Introduction
Today I’d like to present to you an excellent opportunity for investment. Insurance plays a crucial role in society, and currently, the car insurance market undergoes significant changes caused by disruptive technology – usage-based insurance. It is a new method of providing service for customers who seek to optimize their expenses. Due to its novelty, the new market is not highly concentrated, while being in high demand. The product is a viable alternative for traditional car insurance, as it saves money for both the company and its customers. In order to explain the opportunity, I would like to share with you the state of the market, potential competitors, and the description of the target customer base.
Usage-Based Insurance Basics
It is essential to understand how the product works for the customer in order to succeed in the market. This technology uses the Internet of Things as a foundation to expand the traditional car insurance system. According to Gupta (2020), “UBI plans based on driver behavior are ideal” for light-duty vehicles, which constitute approximately 95% of all car sales. Telematics devices and phone applications that collect statistics about car usage allow companies to create programs that greatly benefit people who are known for their safe driving. Analyzing this data and setting appropriate pricings on miles driven and other related parameters enables companies to cut expenses on insurance claims, while transferring these savings onto customers.
The State of the Market
To provide a closer look on the opportunity, it is vital to take into consideration both competitors and the target customer base. After some research, I came to the conclusion that the state of Colorado serves as an ideal starting point for this firm, as the local customer base constitutes of 1.82 mil. potential customers (Ely & Propheter, 2018). Due to the high demand for this product, analysts estimate that this market will grow at a 23% compound annual growth rate during the next seven years (Gupta, 2020). By entering the market now, it is possible to experience the benefits of its future growth.
Competition
There is a presence of several large insurance companies in Colorado. However, they tend to provide discounts on premiums based on the customer’s behavior on the road, instead of calculating premiums based on these statistics (Sims & Walker, 2020). Competition on the usage-based insurance market is currently in the development stage, as many major companies do not cover all the states or do not have all the options available for their customers (Sims & Walker, 2020). Annual costs of insurance for many people across the United States stay relatively high, especially for high-risk categories, such as students or beginner drivers, despite their actual behavior on the road.
Marketing Approach
As the product of my company is an obligatory service, it is held in high demand among low-income households. The customer base for this product seeks to cut on their expenses or to control their behavior on the road via monetary rewards in the form of lowered insurance premiums. The average annual car insurance cost in Colorado is approximately $1200 per car, while the average mileage is 12,825 miles (Ely & Propheter, 2018). By setting the price per mile between $0.07 and $0.11, it will be possible to create a sustainable company that will appeal to safe drivers from low- and middle-income families.
Conclusion
In conclusion, with the right marketing tactics, it will be possible for my company to successfully acquire a share of the rapidly growing market. As new technologies for data analysis continue to be developed, the expansion of available options and lowered costs of operation for insurance companies will be ensured. Usage-based insurance is a service that will continue to gain popularity, yet currently, it only becomes to be available for people in the United States. Therefore, I advise opening the UBI insurance company in Colorado, as it is the most suitable place with a large target population and relatively small presence from competitors.
References
Ely, T. L., & Propheter, G. (2018). Colorado’s middle-class families: characteristics and cost pressures. The Bell Policy Center.
Gupta, S. (2020). Usage-based insurance market worth $125.7 billion by 2027. Markets and Markets. Web.
Hunt, J. (2019). The 7 best usage-based insurance options of 2020. The Balance. Web.
Motor1.com Team. (2020). Allstate insurance: Reviews and our take (2020). Web.
Sims, M. B., & Walker, D. (2020). Usage-based car insurance and telematic systems [Easy guide]. AutoInsurance. Web.