Usage-based insurance (UBI), also known as pay-how-you-drive (PHYD) or pay-as-you-go (PYAG) insurance, is a relatively new form of vehicle insurance. It analyzes the driver's behavior to come up with your premium amount. Your insurer has first to install a telematics device in your vehicle to enable them to monitor your driving habits. While the data points used to determine your premium amount depends on the telematics solutions your insurer employs, there are several common data points. These include:
- The number of miles you drive every day
- Hard braking
- Rapid accelerations
- Road type
- Location, among others
According to a recent publication, UBI has the potential to reduce the cost of claims by 40% as well as policy administration by 50%.
How insurance companies have implemented UBI
UBI is in most cases, enabled either through a piece of equipment installed in your car by the manufacturer or a plugged-in device. Rather than using factors such as the driver's age and gender to determine how much car owners should pay for their premiums, this technology uses actual data, thus ensuring accurate and fair premiums.
Before adopting this technology, insurance companies have to consider such factors as:-
- Whether the technology will increase revenues, improve customer retention, and reduce the company's loss ratios
- Whether the solution will make any sense to the policyholders and whether it provides them with any tangible value
- Whether the technology aligns values proposed by the insurance company
The second step towards implementing a UBI program is choosing a telematics partner. The suitable telematics partner should possess the relevant industry experience, which includes data management, data security, and staff training.
A telematics partner should not be a mere technology provider. Rather, they should also understand the insurance business to execute the program properly. The right partner should help you through your insurance budget cycle and how to incorporate the technology.
Insurance companies that wish to implement UBI programs need to set realistic expectations. Gaining an organizational buy-in would be ideal as the shift will affect all departments in the organization.
It would also be wise for such companies to organize for a pilot period. This enables all the employees and as well as the management to learn about all the capabilities the program offers. Once the insurance company finds the program feasible, it can go ahead to launch it.
Benefits of UBI to insurance customers
Switching to UBI has many potential benefits, especially to the end-users. Some of these include:-
Good drivers benefit from discounted premiums
In conventional insurance systems, you have to generate logs of historical data to benefit from insurance discounts. On the other hand, switching to UBI enables you to enjoy such discounts, especially if you practice safe driving habits.
It has the potential to improve your driving
Just like your insurer, you will have access to the information generated by the telematics device. Knowing that bad habits such as taking corners too sharply or braking too hard impact your premiums' rate could motivate you to become a better driver.
Accident investigation becomes easier
The installed telematics device registers each event that happens, including what takes place just before an accident. For instance, it can tell the direction the vehicle was traveling towards and whether there was any hard braking. This could help investigators find out who was at fault, thus hastening the accident claim process. This is also beneficial to insurance companies as it helps cut down on fraudulent claims.
It can help policyholders recover stolen vehicles
As it is a tracking technology, a telematics device could enable you to recover your vehicle in the unfortunate event that it gets stolen.
You pay for your insurance based on your current driving habits
UBI uses current data on how frequently and how far you are driving to calculate your insurance premium. This means that a change in your driving habits automatically reflects on your premium.
Upcoming trends in UBI
UBI started in the last decade as an experiment by several hand-picked insurance companies. The desire to experiment on this technology was fueled by the increase in the number of interconnected devices. Today, UBI is commonplace, especially in Europe and North America.
According to a recent news article, the UBI market is estimated to grow at a compound annual growth rate (CAGR) of over 29%. It is expected to get to $190 billion by 2026. The technology will be more popular in commercial vehicles which are estimated to have a growth rate of more than 18% from 2018-2024.
Some of the contributing factors to this incredible growth include:-
- Growth in the automobile industry
- An increase in the number of connected vehicles which bring about new UBI opportunities
- The shift towards remote diagnostic technology
- The increased adoption of UBI technology by insurance companies to increase profitability
- The increasing demand for accurate motor insurance quotations
As technology advances, vehicle insurance companies and policyholders will have more sources of data for their UBI programs. This is because the modern consumer enjoys learning more about themselves. This has been enabled by the increase in wearable tech gadgets which enable people to log their day-to-day routines and monitor themselves. We can only expect to see such technology incorporated in UBI programs.
Today's cars are quite advances which will reduce the need to plug-in telematics devices. For instance, today's cars have collision avoidance systems, among other technologies such as mobile app support. This makes it easy and convenient to implement UBI programs.
The insurance industry will continue to change as more autonomous vehicles get into the market. Accident liability might eventually become the liability of tech companies and vehicle manufacturers. As a result, insurance premiums might fall by 75% or even more.
More transport companies are likely to adopt UBI technology in a bid to leverage the technology to facilitate real-time tracking, communication, and driving efficiency.
Location World's Latin America Operations
Over the next several years, the motor vehicle insurance industry will go through major developments. Location World is among the first companies to provide advanced telematics data to motor vehicle owners in Latin America. We currently operate in Equador, Columbia, Mexico, and Peru. Our UBA solution in Latin America features a pay-as-you-drive platform, which encourages drivers to drive safely in exchange for rewards to their account.
In addition to providing telematics through IoT, our platform features tech components such as advanced data processing and analysis, real-time billing, and mobile applications for drivers.
Our telematics data solutions in Latin America and around the world comply with GDPR and local data protection regulations. Contact us today and have unconnected vehicles integrated into a scalable and agile platform.