Pay-as-you-go insurance
Telematics benefits from pandemic

9th September 2021

'Flexibility' is arguably the word of the year and as pandemic restrictions have begun to lift, employers have started implementing their 'new normal' strategies, seeking to find the right balance for their workforce as part of the return to the office. Our latest blog takes a look at how this shift affected driving patterns - and the knock-on effects for insurance.

Last month, business secretary Kwasi Kwarteng said flexible working was "here to stay", as a wave of employers, including Asda, Nationwide, PwC and insurance giant, Aviva, moved to offer colleagues hybrid working options, with many citing 'smart working' and a favourable work-life balance behind the changes.

For many, less time at the office inevitably means less time driving, meaning insurers are having to adapt to the demands of this new hybrid way of working and the needs of their customers. A Which? survey conducted at the start of the year found that almost half (49%) of car insurance owners said their mileage had reduced 'a lot' due to Covid-19 working restrictions, but only a fifth (21%) managed to get a rebate or discount from their insurer, demonstrating some lack of flexibility in the 'old' insurance model - and an opportunity for those who want to play ball.

What's more, earlier this summer, Cuvva reported around a third of UK drivers were opting to pay monthly for their insurance cover - despite it costing more than an annual fee. Research by the flexible car insurance provider found a new trend emerging, with buyers preferring simple financial products and convenience, over long contracts and big up-front payments.

Subscription based living
Pay monthly, no contract, rolling subscriptions are fast becoming the norm for consumers, across many product and service channels, as pay-as-you-go (PAYG) services increasingly take over modern life. From on-demand television streaming to meal kit home delivery and gym memberships, if the PAYG option isn't available, consumers will quickly look elsewhere and there's always a competitor ready and waiting for them.

Car insurance is no exception. This time last year, Zurich reported a 75% increase in demand for pay-by-mile policies and across the pond, Allstate recorded a 30% increase as millions worked from home, evidencing a revolution in the demand for non-traditional car insurance products and the way in which we pay for them.

Telematics diversification
Historically, telematics insurance - also known as 'black box insurance' - measures behavioural driving variables, including when and how you drive, and offer reduced premiums based on more favourable conditions with reduced risks and potential for claims, such as charging less for drivers who only drive during daylight hours or who score well for their style of cornering, acceleration and braking.

However, beyond this, we are now seeing the emergence of new providers shaking up the industry by simply charging per-mile. Like a rolling subscription, policyholders are charged either a monthly or annual fee for theft or damage whilst the car is parked and then charged according to the number of miles driven. This PAYG telematics model is targeted at low-mileage drivers (typically driving <7,000 per year, or around 140 miles per week), offering an attractive proposition for both young drivers making short trips and post-lockdown workers continuing to enjoy at least some time working from home.

Another major benefit to this model is it avoids the need for consumers to estimate how many miles they drive annually - an easy task in a pre-Covid world involving driving to-and-from the office five days a week but a lot trickier in a world still grappling with the pandemic.

Driving resurgence
For brokers, there's once again opportunity in offering telematics to young drivers, with an influx of new drivers on the roads since the resumption of driving tests in April, when the Driver and Vehicle Standards Agency (DVSA) added an extra 20,000 tests to their rota, helping the pent-up backlog of 420,000 tests due to the pandemic.

The move away from public transport is another factor encouraging people back to their cars; the use of rail, for example, fluctuates around 60% of pre-pandemic levels. Married to this, we are seeing an increase in the number of people learning to drive, meaning that the demand for telematics insurance is growing and is looking like it will enjoy a healthy future.

Into the mainstream
Insurance stalwarts are already starting to take notice and get in on the action, with RAC launching its 'no ties' pay-by-mile insurance back in March, and More Than following suit in May, with its 'Low Miler' cover, in a bid to take on PAYG insurtechs including By Miles, Jaunt and Zego.

The pandemic also led to an expansion in insurers' willingness to offer a self-install option for telematics policies, a feature historically only available to older drivers. With engineer installations of black boxes halted during the pandemic, this move provided some business continuity through lockdown and it remains to be seen whether this trend, like flexible working, will be here to stay.

Back to basics
One thing the pandemic has shown is the value of data in monitoring changes in driver behaviour. Beyond revealing decreases in the number of miles people were driving, it also showed the deterioration of driving behaviour associated with quieter roads.

For example, the US saw an alarming 50% increase in collisions at a speed greater than 70 miles per hour and by June 2020, the rate of death per 100 million miles driven had increased 34.4% compared to June 2019. In the UK, Hyundai reported that a fifth of UK motorists are finding it difficult to adjust to driving post-lockdown.

Against this backdrop, it remains the case that telematics has an important role to play in the post-pandemic recovery on the roads - namely in realising the objective it was originally designed for: promoting driver safety.