As observed by insurers and consumers alike, a decrease in driving has made usage-based insurance solutions like pay-per-mile coverage popular, pushing insurers to adjust their strategies to this new consumer demand.
Pandemic induced lockdowns that swept the world have created markets for newer auto-insurance products. A surge of interest has been observed in offerings that let customers pay auto insurance premiums only for the amount of driving they actually do. This accelerated demand for usage based insurance or UBI, and increased adoption of pay-per-mile and telematics is because a lot of people realized that they are not driving as much.
Pay-per-mile is a UBI that ties premiums primarily to the miles driven. Premiums are personalized to each driver, based on the risk factor of how, and how much a person drives. The less a person drives, the less they pay. This is attractive for city-dwellers, car sharing, and those who work from home or generally don’t drive as often.
Over the past few years, insurers have been creating more and more policies that allow customers to pay for the distance they actually drive, providing an alternative to broader policies that cover unlimited miles.
Pay-per-mile auto insurance gains momentum
Recent interest has come from new customers and some existing users who switched as they cut back on driving. As the pandemic raged, auto insurers initially benefited last year in the United States with a nearly 40% drop in driving in April, and a total of 13% decline in 2020. Auto insurers benefited from the drop-off in driving, as it tends to result in fewer accidents. But they soon realized that customer needs are changing when it comes to car insurance.
With fewer miles being driven and the need for more flexible cover that suits different lifestyles rising, top insurers paid attention and started introducing pay-per-mile offerings, which allows them to track driving behavior and reward better and safer customers. Today getting pay-per-mile car insurance quotes online is mainstream.
And is there is a strong case for this spike in the demand for pay-per-mile to persist post-pandemic as well.
Why customers choose pay-per-mile?
Why will anyone want to pay for when their car is standing idle? And why not opt for something new that is easy on the pocket. When a customer can get a personalized insurance policy where they pay for only what they use, it is also a great choice for those who use their vehicles often, for it means lower premium costs.
Since driving patterns and vehicle data is monitored through telematic devices, it also helps the drivers to improve their driving by making them aware of their driving habits, which translates to more cautious driving and adherence to safety rules like speed limits. And safer driving means lower premiums. This in turn helps in cutting down insurance costs.
Better monitoring means better driving, which means decrease in accidents. And depending on the driving data insurance companies can offer users personalized policies which leads to increased satisfaction for the customers.
How insurers benefit from pay-per-mile offerings?
Pay-per-mile insurance policies generally follow one of two models — a bulk mileage purchase followed by a cost per mile, or a straight cost per mile policy. In either case, the mile driven is the primary driver of the policy cost. Due to the lower overall insurance costs for light commuters, transparency in pricing, and flexibility of pay-per-mile for non-traditional drivers, the past year has seen rapid growth. But sustained growth is now expected with better access to cost-effective telematics solutions, that is making pay-per-mile an attractive business model.
Typical pay-per-mile policies include a basic policy cost based on a user driving record, type of car, location, age, etc. This is followed by the pay-per-mile cost, which can vary but is typically just a few cents per mile. Mileage is automatically monitored and by leveraging both smartphones and telematics devices the possibility of erroneous mileage reporting is minimized. The use of telematics not only helps reduce fraud and improve driving habits of users, but also helps insurers refine and differentiate their products through value-added services like vehicle health, location monitoring, trip reporting, and real-time mileage alerts.
The fear that the less a person drives, the lower the revenue per policy, is only partly true, as insurers stand to generate more revenue by acquiring new customers. The younger drivers, who don’t drive much and would otherwise probably not buy a comprehensive policy, pay-per-mile offerings help to create newer business relationships with them today, which will grow into heavier use policies tomorrow.
It also incentives shared lifestyle users, and an insurer who can offer flexibility demonstrates to them that their insurer recognizes changes, and will continue to deliver on varied driver personas.
The future of auto insurance is personalization
The future of auto insurance will entail more UBI and telematics offerings. Companies that fail to adopt it will lose their good customers, leaving the worse drivers behind as their customers. The rise of pay-per-mile offerings in the pandemic, is pushing insurance companies to change their strategies for the post pandemic world. With more and more consumers opting for pay-per-mile, as it is easy on pocket, has an array of added benefits, and is a specifically good option for the younger generation of drivers, personalization in insurance offerings is all set to become the future norm.