Usage-based (or telematics-based) insurance is an increasingly influential evolution in the insurance industry, particularly in the automotive industry. Often referred to as ‘behaviour based insurance’ or ‘pay-as-you-drive' (PAYD), usage-based insurance rewards potential insurance customers for their current behaviour, rather than a potential behaviour or an unforeseen event. To boil it down, usage-based insurance programmes allow insurers to underwrite policies based on the user´s driving behaviour and patterns.
Prior to UBI technology in the automotive/motor/car insurance industry, insurance providers may have had to install car tracking devices or built-in by OEM’s. But now, for example, due to the rapid growth of using new, state of the art technology, the monitoring and processing of driving behaviour data among a potential clientele has never been easier – which paints an incredibly accurate picture of how the customer currently drives. If that picture results in a clean, no penalty driving record, then the customer is rewarded for their good on-the-road conduct with a lower premium and subsequent savings on their car insurance. It’s a win-win. The data that can be recorded by insurance providers through the use of telemetric technology includes, but is not limited to:
- Location and timing of the drive
While usage-based insurance benefits the consumer by driving down premiums, how and why has this evolution come about in the insurance industry among insurance providers? The answer is relatively simple. To begin with, of course, the ability to save money on premiums and reward customers is not rocket science. Anything that is time-efficient, saves money and rewards the consumer will never be unpopular. However, the world of usage-based insurance has also evolved with the evolution of technology and in particular, smartphone technology. Prior to the growth in popularity of smartphones and mobile data telematics, the majority of insurance providers would have to be on the ground to make a diagnosis of someone’s driving behaviour. Now, with data tracking, mapping, logging and processing, insurance providers can glean just as accurate a description as if they had been in the drivers’ seats themselves.
What sort of telematic tools am I referring to? Think about your smartphone. In the past, it may have been used to sign in to social media platforms and listen to a few downloaded songs. But now, your smartphone, with particular reference to iOS and Android, can track your heart rate, steps, geographical location, sleeping patterns and so on. Insurance providers can use these tools to understand consumer lifestyles and limit their exposure to claims and ultimately limit their risk.
And while this may all speak to benefitting the consumer, as I have outlined above, the insurer is primed to benefit also. Safer drivers are now flocking to usage-based insurance programmes, which ultimately means that insurance providers are paying out less and covering fewer claims. In addition to safe drivers seeing discounts on their premiums, drivers who fail to show a consistent level of safe driving, see their premiums rise, which means more money for the insurance provider.
As we can therefore clearly see, the trend towards usage-based car insurance has been assisted greatly by the uptick in smartphone use and capability among customers. It is expected by the end of 2021, that usage-based insurance will be used by approximately 36% of insurance providers – which can only lead to growth and a shift in consumer behaviour towards insurance providers who have implemented usage-based insurance policies.
However, the growth of usage-based insurance in the insurance industry is not limited to the automotive and car insurance industry. This is where it currently has the most traction and most active policies, but the health insurance sector also has incredible potential. As outlined above, advancements in smartphone technology can allow for the monitoring and collection of individuals' health telematics. A simple app on your smartphone can tell you how many steps you have taken, how many calories you have burned and even how many glasses of water you should drink. The list of potential health monitoring telematics that can have a say in usage-based insurance premiums is endless. With developments in smartphone and telematics technology capabilities, the health insurance sector has the chance to pivot to a usage-based insurance model which may change the trajectory of healthcare and the entire health insurance industry for the better. And again, the benefit is to both the provider and to the consumer. In a similar vein to Pay as You Drive, the health usage-based insurance concept is commonly referred to as ‘Pay as You Live’ and may prove to completely upend the health insurance industry as we know it, by offering lower premiums to customers and lower costs to the government through the reduction of healthcare maintenance.
There is no doubt – the usage-based evolution in the insurance industry is here and it is here to stay.