In recent years, Usage-Based Insurance (UBI) has become one of the most talked-about technologies in the automotive insurance industry - and for good reason. A relatively new type of insurance, UBI allows insurance companies to utilize telematic (telematics is a method of monitoring cars, trucks, equipment and other assets by using GPS technology and on-board diagnostics) and tracking technology to assess their clients’ driving habits. Usage-based insurance extends the range of data available to insurers and makes it possible for them to monitor individual customers’ real-world driving behavior, inclinations toward safe or dangerous driving practices, trip characteristics, the current condition of their vehicle, the locale of vehicle operation, weather factors, and more. The insurance companies can then analyze this data to determine driver risk and in turn provide their drivers with customized premiums - which for safe drivers, means savings on car insurance. Evaluating driver performance allows insurers to offer fairer premiums to customers than they could be they simply relying on traditional underwriting metrics such as age, gender, occupation, financial information, etc.
With UBI becoming a top choice for people looking to lower their premiums, it's not surprising that the UBI market is expected to see a 25.1% increase in compound annual growth over the next six years. To explain why the automotive insurance industry is seeing such massive growth in customers and insurers opting for usage-based insurance programmes, we must look to the various advantages that UBI offers.
UBI can be incredibly beneficial for safe drivers with good driving habits. With many insurance companies boasting up to 25% discounts on premiums for customers who opt for UBI, safe drivers can expect to see greatly reduced premiums for having their good driving habits tracked. In fact, drivers who drive fewer miles than average drivers, or drive outside of busy rush hour traffic, might be considered to have a lower risk factor and can receive low-mileage discounts and reduced premiums of even 40% and 50%. In a Covid-19, work-from-home world, drivers who have experienced a large reduction in regular, short car journeys could possibly save a lot of money by opting for usage-based insurance programmes.
In addition to lowering premiums, usage-based insurance programmes have also been seen to encourage better driving habits in customers. Insurers who analyze driving habits generally look at characteristics such as how hard the driver brakes, how sharply they turn, or how often they exceed speeding limits. Since discounted premiums are a potential reward for safe driving, customers will be more eager to improve their driving habits and become safer drivers. Additionally, many UBI systems will provide drivers with suggestions and tips on how they can improve their driving skills and better understand their mistakes. Safe driving habits not only benefit the driver and their insurance rate but also benefits the insurer who will have to pay out for fewer accident claims.
The telematics and tracking data collected in UBI programmes can also be used in accident investigations. If a vehicle is involved in a road traffic accident, it can be much easier to forensically analyze the incident when there is GPS data leading up to the event. Information such as - how fast the driver was driving? How hard did they brake? What direction were they travelling in? - can all aid in accident investigations to determine what party was more at fault. The collection of this data can also help to identify and prevent payouts in cases of fraudulent claims.
Due to the fact that many UBI systems rely on tracking devices being installed in vehicles if a vehicle is reported stolen, customers can contact their insurers and request the vehicle’s GPS tracking information to be provided to them directly. This can help drivers and the authorities pinpoint the exact location of the stolen vehicle.
When usage-based insurance policies first emerged a number of years ago, the vast majority of insurance providers were forced to rely on hardware systems that, once plugged into a vehicle’s OBD-II port, wirelessly sent information to the insurance company. While effective, this system of data collection wasn’t ideal with the cost of producing and distributing these hardware devices being far higher than many insurance companies anticipated. In recent years, however, advances and developments in smartphone technology have allowed insurers to collect vehicle telematics and tracking data via downloadable smartphone apps. This gave automotive insurance providers an opportunity to utilize this new technology that virtually everyone owned to reduce their costs, making UBI even more attractive to both providers and consumers.
With the obvious advantages, usage-based insurance poses for both insurers and consumers, it's not hard to see why UBI has become one of the most talked-about and rapidly expanding technologies in the automotive insurance industry. As with any new, developing technology, critics have been quick to highlight teething issues with usage-based insurance, however, from what we have seen over the last number of years, UBI programmes are undoubtedly transforming the automotive insurance industry for the better.