Using risk rating in insurance customer acquisition

As auto insurers continue to move towards a more comprehensive understanding of our roads and their movement patterns, the race to acquire the safest, most cost-effective drivers is sparking new urgency and competition across the industry.

Advancements in telematics, shifting consumer trends, and rapid digitization across every aspect of life has made it easier than ever for the auto insurance industry to target low risk drivers and reward them with competitive, transparent rates.

As we look ahead and try to understand the technology and strategies powering this new era of auto insurance, it’s also important to understand how we got here and learn from the dysfunctional strategies of the past.

The Auto Insurance Industry of Yesterday
The insurance industry has spent years pivoting from solution to solution, looking for new, cost effective ways of acquiring the safest drivers. Whether it was local agents on the hunt for leads, traditional advertising ventures, or the latest digital marketing channels, all previous customer acquisition solutions have lacked the ability to target prospects based on their actual driving behavior, making it nearly impossible to optimize customer acquisition cost (CAC) and acquire the best drivers.

Similarly, the insurance industry has spent a lot of time trying to determine which lifestyle factors are the most predictive of a person’s on-the-road risk. Income proxies, like credit score, education level, occupation, and home address, have become industry standards for calculating risk and determining rates, but these approaches have led to years of inconsistent risk-assessment where CACs are rising for insurers and drivers are overpaying for their policy. These dated risk assessment strategies are also disproportionately impacting lower income drivers with higher rates, which is unsurprisingly being challenged by policymakers around the US.

Rising CACs (now 45% more expensive per acquired policy), projected market growth for embedded insurance offerings, and public pressure to move away from inequitable pricing models are all pushing the industry towards a new future where both insurers and drivers have a more comprehensive understanding of how a policy came to be.

While early telematics solutions have helped ease some of these industry concerns, most were difficult to implement (like installing an additional device into a vehicle) or counter intuitive (like requiring a secondary mobile application outside of an insurer’s core network of tools). Even though some early solutions were able to provide relief, they all lacked the ability to provide accurate, critical risk insights at a sustainable scale. More specifically, when it came to customer acquisition, these early solutions did not provide insurers with a quick, reliable way to acquire ultra-preferred risk at the point of sale.

The Auto Insurance Industry of Today
The rise of behavior-based insurance solutions, like risk-rated customer acquisition and usage-based insurance offerings, have dramatically changed the auto insurance landscape.

Risk assessment has evolved from simple formulas that consider factors like driver record, age, and vehicle make, to highly predictive risk modeling that is informed by real time driving data and driver-specific insights. This new level of risk-assessment accuracy is not only giving insurers a more accurate way of determining risk, but also rewarding safe drivers with more competitive rates.

More accurate tools for assessing and projecting risk means insurers are also moving towards embedded risk-rated customer acquisition, now offering the safest drivers the opportunity to secure a better premium directly within their existing insurance experience. With 45% of drivers willing to switch insurance providers for savings and 69% willing to share data for discounts, the rise of embedded, risk-rated customer acquisition is a direct response to evolving consumer trends.

The secret to unlocking this new era of accurate risk-assessment has always been mobile. With smartphone sensors and a mobility risk intelligence partner that can turn driving data into actionable insights, insurers have gained a more consumer friendly way of assessing driver risk, the functionality to bring savings or new insurance offerings like UBI directly to the right prospects, and the ability to make this all happen within an existing app or platform.

The Race to Insure the Safest Drivers
The race to insure the safest drivers has already begun. And the longer insurers wait to deploy more risk-rated customer acquisition strategies, the higher CAC and loss ratios will be. Early adopters are already targeting and prioritizing the lowest risk drivers, meaning industry holdouts will be left to acquire the riskiest and least cost-effective drivers.

This new era of auto insurance has created a win-win scenario: insurers are finding and qualifying the best drivers, and drivers are getting access to more fairly priced, behavior-based insurance offerings. With both parties moving towards a more nuanced understanding of mobility and a deeper sense of responsibility for how we move through our roads, we hope to see this all translate to an increase in insured drivers and a decrease in on-the-road incidents.