The pay-as-you-go and metering concepts are nothing new. We have seen it in our age old utilities usage and of course in the recent pervasive cloud computing in all layers as X-aaS. But when you apply this to insurance you get interesting breakthrough business model!
Usage-based insurance (UBI), also known as to as pay-how-you-drive or pay-as-you-drive or pay-as-you-go, is a type of auto insurance which allows insurance companies to set the premium based on how safe your driving habits are. UBI is supported by telematics technology which is either pre-installed in the car or by using plug-in device or through mobile applications which provides insurers a range of data like how drivers are braking and accelerating, what is their average speeds, where they are driving, and for how long they’re behind the wheel. The data collected helps insurance companies to closely monitor and assess the risk profile of the driver and to reward safer drivers with discounts on their insurance.
It is key to note while the idea may be a couple of decades old, the recent advancements in technology is making this possible to bring this to the market. Also insurance companies is able to forgo attaching separate telematics device and only require a mobile application to provide for UBI, which is a big booster due to smartphone adoption! By using GPS and other location-tracking features, the app will record and monitor the driving habits without the need to plug anything into your car.
Interesting Facts:
Some of the curated data from Research firms like Gartner, Statista, IHS, etc.
- The global vehicle telematics market has almost doubled between 2015 and 2019, and is estimated to be worth USD 103 billion by 2022
- By 2023, 142 million people worldwide will be subscribed to usage-based auto insurance, in comparison to the estimated 12 million that use it 2019
- According to a recent study, usage-based insurance market is estimated to grow over a staggering USD 200 billion by 2026
- Recent study shows that of the 20 million out of 875 million automotive insurance policies in existence are usage-based insurance and 20% of these insurance are leveraging mobile devices
- Finally – UBI often works out to be around 20-30% cheaper than traditional auto insurance – and it no surprise the adoption is on the rise in the real world!
Types of UBI Policies:
In UBI model, the premium is calculated based on the actual usage of one’s car driving pattern. The theory behind it is that if car is not driven, the chance of getting involved in an accident is also less. Broadly there are 2 types of usage-based insurance policies:
- Pay-per-mile or pay-as-you-drive: Here the premium rates are based solely on the distance you drive during the policy period. If you don’t drive often, the rates will be lower.
- Pay-how-you-drive or behavior-based: Here the premium rates are based on how safe of a driver you are. If driven safely, the rates will be lower than if driven at a high-risk.
Brief summary of UBI programs offered by major insurance companies:
Today, UBI model is gaining traction worldwide with many Insurance companies giving their customers the required control over their auto insurance, where they can earn discounts on their premiums based on their safe driving habits. Not to be left behind, car manufacturers are also wiring into this ecosystem by partnering with insurers and analytics companies to provide UBI solutions.
- Nationwide SmartRide: This app measures distance driven, hard braking, acceleration, idle time and night-time driving.
- QBE Insurance Box: This app uses telematics to generate a driver score. The safer an individual drives, the higher their score and the lower their premium.
- Allstate Drivewise: This app tracks the speed, braking and the time of day you drive to determine the cash back. Drivers get discounts for keeping speed below 80 mph, limiting late night trips, and limiting hard braking.
- Travelers IntelliDrive: This is a 90-day program that uses a mobile app to track the driving habits. If you drive safely, you could potentially receive a 20% discount, however if you have riskier driving habits this program could actually result in a higher premium.
- CAA MyPace: This app relies on a telematics device to track the distance driven and then charges drivers per 1,000-kilometre increment.
- Insurethebox: This app uses unique insights to reach out to consumers who frequently speed in its proactive anti-speeding communications program.
- State Farm Drive Safe & Save: This app measures driver behaviors like acceleration, braking, cornering, speed and distracted driving. Safe drivers can earn up to 30% in savings.
Conclusion:
To summarize, Usage-based insurance benefits both customer and the insurance company, since it acts as an incentive to adopt safer driving practices. Also, in general, people who drive less and have safe driving habits tend to get into fewer accidents, resulting in fewer claims. The goal of usage-based coverage is to reward you for your good driving behavior with a reduced rate!
If you would like to know more about these solutions, please drop a line to sreeni@nousinfo.com
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