Auto subscription services and insurance: 4 areas to watch to manage costs

Auto subscription services need to think about insurance for their customers differently, understanding its nuances as an integral part of cost of goods sold. This makes accurate pricing — and an experienced carrier — more important than ever.

When customers subscribe to a service, they get everything they’re looking for — including insurance coverage — with a single monthly payment. There’s no need for them to find a carrier to secure auto and liability protection, because you provide it as part of the service you sell.

This makes it critical to understand the key drivers of insurance costs. When there’s pressure to get to market fast, you might be tempted to select the least expensive quote, add this cost to your subscription price, and move on. But if you miss the mark on understanding how your customers’ profile and driving behaviors influence ultimate insurance claims, you could be in for a big surprise at renewal when insurance costs skyrocket. And, if you end up raising subscription prices to cover those costs, you risk losing the customer trust you worked so hard to establish.

To pinpoint insurance costs, you need a carrier with deep data to help predict how many customers are likely to make claims and what those claims are likely to cost. An experienced insurance partner with sophisticated data and cutting-edge analytics can make all the difference, providing the information you need to make sound decisions.

With the right carrier, today’s sophisticated analytics and algorithms give you the opportunity to set accurate insurance prices and determine a proper cost of goods sold.

Determining prices in 2000

1 + 2 + 3 = price

Determining prices in 2020

1 + 2 + 3 x (a2 + n) + (z3 x 4) = laser-sharp price

The more accurate your prices, the healthier your business stays over time.

The pain points that auto subscription services need to be especially mindful of include:

Subscription models attract some drivers with clean records. But if you’re not careful, they can also draw customers with poor records. Looking back to find that you signed up too many of the latter can prove especially problematic.

Pitfall: skipping or skimping on driver screening helps you sign up drivers fast, but also increases your risk of gaining “expensive” customers. At renewal time, this can lead to a premium surge that you might not see coming.

Models range from a number of days to a calendar year. Choice and flexibility
attract buyers.

Pitfall: data shows driver behavior and performance vary with subscription length. If you fail to factor in true costs associated with the terms you set, you stand to lose money.

The simplicity of flat rate insurance pricing can sound attractive when you are moving fast to get a subscription program deployed.

Pitfall: not contemplating sophisticated insurance pricing variables to monitor and balance your subscribers’ true insurance cost could lead to higher claim volume and inadequate rates.

Sellers set prices that appeal to a critical mass of customers, keeping in mind that buyers consider both price and type of vehicle.

Pitfall: in an effort to set the lowest possible price across all markets, you could undercharge for insurance and have adverse selection. Over time, that can lead to sky-high insurance costs, forcing you to change your subscription model and losing credibility with your customer base.

What can you do to avoid these snares? First and foremost, team up with the right carrier. As a global Fortune 100 company with ground-level experience in shared mobility, Liberty Mutual has the elements you need to stay financially stable and poised for growth:

It’s well worth hitting the pause button and taking time to study your insurance needs carefully with a trusted partner. Subscription services that consider insurance as a critical component as they set pricing for their customers will do themselves a favor that pays off in the short run — and for years to come.