Are telematics reward systems the key to customer loyalty?

With many drivers returning to the roads as lockdown restrictions ease, they’ll be reviewing what they need from a car insurance policy. Arguably, the margins on these policies are famously thin; and customers are not known for being loyal in the car insurance game.

Confidence in knowing you’re a safe driver, surrounded by other safe drivers, would have a huge impact on claims in insurance. For some, this confidence has been scuppered by the COVID-19 pandemic. With insurers clamouring to keep up with digital trends and customer demands, customer experience (and with it, loyalty) is something hard-won. Could a new rewards system using telematics improve this? Not only could it reignite drivers with confidence they need on the roads, but it could also retain their custom.

Telematics in the UK so far

Telematics systems in car insurance have usually been used for young drivers trying to drive down their premiums. The ‘black box’ installed in the driver’s vehicle can be a worst enemy or a best friend in the event of an accident. It can determine speed, any harsh breaking, the time of day and more to fully understand the event. The black box option for many isn’t usually a choice in a customers’ insurance-buying decision. The price difference for a young driver not using a black box is drastically higher compared to that of a driver using one.

Telematics in the UK is often also used in logistics for fleets. These can be essential for driver welfare by measuring how long they’ve been driving for, capping the speed, and predicting delivery times and expectations.

What are telematics reward systems?

The idea is simple. Using a telematics device with a smartphone, the driver is able to see data from trips they have taken. If they are deemed a safe driver over time, the insurer can use this telematics information to reward the driver with non-cash alternatives such as utility vouchers, food & drinks vouchers, or even days and weekends away.

According to a 2020 survey titled “Insurance Rewards Survey, U.K.,” 36% of 1,000 British drivers surveyed would be motivated to become a better driver by a discount, 32% would prefer weekly rewards such as gift cards, 18% would rather have independent feedback on their driving, and 14% would benefit more from a contest comparing their driving with family and friends. (CMT, 2020).

Initiatives with competitions among families to see who drives the safest have indeed proven popular. An example of this is from back in 2015 when Aviva urged its customers to see who’s the safest driver in the family using their app. As well as an ego boost (a solid motivator), safe drivers could potentially save on their car insurance premiums.

How else could telematics data prove useful?

Useful data can be surfaced to both the insurer and consumer, such as;

  • If they were speeding. This would be shown on a map view.
  • If they were found to be frequently breaking hard; or if there were sudden bursts of acceleration
  • If they were interacting with their mobile phone whilst driving

Where are the opportunities for the insurer?

Some of the opportunities here are clear. According to CMT’s report, respondents in the UK preferred a larger monthly reward for safer driving as opposed to a weekly prize drawing. The insurer can benefit from long term relationships with partner brands and run loyalty programmes designed to reward various age groups of their customers. As intelligence grows around the attractiveness of these rewards, the insurer can look forward an easy renewal. After all – the data is personal to the driver. The insurer is cementing a more empathetic and trusting relationship with the customer – both being significant qualities when it comes to loyalty and customer experience.

Is a no-claims discount enough?

Arguably, the no claims discount system is flawed. It assumes that, as you haven’t been in an accident, you’re a safe driver and should pay less on premiums – however, as it can be protected, you can still cause an accident and retain the discount upon renewal. You’re still technically deemed ‘low risk’. Telematics technology however, would inform insurers (and drivers) of red flags with their driving before an accident occurs. It could be said that prevention is a far better investment through positive reinforcement (i.e. rewarding good driving).

This isn’t to say the NCD system should be scrapped in favour of a telematics alternative. Upon renewal, customers can be given a discount based on their safe driving.

In conclusion, the core fundamentals of insurance are unlikely to change: The higher a risk you are, the more you tend to pay for a policy. The more straightforward a claim is, the quicker it can be dealt with. However, where possible, insurers should work to minimise losses through customer churn and expensive, fraudulent and frequent claims.

Rewarding (or rather investing in) a safe driver may indeed mitigate the need for a claim pay-out further down the line.

Using telematics technology to reward customers and build a better, longer relationship with them shouldn’t be ignored by insurers. A willingness to focus on the individual customer, as well as adapting to and fostering technological change (as more younger drivers hit the roads) will be essential for success.