Usage-based insurance or UBI is in an embryonic stage and has a long way to go before becoming the insurance norm. That being said, there is no denying that UBI will become the future of auto insurance. While it has already begun to lay the groundwork, the question still remains: how will UBI appeal to consumers? How will you push towards a mass market proposition?
Usage-based insurance, as the name suggests, has two popular car insurance models: pay as you drive and pay as you drive. The pay-as-you-drive model uses advanced telematics technology, where driving data as detailed as a hard brake or rapid acceleration can alter insurance premiums. This detail-oriented system can change not only insurance but also completely reshape driving. Focusing on the USPs of usage-based insurance can definitely attract the auto insurance market.
Pay as you drive
Initially, driving information was captured for the purpose of investigating accidents or insurance claims. However, the need arose to take this technology one step further, to the beginning of pay-per-drive. Implementing this model requires capturing real-time driving data: calculating every rapid acceleration and hard braking, average speeds, driving frequency, usage information such as locations, parking, etc. and combine them with historical data to write an insurance plan and assign premium values.
Pocket-size
Any initiative that can save money will appeal to the mass market. With an economy as difficult as navigating through the Bermuda Triangle, consumers are constantly looking for ways to reduce costs. The usage-based insurance model combines telematics, analytics and data sharing to calculate an insurance policy that doesn’t burn a hole in your pocket. Insurance premiums are decided based on this data. For example, if the insured does not use his vehicle much and is a very careful driver, his insurance premium will be relatively lower.
Even insurance agencies benefit from this model. In the event of a car accident, for example, telematics can capture real-time driving data and determine how exactly the accident occurred and what damage was caused, preventing fraudulent claims and reducing the risk of loss.
Incentive-based system and customizable features
A cautious driver pays much less than a reckless one. However, the improvement in driving does not go without reward. Who doesn’t like rewards and benefits? UBI uses an incentive-based system to encourage better driving. If the insured improves his driving style, his premium amount will surely reduce.
Apart from that, insurance providers offer other personalized features that differ from one insurer to another. These features may include driving tips, roadside assistance, geofencing, location information such as fuel stations, restaurants, etc.
Conditioned for safe driving
BF Skinner had conducted an experiment to study the effects of rewards and incentives. He put a guinea pig in a box that has a lever inside. Every time the guinea pig pressed the lever, a pellet of food fell out. The number of times the guinea pig pressed the lever in a day gradually increased. This modification of behavior through a reward system is called operant conditioning. Humans also give in to rewards. This principle has been used in various fields of education, human resource management, marketing, etc. and has generated good results.
The UBI instills this principle in its incentive-based model to encourage people to drive safely. This model not only saves money for both the insurer and the insured, but also encourages better quality driving, which is a win-win for all stakeholders.
Challenges
There are some concerns that need to be addressed. Privacy issues top the list, as people are concerned about divulging details of their whereabouts. The other concern is to regulate the data collection method so that customers can transfer their data to another insurance provider and avail the benefits without having to start from scratch.
UBI is still at an early stage and therefore these concerns will be addressed over time. However, these challenges outweigh the benefits that UBI has to offer.
These are the competitive advantages of UBI that can propel UBI toward a mass market proposition. It is essential to educate the masses on how UBI can transform auto insurance into a win-win and socially responsible system. Insurers can use this tool not only to offer insurance solutions but also for marketing purposes through consumer engagement features. Policyholders will pay while they drive, which can result in better driving.
Usage-based insurance is a multifaceted system of reduced costs, customer engagement, and inspiration for responsible driving. The end result of UBI will be the satisfaction of insurance providers, their respective clients and society in general.
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