Behind the popularity of pay-as-you-go insurance

Customers want more choice and control over how they spend their insurance dollars, which explains the skyrocketing popularity of pay-as-you-go insurance, says the president of CAA.

The insurer has seen a three-fold increase in customers to its pay-as-you-go insurance product MyPace over the last year. The program has been in place in Ontario since 2018 and expanded to Nova Scotia in 2020.

Particularly well-suited to pandemic conditions — i.e. government lockdowns preventing the spread of COVID-19 mean people are driving less — MyPace is targeted to low-mileage drivers who travel fewer than 9,000 km.

Drivers buy insurance in a pay-as-you-go format in 1,000-km increments. They get alerts when they’re nearing the need to buy the next increment and choose to purchase it.

“We’ve had 300% growth year-over-year,” said CAA Insurance president Matthew Turack. “It’s fantastic. The interest has been tremendous.”

For Turak, the key takeaway is that people like pay-as-you drive because it gives customers a choice about how much auto insurance they wish to buy. “We really see the customers, whether their current insureds or our future potential customers, really are receptive to the fact that they want options,” he told Canadian Underwriter.

iStock.com/Chainarong Prasertthai

The whole purpose behind pay-as-you drive is to give customers control, Turak observed. That means giving them options when they buy their insurance.

“They want a product that fits their lifestyle or life-stage,” he said. “That was part of our design of the product, along with our use of our data and all of our proprietary modelling. We built the product so that when you are driving less, and when you can or want to control how many kilometres you…you drive your car, you will save. And you have that flexibility….

“Customers like that. They like the ability to say, ‘Listen, I’m staying home. I’m not driving my car. So, let me save on my insurance.’”

Turack didn’t reveal specifics, but he did say the MyPace program accounts for about 15% of CAA’s auto client base — and it’s growing.

Part of the control for consumers is cost-certainty. For example, they know how much it costs to purchase insurance for each 1,000-km. increment.

“And when I drive that 1,000 kilometres, I know I have to reload it,” as Turak explained, giving the consumer’s perspective. “And it will automatically reload, because I get all my notifications through email or through my phone….Consumers really liked that ability to control their costs. Especially in today’s [pandemic] environment, that control, that ability to manage your costs, is extremely important.”

Pay-as-you go is resulting in 50% savings for insureds, he reported.

For now, choosing how far they are able to travel is the extent of choice available to customers. The industry will need to provide a broader range of choice to meet the future demands of pay-as-you-drive clients, Turack said.

“When we get feedback from customers, they’re looking for more optionality,” he said. For example, he said, they ask: “Can I choose levels of accident benefits? Are there more options within the auto insurance product that can be created that may not be there today?”

Digital options for receiving paperwork are thus far limited. “We can provide a lot of digital documents today, but we sometimes also have to provide the paper copy,” Turak said. “A lot of clients are saying, ‘Do you really have to send me the paper?’ That’s something I know the regulator’s looking into, being able to provide more digital documentation.”

Feature image by iStock.com/iprogressman