Is auto insurance accessible and affordable for lower- and middle-income Americans? Not according to this study by the Consumer Federation of America – yet there’s a powerful business opportunity hiding in the research. Let’s learn more.
Is basic liability unaffordable?
For drivers throughout the United States, auto insurance is required by law. But what happens when basic liability is more than one can afford?
Lower-income Americans must make day-to-day decisions about which financial fire to put out first: for example, going without groceries so they can pay a bill, or vice versa. For people in this bracket, auto insurance is one of the smaller fires on the list. Most people need a car to get to work, but one can drive for quite a while without insurance before facing the consequences of that. Sure, that’s dangerous and illegal, but it's also the lesser of several evils for many Americans living hand-to-mouth.
The difficulty is exacerbated when insurance pricing models push premiums up for lower-income Americans, whose rate is often affected by socioeconomic factors such as "education, occupation, homeownership status, prior purchase of insurance, and marital status." As the saying goes, it's more expensive to be poor.
That trend holds even for drivers who log fewer miles. "In 11 cities tested outside of California, the nation’s largest auto insurers generally offered little or no premium reduction to low-mileage drivers compared with high-mileage drivers, even though insurance research indicates that how much you drive is among the most important factors in predicting accidents," CFA reported.
Result: many Americans aren’t buying it
The natural consequence of the pinch is that many lower-income Americans are refraining from becoming customers.
This is a lose/lose for everyone involved. Uninsured drivers face potential losses and legal risks. Insurers face additional claims costs whenever one of their policyholders has a collision with an uninsured driver.
Insurers also lose out on a potential business opportunity: Americans who drive without auto coverage are customers whose business has not yet been earned. Which brings us to that hidden opportunity.
A call for innovation
The traditional pricing model is a great fit for many drivers. For others, it’s not – and it's a law of business that when a market wants and needs a product, but can’t act on it because their needs aren’t being met by the options, opportunity knocks.
Most Americans who buck the mandatory insurance rule aren’t doing so because they’re incalcitrant rebels, but because the cost of complying simply isn't doable. Eventually, some innovator within the industry will break new ground in this area and develop a disruptive proposition to which these drivers can gladly say yes.
It boils down to an unmet need. For insurers with the creativity to capitalize on that, there’s major potential here to expand the market.
The FedNat Insured Web is a great tool for our insureds!
They like having a centralized location to view policy info, make payments, upload policy documents, and elect to become paperless to receive a discount.
The insureds also can file a First Notice of Loss for a claim and access exiting claim info. Silvervine recently enhanced the site which allows insureds to upload policy documents directly to their policy. The uploaded docs go directly into our workflows and save a lot of manual effort on our part.
From my visits with agents, the agents appreciate the app for the amount of time saved on having to download and attach photos directly to the policy.
The app can also reduce the amount of staff required for a busy office to fulfill underwriting requests for photos.
When training agents they are amazed at how quickly the photos attach directly to the policy. After taking photos using the app and before they make it back to their desk, the photo is already attached to the policy. They also like the ability to attach additional photos for pre-existing damage.
Customer Service is seeing an improvement with retention as the text message definitely triggers phone calls from insureds to make payments.
The insureds love the fact that we notify them on their phones because they state that sometimes they don’t receive their mail for various reasons.
The insureds are paying more attention to the texts then to their actual mail. We try to set all of our customers up on that option if we notice that they are not currently enrolled, as it builds great customer relations as well as retention.
As a company we have adopted the use of Policy Scan for all our policies, and our agents have adopted the use of the app as well.
Not only is it easy to use, there is also no more worrying about losing photos, having to store photos or photos being attached to the wrong policy.
With Policy Scan we have increased efficiency in our workflow and reduced our exposure on the risk.
Silvervine’s core administration solutions easily handles multiple carriers within multiple states, including accounting, payment processing, immediate policy issuance and endorsements.
What started out writing one product, one line in one state has now grown into mulitple products, multiple lines and writing in multiple states. We have over $95 million in annualized premium in-force and we expect to grow by 20% during the next year all serviced by Silvervine.
Silvervine was our insurance software system of choice when we started the company in 2006. Silvervine enabled us to begin business within a few months of licensing the company. Today, we are one of the top 20 homeowner’s writers in Texas and SIlvervine’s solutions have been an integral part of our success.