Blog: Usage-based insurance, an untapped opportunity


  • There is consumer demand for UBI but insurers aren't matching it
  • One of the barriers is that UBI providers are charged for airtime even when the SIM is not in use
  • UBI provides data that can be valuable to insurers and government

The growing usage-based insurance market is an opportunity for insurers, but there are some barriers yet to overcome.

Allied Market Research estimates the global usage-based insurance market to garner $123bn (£98.7bn) by 2022, growing at a compound annual rate of 36.4%, with Europe accounting for the largest revenue share in 2015 followed by North America. 

According to its research, the pay-as-you-drive segment accounted for the largest UBI market share in 2015 owing to its cost efficiency. And manage-how-you-drive is anticipated to grow at the fastest rate from 2016 to 2022 because it gives customers more freedom and flexibility.

Flexible premiums that are based on user behaviour can be an attractive option for a range of drivers. A 2016 Lexis Nexis research on the US market showed that only one in five customers are offered UBI - yet half of them end up enrolling. There clearly is consumer demand for flexible premiums, yet insurers are not matching this demand.

Barriers to growth
This is probably because a number of barriers are slowing down the wider adoption of UBI. One such barrier is the fact that UBI providers can be charged for the airtime necessary to transmit data from the SIM inside the telematics device, even when the SIM is not in use. For example, if a driver on a PAYD tariff doesn't drive for a couple of months, the provider may still be charged for the airtime. However, it is possible to suspend service in this instance so the UBI provider does not incur a cost.

Not only does UBI provide individual usage data, but it also provides big data insights. For example, identifying the percentage of drivers on the MHYD premium that adhere to the speed limit. However, extracting value from big data can take time and expertise that the insurance or telematics provider may not have. Yet, this aggregated data would be valuable to an insurer, not mentioning governments, road safety and environmental campaigners.

In November, the European Commission stated that it wants new car models to feature digital technologies that can cut fuel use and make roads safer. Surely aggregated UBI data could help inform and shape legislation that influences driver behaviour? It's clear that the impact of the UBI proposition goes far beyond an insurer's ability to manage risk.

The automotive market in Europe is on the verge of some historic changes, with the Internet of Things enabling more sophisticated telematics solutions and even driverless cars. When those barriers to UBI adoption are addressed, this will be another example of how an unconnected product, in this case a car, is moving towards a connected service and generating a whole ecosystem around it. 

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