February 12, 2021
Usage-Based Insurance – Why Device Insurance Pricing Needs to Change
Is it time for device insurance to move with the times? Most areas of the insurance industry have modernised their pricing approach. In this article, we discuss usage-based insurance and why pricing mobile phone insurance according to the customers’ profile and usage is the way forward.
Device insurance pricing is stuck in the past
I was recently reminiscing with an elderly relative. She mentioned that when she was a child the family TV was rented. Ours was too – as was the VHS video recorder (remember them?!) – from a UK high street retailer called ‘Radio Rentals’. It’s virtually unheard of nowadays but back then, renting your television was commonplace. Not because they were prohibitively expensive. They just tended to go on the blink quite regularly.
The rental agreement came with a service contract. So, when the television started playing up you just called the company and an engineer popped out that day to fix it or even replace it. Great service, and no need for my gran to miss the wrestling!
Effectively, the rental agreement fee had breakdown insurance built-in, but nobody thought of it that way. It was just a logical part of the service that made the whole offer much more attractive.
Usage-based insurance is the future
Nowadays, TVs are much more reliable and readily available at a lower entry price, so specific insurance is less relevant, however, mobile device insurance could really benefit from a more elegant approach to protecting customers: usage-based insurance.
Smartphones are almost indispensable – so insurance should treat them that way
For many of us, our mobile phone is totally indispensable. We check our emails, do our banking, social networking, check the news, shop, catch a taxi, play music, take photos, read books, play games, check the weather, read maps, check the time, etc…sometimes we even make phone calls on it! Way more essential than the old Grundig television was, but often completely unprotected by insurance. Layer on the fact that we take our mobiles in and out of our pockets all day. They have a big glass screen and lots of delicate, highly complex circuitry, so they’re far more likely to get damaged.
Insurance providers need to adapt the way mobile insurance is priced to take these factors into account. Usage-based insurance seems the obvious approach. A way to treat these products in a way that reflects their usage.
Why are many customers still not insuring their mobile phones?
Despite the obvious risks, many people still choose not to insure their mobile phones. The reasons are varied but with monthly prices rising to as high as €20 or more, many consumers simply find phone insurance too expensive. The way we price mobile phone cover hasn’t really changed in over 20 years and it’s usually loosely based on the cost of the device that you buy. But surely that can’t be right?
If my gran was still alive today and settled into an afternoon of watching Big Daddy trying to finish off Giant Haystacks with a Big Splash on her Samsung Galaxy, from the comfort of her armchair, surely she’s a better risk than a 22-year-old scaffolder. So, why should she pay the same for her phone insurance? If you’re under 40 or didn’t grow up in the UK, Google Big Daddy and Giant Haystacks!
New pricing approaches for mobile insurance
Thankfully, the market is now finally changing. With new digitised distribution channels direct to the consumer (accelerated by COVID restrictions on retail stores) there’s renewed discussion about personalised pricing and real-time calculation of premiums based upon the ‘shape’ of the customer. It’s a form of usage-based insurance pricing. It can offer substantially discounted premiums to users with a lower risk profile. Motor and life insurance providers have been doing this for decades.
Why take a usage-based insurance pricing approach?
But let’s expand this thinking a bit further. What if you allow your insurer to know when you’re sitting at home (and at a statistically lower risk for your phone) with an app that identifies when you’re connected to the home Wi-Fi. Then, at the end of the month, the insurer gives you a 75% premium discount for the time you sit on the sofa or sleep?
Usage-based insurance applied to device insurance plans
InsurTech company, EIP, has already developed this technology. We anticipate huge discounts to lower-risk customers through this concept of usage-based insurance pricing. Because we carry our phones with us most of the time, the principles of usage-based insurance could be refined to apply different background pricing in real-time, depending on whether we’re walking, running, cycling or sleeping, etc. At the end of the month, instead of paying €20 for insurance, we may only pay around €5 if our lifestyle is low-risk.
Summary: How we price device and smartphone insurance will change, it’s just a matter of when
There are a lot of sensitivities over data use to overcome before a usage-based insurance model for smartphones and other devices could become mainstream. But the incentives to customers are savings of potentially hundreds of pounds a year. There’s already precedent for a working model within the motor insurance industry. Telematics are used to determine how and where you drive, then insurance is priced accordingly month by month.
If you’d like to know more about new insurance trends, check out our recent blog on parametric insurance. Or head to our homepage for more information about EIP’s InsurTech software and explore our innovative digital insurance solutions.
Author: Ross Sinclair (CEO at EIP Ltd.)
EIP is a leading global InsurTech company delivering digital insurance solutions to Telecoms, Banking and Lifestyle insurance providers. We’re an InsurTech100 company and a member of InsurTech UK. some of the world’s biggest brands use our end-to-end software solutions. To learn more about EIP please get in touch.