UBI: Auto Insurance for a New Reality

In a world where “Siri” is at the ready to help meet requests, either by updating you on the local weather forecast or even letting you know when you’re about to pass your favorite coffee shop (as if you’d need a reminder!), personalized service has become an expectation. Today’s savvy consumers demand products and services that are customized and meet their individual needs. It’s clear that personalization is not going to be a passing trend. Instead, even staid legacy companies will have to jump on the bandwagon and figure out how to offer more individualized service. For insurance companies, this is easier than it sounds with usage-based insurance (UBI). 

While UBI has been around for more than two decades, it is picking up lots of traction and becoming increasingly popular today. Not only has consumer demand for UBI grown, but so too has its technology and capabilities. With new app-based telematics, no longer do physical telematics devices need to be installed or attached to a vehicle, like traditionally done through ‘dongles’. 

Read on to learn more about telematics and usage-based insurance, and why it is essential in meeting customer insurance demands. 

A Brief Intro to Usage-Based Insurance & Telematics 

Usage-based insurance is a type of auto insurance that is priced based on the amount of mileage driven and other safety-related factors such as distraction, behavior, speed, braking, acceleration, and more. Telematics is used to monitor and track such behaviors, giving insurance companies accurate data for risk modeling and providing drivers with appropriate insurance offers and discounts.  

Standard telematics requires installing a hardware device in the vehicle. Today, Earnix is leading the new generation of telematics and UBI solutions that are fully app-based and do not require additional hardware. This means that the driver and the insurance company are both involved in real-time data generation. This data ensures that drivers are rewarded for better driving and are motivated to access better rates. The driver has the incentive to constantly improve their overall driving, keeping their costs down, and giving the insurer better insight into establishing driver risk and pricing. 

Telematics was first popularized as a “black box” placed in a vehicle and used primarily for location tracking and fleet management. As the realities of 21st Century driving have evolved for everyone, the role of telematics has expanded to serve as the basis for usage-based insurance.  

UBI is more flexible because standard auto insurance pricing depends on pre-defined actuarial models and fixed rating factors. Thanks to real-time driving patterns, pricing can be based on more accurate predictions drawn from real data, generated by the actual driver. This makes the process more cost-effective and efficient for consumers and insurers alike, giving customers the personalized insurance plans they are after. Plans that are tailored and reflect their specific driving needs and habits. 

Collecting accurate data about what happens during that time and how risky or safe the driver’s behavior is, is crucial to UBI pricing. Of course, one of the biggest dangers to drivers is their interaction with a cell phone while they are driving. Even though Earnix’s telematics solution is app-based, the app’s tracking feature does not require any driver interaction with the mobile device. Cell phone interaction is one of the many parameters tracked by Earnix’s telematics solution and factored into its usage-based pricing.  

Now that we’ve described what UBI is, let’s discuss why it’s so relevant in the current market: 

 

Impact of Covid-19 on Auto Insurance 

When the pandemic hit, and it became clear that no one would be going anywhere any time soon, people began to question the need to continue paying full price for auto insurance. With so much economic and health uncertainty and very little need to drive, consumers are questioning why they should be paying the same prices when their lifestyle is clearly not the same as before. 

Today, many people are beginning to venture back to their offices and other places, and driving is picking up again, although nowhere near the pre-Covid levels. Those who plan to drive less are also more open to telematics and UBI, making now the perfect time for insurance companies to expand their offerings to include this type of coverage.  

Heavy Competition in the Auto Insurance Market 

In 2020, 46% of car insurance policyholders made changes to their policies, including reducing coverage or looking for a new carrier. Now, as consumers are returning to the market with new expectations, they are looking for a good deal. Of course, insurers could rely on the laws of supply and demand and simply lower the prices on existing policies to remain competitive. This strategy, however, is likely to end in a loss for the insurance company, especially if claims increase.  

Offering UBI is a leg-up for insurance companies as it means being able to offer prices aligned directly with driver risk. 

 

The pricing is variable – if a driver who usually drives slowly and carefully suddenly changes their ways, the pricing will adjust so the price is in line with the risk that the insurance company is willing to take on.  

Newer insurtechs are already offering UBI, and this market is expected to reach almost $150 billion by 2027, up from just $28.75 billion in 2019. This growth is a strong indication of increased consumer demand and the need for traditional insurers to add UBI to their offerings or risk losing market share to their competition.
 

Customer Demands 

While price is a key consideration, the other factors driving competition in the auto insurance market are the new expectations and demands of the 21st Century consumer. This consumer responds well to uber-personalization and individualized attention. They do not want to be presented with a generic list of insurance policies with terms and conditions that may or may not apply to them directly. 

A customer in 2021 does want an insurance policy that reflects their driving patterns and behaviors. Especially now, when many people are in precarious financial situations, knowing that good driving will be rewarded with lower premiums is a huge draw for those shopping around for new auto insurance. The companies that understand this consumer need and respond to it, will attract better drivers, and earn the loyalty of new and existing customers.  

Earnix Now Offers UBI Technology 

If you’re ready to offer your customers the UBI they are eager for, Earnix is here to help. Thanks to its latest innovations, Earnix can now provide insurers with intelligent telematics that will revolutionize risk modeling, pricing, and rating, so that you can identify and deliver super-personalized and perfectly timed UBI offers in real-time.  

Consumers will get the personalized and contextualized premiums they desire (without the need to install any hardware in their vehicle), and insurance companies will reap the benefits of risk models driven by hyper-accurate data and a fast time-to-market for new offers. Satisfied with lower premiums, drivers will be encouraged to keep up their safe driving – saving money and making the roads safer. 

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