Usage-Based Motor Insurance also known as Pay-As-You-Drive (PAYD) & Mileage-based insurance (MBI) is gaining traction as an innovative approach to auto insurance. With MBI, premiums are calculated based on the miles driven, often tracked using telematics devices. This model rewards low-mileage drivers with lower premiums, promoting more conscious driving and reducing CO2 emissions.
The COVID-19 pandemic and rising fuel costs have heightened interest in MBI, making it a viable option for cost-conscious and environmentally aware drivers. Insurers are increasingly adopting MBI to meet this growing demand and align with environmental, social, and governance (ESG) criteria.
The Market Segment & Projection of Usage-Based Insurance:
The usage-based insurance (UBI) market is categorized by type, technology, vehicle age, vehicle type, and region. It includes pay-as-you-drive (PAYD), pay-how-you-drive (PHYD), and manage-how-you-drive (MHYD) insurance types. Technologically, it covers OBD-II, smartphone, hybrid, and black-box-based programs. The market differentiates between new and used vehicles and segments vehicles into light-duty (LDV) and heavy-duty (HDV). Geographically, it spans North America, Europe, Asia-Pacific, and LAMEA. In 2022, the global UBI market was valued at $26.8 billion and is projected to reach $267.4 billion by 2032, with a CAGR of 26.2% from 2023 to 2032.
What’s the Reason for Growing Interest in Usage-Based Insurance:
The growing adoption of usage-based insurance (UBI) among users is driven by its features, such as accurate data collection and flexible premiums, boosting the global UBI market. Additional benefits like increased chances of vehicle recovery if stolen and lower fuel consumption also contribute to its growth & popularity.
Accurate and timely data collection is a key driver of the UBI in the insurance industry, enabling insurers to price premiums more precisely and offer affordability for low-risk drivers. It also provides consumers with detailed trip records. The increased use of telematics and the popularity of pay-as-you-drive plans further drive market growth. Telematics devices gather comprehensive data on driving behavior, allowing insurers to offer tailored coverage. An insurer with 100,000 vehicles can collect over one terabyte of data annually. To manage this data, many insurers adopt UBI.
Advantages of UBI
- Saving on Premiums: Drivers who use their cars less frequently can save significantly on insurance premiums.
- Environmental Impact: Encourages reduced driving, leading to lower emissions.
- Additional Services: Opportunities for insurers to offer value-added services like real-time traffic updates and roadside assistance.
- Help in Investigation: If the vehicle is in an accident, having GPS data beforehand makes it easier to investigate. Telematics like braking strength, speed, and acceleration help authorities and insurance adjusters figure out what happened. Leading to faster and more accurate claim settlements.
- Advance & Innovative Features: Most telematics car insurance platforms offer extra tools for monitoring and improving driving habits. These platforms regularly update with new features to deliver ongoing value to you, your drivers, and your insurance provider.
Risks associated with Usage-Based Insurance:
The high telematics installation costs and data security concerns pose some significant challenges in the progress of UBI.
Privacy and Security Concerns
The use of telematics in UBI raises privacy concerns as it involves tracking drivers’ behavior, including when, where, and how long they drive. It can have a bad impact on UBI. If insurance companies are not transparent about data usage and fail to protect customer data from cyber threats. The rise in cyberattacks, especially in Asia-Pacific, exacerbates these issues.
High Cost of Telematics Installation
Telematics systems, such as those from General Motors, Lexus, and BMW, offer valuable services but are expensive to install. This reliance on costly technology can limit the affordability and growth of UBI, posing a challenge for consumers seeking cost-effective insurance options.
Recent Developments in the Usage-Based Insurance Market:
Partnerships:
- Citroen India teamed up with ICICI Lombard General Insurance on August 24, 2023, enhancing everyday value and convenience for consumers.
- Mastercard launched U.S. usage-based Insurance card products, offering cardholders access to over $60 billion in rewards and benefits. New collaborations with Instacart and Peacock also deliver added value directly to consumers.
Product Launch:
- Definity introduced a new usage-based insurance (UBI) offering on September 11, 2023, giving drivers more control over their premiums while promoting safer driving practices.
Collaboration:
- On November 14, 2022, the CerebrumX platform partnered with Ford to integrate connected vehicle data, supporting a data-driven UBI-as-a-service model. This collaboration enables quicker and more cost-effective implementation of UBI programs using embedded telematics in eligible Ford and Lincoln-connected vehicles.
Conclusion:
The insurance industry plays a crucial role in the economic growth of a country. It offers financial protection against unforeseen events for individuals, assets, and businesses. Which Significantly contributes to a country’s development. Additionally, more & more insurance providers are now leveraging insurance telematics and smartphone technologies. That can reduce the claim expenses, and a great example of that would be UBI. Mobile telematics collects data on driving behaviors’ like acceleration, braking, speed, turns, and driver distraction, facilitating the development of applications for young drivers. This shift toward smartphone-centric solutions allows real-time monitoring and analysis of driving behavior, enabling personalized insurance premiums based on individual driving habits and promoting safer driving practices.
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