Motor insurers expect pay-by-mile pricing to be standard within four years

The motor insurance industry is heading towards usage-based pricing models, with 91% of insurers regarding it as a positive change for the industry, according to research from technology firm By Bits.

The research, conducted by Insight Avenue in January and February 2021, found that 84% of insurers believe this shift represents an opportunity for their organisations, with more than two thirds (68%) of insurers predicting that pay-by-mile motor insurance will become standard within the next four years.

The findings are detailed in a new report - A customer-first future for motor insurance - which examines the changing relationship between motor insurance and the drivers it serves. It found that 81% of insurers believe that offering pay-by-mile insurance pricing will improve their image to customers, while 78% feel that it will provide a platform for more ongoing and meaningful engagement.

The report also found that, for almost all (97%) motor insurers, customers have been calling for fairer pricing based on usage or mileage during lockdown while 87% claim that customers have tried to cancel policies due to drastically reduced mileage. This is supported by the findings of separate consumer research, conducted by By Bits in parallel with the research among insurers, which highlighted that 62% of drivers think they will drive less over the next five years than they did in the previous five years.

“There is a real opportunity for insurers to differentiate in the market by offering great experiences and fairer, transparent pricing”, said Callum Rimmer, founder of By Bits. “By focusing on what the customer is clearly asking for, insurers will see commercial benefits through improved retention and customer lifetime value while simultaneously extricating themselves from the race to the bottom on pricing.”

The research found that one of the biggest challenges preventing the industry from meeting evolving customer demands is technology and digital transformation. It found that 32% of insurers are concerned that their existing software will be unable to support usage-based insurance products. Additionally, 80% of motor insurers say that delivering digital transformation has been a challenge over the past 12 months, and 79% state that keeping up with competitors offering usage-based policies has been problematic. This is reflected by the fact that only one fifth (20%) have made any changes to their motor insurance pricing models in the last 12 months.

Image courtesy Jaguar Land Rover

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