Across Europe, insurance leaders raise similar questions about connected insurance. This series addresses them directly.

If you disagree or have questions of your own, email us in English at hello@cmt.ai, en Français bonjour@cmt.ai, in italiano ciao@cmt.ai, auf Deutsch hallo@cmt.ai.

Q1: Will discounts cannibalise my profits?

Connected insurance has been deployed in over 140 programmes in 25 markets worldwide. Many of the insurers who publicly share results talk about how profitable their programmes are. 

One of the most frequent questions we get is: How can this be? Aren’t they cannibalising their other business by giving discounts to their most profitable segment, on top of the existing No Claim Discounts or Bonus?

If you look at the public statements from insurers, they point to protecting and improving their best customers, not cannibalising their profits. 

The first item to review is the value proposition. Most of our partners are using connected insurance offers to attract new business. Insurers then tie rewards to measured behaviour — they are not giving blanket discounts across the whole book. Connected insurance enables insurers to deliver personalised pricing at levels not possible before, providing discounts for drivers who are actually safe.

Insurers with Connected Insurance programmes have many options they can use to incentivise safe driving. A Connected Insurance programme could leverage financial discounts, providing a small enrollment discount and a larger maximum discount if the driver proves safe. A programme could also rely on rewards to attract and retain the safest drivers. Rewards are a proven, cost-effective mechanism for insurers to attract safer drivers and enable behavior change. Neither of these options cannibalise an insurer’s book of business.

Connected Insurance also reveals real risk segmentation differences that legacy signals miss. Connected programmes have demonstrated much better definitions of the differences between the best and worst risk quintiles, illustrated in the chart below. These differences enable more precise pricing. If an insurer is using full-spectrum pricing, safer drivers will often pay a lower rate while high-risk drivers will see premium increases or will not be renewed.

As the chart below shows, the granularity of the risk data unlocked by Connected Insurance enables new levels of segmentation. This allows insurers to charge more appropriately for the level of risk. Drivers on the left exhibit less risk, enabling insurers to give them a safe driving discount. The drivers on the right show the highest likelihood of a claim. Insurers will likely give them a surcharge for the additional risk. This balances pricing based on the personalised risk of every driver in the programme, making pricing more accurate. In both cases, the pricing accuracy helps increase the insurers’ margin.

Source: CMT ROI calculator

Insurers like AIOI in Japan and Direct Assurance in France have found that Connected Insurance increased profitability when they used the data for segmentation and targeted incentives. Direct Assurance’s programme showed a drop in claims frequency of 31% on their connected book. Aioi’s programme reduced crash frequency by 18%.

Connected Insurance can also drive positive selection. Safer drivers naturally self-select themselves to participate in Connected Insurance programmes. They know they are safe behind the wheel, so they enroll for the discounts. This is why insurers consistently offer onboarding discounts for their Connected Insurance programmes — they know that their programme will attract safer drivers. 

Progressive shows how enrollment and maximum discounts can grow over time. The insurer has run Connected Insurance offers for more than 15 years. After seeing clear net benefits, it steadily increased both the enrollment incentive and the maximum reward. Today, drivers receive 15% for joining its telematics programme and can earn more than 40% in total discounts.

As we have seen, discounts do not erode margins when they are tied to real risk and real behaviour. Connected Insurance replaces broad incentives with precision pricing, attracts safer drivers, and corrects underpricing at the top end of the risk spectrum. The result is not cannibalisation, but a stronger book, better segmentation, and higher long-term profitability.

If you disagree or have questions of your own, email us in English at hello@cmt.ai, en Français bonjour@cmt.ai, in italiano ciao@cmt.ai, auf Deutsch hallo@cmt.ai.