Commentary: Engaging Millennials With Smartphone Telematics

Young drivers represent both a risk and an opportunity for insurers. On one hand, they tend to get in more accidents, and are particularly prone to distracted driving with smartphones. On the other hand, they represent a new generation of drivers who can bring lifetime value to insurers, especially if they can become loyal customers and safe drivers.

So-called “millennials” – drivers under the age of 35 – represent roughly 30 percent of drivers on the road today. These young drivers have grown up with the Internet, and are rarely without their smartphones. Unfortunately, using a phone while driving is one of the largest contributors to accidents on the road. Our data shows that, looking at almost a thousand crashes from hundreds of thousands of drivers, drivers who use their phone extensively while driving are 7.3 times more likely to get in an accident compared to drivers who do not. This increase in distracted driving may have directly influenced the recent surge in number and severity of auto insurance claims, which represents the first time in decades that our roads have become less safe. These increases have adversely affected the profitability and loss ratio of insurers.

While mobile devices pose a driving hazard, they also present a solution to the distracted driving crisis. Safe-driving smartphone telematics apps educate users on how much they are using their phones while driving and motivate them to drive safer by offering them rewards or showing them how they compare to friends and family through gamification. Distracted driving apps that provide drive-by-drive feedback represent a more modern approach to engaging the younger generation, increasing potential customer lifetime value for insurers.

This modern approach also makes roads safer. Based on analysis of our own telematics program, within only 30 days of use, phone distraction reduces by 35 percent (40 percent by day 60), while risky speeding and hard braking reduce by 20 percent, on average across all users. These changes result in fewer accidents and fewer claims. Further, these smartphone-based safety and insurance programs also allow insurers to engage directly with young drivers where they are most comfortable: on their mobile devices. Safe driving programs give drivers a reason to regularly open their insurance app.

Besides increasing user engagement and improving driving, smartphone telematics programs have allowed many insurance companies to build more accurate risk models for better pricing and risk stratification. Factors like distracted driving are much more predictive than traditional telematics scoring metrics like credit scores. Additionally, by pricing insurance on how drivers drive, insurers can build stronger relationships with their customers. The data obtained in these programs provides actionable insights into how safe or unsafe a driver is, which can then be used to create more accurate risk models.

Telematics programs, in general, are better at predicting loss than other pricing mechanisms. In a recent study, we found that 73 percent of drivers like the idea of their insurance being priced by how good a driver they are, and that 79 percent of drivers also do not understand how their insurance is priced today. By switching to telematics, insurers can improve the clarity of their pricing and further increase retention. Extra clarity is a boon for retention rates: Insurers don’t have to worry about alienating their best customers with sharp premium increases due to the driving behavior of their worst customers. Given that significant price increases are one of the most common reasons customers leave, improving how customers are segmented and priced is highly strategic for carrier’s lifetime growth and profitability.

Insurance executives know that it is crucial to consider lifetime customer value. While this is a key metric in almost every market, it takes on an especially critical role in auto insurance because many consumers stick with their provider for many years. Smartphone telematics helps insurers drive up lifetime value by making bad drivers better and identifying the good; and by engaging and incentivizing their customers directly to retain them for life.

As the co-founder and chief scientist at Cambridge Mobile Telematics (CMT), Sam Madden helped develop DriveWell, the company’s behavior-based mobile telematics program to help insurers extract actionable insights on driving behaviors.