09 Oct Robin Kiera, one of the known faces of insurtech, discussing startups, incumbents and the future of the insurance industry
The trend of car-pooling, ride-sharing, and telematics has caused a paradigm shift in the usage-based insurance (UBI) industry. Accurate and real-time data collection, low fuel consumption, and flexible insurance premiums create an upsurge in the industry. Moreover, technological advancements and low possibilities of accident & vehicle theft have driven customers to look into it. As insurance costs are based on driving habits including speed, time of delay, miles driven, and others, drivers who opt for UBI can save money by saving amount of premium.
According to the report from LexisNexis, half of the American drivers opted for UBI when presented as an option. "Exciting transformations in mobility, including ride-sharing, increased use of public transportation and self-driving vehicles mean consumer driving habits are and will continue to change," said Ted Nickel, National Association of Insurance Commissioners (NAIC) President and Wisconsin Insurance Commissioner. NAIC has developed DriveCheck, a tool to help drivers determine if UBI would help them save costs. The tool helps insurance companies by tracking driving patterns of drivers and obtain discounts for them. Drivers who drive safely need to pay less insurance premium amount. An electronic device is installed in the car to obtain data on distance and speed. The information is saved on cloud and insurance companies can access it to develop premium amounts. This provides a cost saving option for car drivers by the insurance industry.
Willis Towers Watson (WTW) conducted a UBI survey and it reported that more than 55% drivers in the U.S. are likely to buy a new or pre-owned vehicles that are equipped with new technology features. The survey was aimed at determining influence of in-car technologies and connected cars on buying patterns along with inclination toward auto UBI. According to the survey, 10% of total drivers who have or have been using UBI conveyed that there are positive benefits of it. Same amount of drivers reported that they are willing to share driving data obtain personalized insurance premium. Moreover, 84% of drivers conveyed that they are willing to have a short trial to determine benefits of the policy.
Geoff Werner, global telematics product lead with WTW, said, “The key aspect of connected cars in relation to UBI is enabling policyholders to determine at the quote stage if a telematics policy will benefit them before they buy one, but this works only if consumers are willing to share recent driving data to receive a personalized quote.” Very less percentage of drivers (7%) are posing resistance to the idea of UBI. WTW also noted that customers also need to understand that how they drive would count in calculating premium. Steady innovation is driven in the automotive industry as manufacturers are rolling on vehicles equipped with technology and connectivity for applications such as UBI. Connected cars present a huge growth prospect for the UBI industry in coming years.
Approximately 50% of vehicles will be insured as per the user-based insurance policies by 2030, states the finding by Global Telematics Research. It is a win-win option for consumers and insurance companies as it is a risk framework that is partially under the control of consumer. The research also states that UBI motivates responsible on-the-road behavior as drivers will have to improve their driving standards. As a result, it will also help to reduce the rate of deaths caused by accidents. It can also be used by ordinary business owners to enhance driving performance through incentivizing. When warnings boards on road and threats of penalty fail to make an impact, UBI proves useful to maintain discipline.
J.D. Power 2017 U.S. Auto Insurance Study finds that usage-based insurance programs would be a great equalizer in customer perception of price. The study finds that the combination of frequency, distance covers, weather conditions and severity of collisions in the U.S. has decelerated profitability of auto insurers. This in turn, resulted in increase in insurance premium by 26 percent for customers and put a strain on customer satisfaction. “Differentiating on service and demonstrating the value of the policy for premiums paid is going to be the key to improving customer satisfaction,” said Greg Hoeg, vice president of U.S. insurance operations at J.D. Power. He emphasized on the fact that carriers that are successful in getting beyond price through communication and demonstration of value through extraordinary customer service, efficient claims processing, and a considerable selection of offerings will gain a leadership status in the UBI industry.
In its recent report on the global usage-based insurance market, Allied Market Research states that the market is expected to reach $123 billion by 2022, growing at a CAGR of 36.4% from 2016 to 2022. It is helpful for market players, investors, and new entrants to take necessary steps for growth by understanding changing market dynamics, dominating segments, drivers & opportunities, and competitive landscape.
Pratik Kirve is a content writer at Allied Market Research. He has avid interest in studying changing dynamics in the insurance industry. When he is not articulating corporate insights, he spends his time reading, observing, and analyzing market behavior.