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All you need to know about Pay-As-You-Drive insurance

01/09/2022 • Edouard Boisnel

Pay-As-You-Drive insurance, also known as Pay-As-You-Go, is a connected insurance offer that is attracting more and more drivers looking for savings and simplicity. Find out what you need to know before launching your Pay-As-You-Drive car insurance!

Offering purchasing power

The acceleration and nationwide rise of teleworking caused by the Covid-19 crisis has changed the mobility of the French. According to data from the Ministry of Energy Transition, the French drove only 9,900 kilometres on average in 2020 whereas they drove more than 12,000 on average in 2019. In addition to teleworking, other factors are responsible for this drop in car use. The most important of these are:

  • The emphasis on aid for the purchase and development of soft mobility (cycling)
  • The rise in fuel prices
  • The rise in car insurance prices

Faced with the continuous increase of the cost of car mobility, and the absence of credible alternatives to this form of mobility outside of Paris, motorists look out for economic solutions to preserve their finances. Car insurance in particular is perceived by motorists as a major expense, to the point that some of them would consider driving without insurance due to a lack of liquidity.

To avoid the flight of policyholders and to help the French regain purchasing power, the marketing of new insurance products such as Pay-As-You-Drive insurance would be an effective solution to meet the needs of the French, particularly because of its pricing system.

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A fair price that retains policyholders

How are premiums calculated in a Pay-As-You-Drive model ?

The pricing of the insurance premium is based on the actual use of the vehicle, i.e. its mileage.

First, the insurer defines an amount that corresponds to a minimum premium covering the vehicle when it is not in use. Then, a price per kilometre or per minute is defined, taking into account the profile and experience of the insured person: accident risks, bonus and malus, previous experience, etc.

Some Pay-As-You-Drive insurance contracts even offer even more advantageous rates depending on specific conditions:

  • urban or suburban use of the vehicle
  • daytime driving only
  • no use of the vehicle at weekends or during the week.

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Who is this offer for ?

Unlike conventional insurance, the actual use of the vehicle by its owner is taken into account in the calculation of the premium. The model is particularly interesting for drivers who drive less than 10,000 km per year or who can alternate between several modes of transport.

The profiles most likely to benefit from a significant reduction in their insurance premium by subscribing to this offer are therefore: city dwellers, the elderly and young drivers.

How to market such an offer ?

Before Covid, some insurers, such as Altima, offered a Pay-As-You-Drive insurance package as a last resort to dissatisfied customers who threatened to leave for the competition if a better offer was not made. The operators then offered them a Pay-As-You-Drive tailored-made for drivers who drive less than 6 000 kilometers per year.

However, Covid resulted in a revision of the marketing strategy. Since, Altima's offer has been highlighted on the MAIF website to improve its visibility. The effect was immediate as the rate of subscriptions increased by more than 8 times compared to the pre-Covid period!

For its part, DirectAssurance, with its YouDrive offer, targets "prudent and economical" drivers by promising a monthly cash-back of up to 50% of the insurance premium depending on the use of the vehicle.

How to verify the mileage?

Several technical solutions are available on the market to launch a car insurance by the mile and to check the mileage achieved by the insured:

  • A photo of the odometer: this solution is the cheapest and easiest. It is also the one with the lowest added value, since the insurer establishes a traditional relationship with its policyholder, i.e. a contact once a year for the renewal of the contract or when a claim is made. 

  • OBD units: OBD units are obsolete and generate significant installation and maintenance costs. Their market share decline every year. This technology is no longer credible.

  • Data from connected vehicles: only newest vehicles are able to return information. In addition, manufacturers' offers are neither mature nor economically viable enough to prosper in the insurers' business model. This solution is therefore not sustainable in either the short or medium term.

  • Mobile telematics application: this is the only solution that allows a large-scale km insurance programme to be operated. Because of its universality, simplicity and low cost, mobile telematics is the most complete option. Moreover, it improves customer loyalty by offering a new communication channel that is better adapted to policyholders' needs.

Of all the solutions listed above, mobile telematics is therefore the only one to deliver a wide and innovative range of values.

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Additional services for a 2.0 customer relationship

Smartphone telematics strengthen customer relationship by offering additional services with very high added value. Among the most impactful we can list:

Positive policyholder selection

Drivers who agree on using a mobile telematics application and sharing their driving data with their insurer are the lowest risk customers. The customer portfolio for Pay-As-You-Drive insurance offers is therefore healthy and profitable.

Improving claims management and experience

Why stop at collecting driving data to offer a mileage rate and not do the same thing by using driving data to analyse the driver's behaviour and offer personalized coaching? Or offer to participate in driving challenges to encourage the driver to improve his behaviour in a fun way? We are talking about a prevention programme here, not behavioural insurance (or Pay-How-You-Drive).

Providing additional services

Mobile telematics makes it possible to offer additional services such as crash detection, which alerts an assistance operator in the event of a crash. This service is an excellent way of building policyholder loyalty. Another example is the eco-driving service, which coaches drivers on eco-driving and enables them to make additional fuel savings.

A product with a strong environmental component

As mentioned several times above, launching a Pay-As-You-Drive insurance offer based on mobile telematics should not be seen as an end in itself. The implications are more profound and involve rethinking the whole value chain to generate long-term transformation. Pay-As-you-Drive also stands out because of its environmental benefits by promoting reasoned car mobility and encouraging the use of alternative forms of mobility to save on insurance costs.

In a context where environmental concerns are increasingly at the heart of public debate, marketing and communicating on an offer that promotes moderate car use and encourages the use of alternative forms of mobility is proof of a real commitment to change.

In short, pay-as-you-drive insurance ticks all the boxes for insurers and their customers. For the insurer, it is an opportunity to launch a digital and green offer, at the right price, while at the same time offering additional services to strengthen customer loyalty and propose a 2.0 customer relationship.

On the customer side, subscribing to a Pay-As-You-Drive insurance is an opportunity to save money, understand the price defined by the insurer and therefore increase the customer's trust in the insurer, while benefiting from support to reduce fuel consumption and make even greater savings.