What is usage-based delivery insurance?

Usage-based insurance is nothing new. In 2019 alone, the market was estimated at $28.7 billion, and it’s slated to grow over 500% by 2027.  

People often associate most usage-based insurance (also known as ‘UBI,’ ‘pay-as-you-drive,’ or ‘pay-as-you-go’) as automotive insurance for individual drivers.  The idea is that a person can pay for the risk score associated with the distance they drive with their vehicle, as opposed to a flat monthly or yearly rate. 

The reality, however, is that usage-based insurance has multiple applications. One of the most dynamic use cases is with usage-based delivery insurance.

What is usage-based delivery insurance?

Much like individual usage-based insurance, usage-based delivery insurance tracks your driving journey. This software provides insurers with an in-depth look into the delivery vehicle’s mile-by-mile trek, and establishes a risk score associated with it. The insurance company records this information through telematics data.

Depending on the sophistication of the insurtech, companies can leverage different degrees of telematic complexity. For example, at Inaza, we consider everything from the shape of the road to the time of day to historic traffic patterns. 

This can be very useful for delivery companies, ranging from Amazon to Deliveroo,  to insure their fleet at a more precise risk score.

Why is usage-based insurance better for delivery companies?

Consider the rise of modern delivery companies, like UberEats and TaskRabbit. Technology has enabled everyday people (and their vehicles) to become a “fleet” for their services. This has lowered the cost of entry for many of these companies (as they don’t need to pay for a fleet), but insurance can become complicated for both the companies and the individual drivers themselves. 

Especially if the delivery driver is only driving once or twice a week, standard insurance can be exorbitantly expensive and eat into earnings. Whether the company or the individual is responsible for the insurance, the problem persists: everyone, whether they drive one hour a week or eighty hours a week, is tasked with the same insurance premium. It becomes even more complicated if a special type of insurance is required for a “gig economy” delivery worker.

In short, the high price of insurance can price out part-time or short-term workers, becoming a financial burden for companies and/or individuals. 

That’s why usage-based insurance is so useful. Risk is associated on a case-by-case basis, and scales with the amount a vehicle is used. This is more cost-effective for all parties. 

Furthermore, this can help companies price in the cost of their insurance into every ride. If insurance is allocated on a case-by-case basis, companies can think of every delivery as a unique event. Working with the insurance company, companies can create an estimate for every ride before it happens, thus giving companies the ability to incorporate dynamic pricing. If the delivery is far away in a historically accident-prone area or if it’s nearby with little risk, the cost of the delivery can be adjusted as needed. Thus, companies can price insurance into deliveries on a case-by-case basis. 

Companies that provide a delivery service can benefit immensely from the successful implementation of usage-based delivery insurance. Yes, the potentially lower insurance premiums make working for such companies a lot more financially viable, but there are more advantages that make a UBI plan more appealing than your traditional policy. 

Telematics-based car insurance can help drivers drive safer. You can often set up additional tracking rules such as getting a text alert when the driver goes too fast or enters into a risky situation. This can help drivers stay alert in an emergency situation or choose a less arduous route in order to lower their risk score. 

This ends up helping delivery companies determine the most efficient routes for their fleets, saving them costs related to personnel, gas, and maintenance. This gives them a higher rate of successful, on-time deliveries and saves costs for both individuals and companies on dealing with potential accidents.

Considering usage-based delivery insurance for your company?

Usage-based delivery insurance can save delivery companies millions while also increasing efficiencies and keeping their drivers safe. It’s a win-win for all parties involved and will likely become ubiquitous for delivery insurance in the next decade or so. 

If you want to explore how you can implement usage based delivery insurance for your business, we should talk.