketing.

By Pierre-Nicolas Schwab Pierre-Nicolas est Docteur en Marketing et dirige l'agence d'études de marché IntoTheMinds. Ses domaines de prédilection sont le BigData l'e-commerce, le commerce de proximité, l'HoReCa et la logistique. Il est également chercheur en marketing à l'Université Libre de Bruxelles et sert de coach et formateur à plusieurs organisations et institutions publiques. Il peut être contacté par email, Linkedin ou par téléphone (+32 486 42 79 42)