Time to Ask the Question: Engage with Consumers Maturing UBI into a Mass Market Proposition

Usage-based insurance or UBI is in its infancy and has a long way to go before it becomes the insurance norm. With that said, there’s no denying that UBI will become the future of auto insurance. While it has already begun to lay the groundwork, the question remains: how will UBI attract consumers? How is it going to become a mass market proposition?

Usage-based insurance, as the name suggests, has two popular auto insurance models: pay as you drive and pay as you drive. The pay-how-you-drive model uses advanced telematics technology, where driving data as detailed as hard braking or rapid acceleration can alter insurance premiums. Such a detail-oriented system can change not only insurance, but also completely reform driving. Focusing on the USPs of usage-based insurance can definitely appeal to the auto insurance market.

pay how 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, which led to the start of pay how you drive. The implementation of this model requires capturing driving data in real time: calculating each rapid acceleration and hard braking, average speeds, frequency of driving, usage information such as locations, parking, etc. and combining it with historical data to build an insurance plan and assign premium values.

pocket friendly

Any initiative that can save money will appeal to the mass market. With an economy that is as difficult as navigating through the Bermuda Triangle, consumers are constantly looking for ways to cut costs. The usage-based insurance model combines telematics, analytics, and shared data to calculate an insurance policy that doesn’t break the bank. Insurance premiums are decided based on this data. For example, if the policyholder 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 case of a car accident, for example, telematics can capture real-time driving data and determine exactly how the accident occurred and what damage was done, 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 is not without reward. Who doesn’t love rewards and perks! UBI uses an incentive-based system to encourage better driving. If the insured improves his driving style, his premium amounts are bound to reduce.

Aside from that, insurance providers offer other custom features that differ from one insurer to another. These features may include driving tips, roadside assistance, geo-fencing, location information such as gas stations, restaurants, etc.

Conditioned to drive safely

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 placed 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 behavior modification 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 generated good results.

UBI instills this principle in its incentive-based model to encourage people to drive safely. Not only does this model save money for both the insurer and the insured, it also encourages better quality driving, a win for all parties concerned.

challenges

There are some concerns that need to be addressed. Privacy concerns top the list, as people worry about revealing details about their whereabouts. The other concern is to regulate the method of data collection so that customers can transfer their data to another insurance provider and reap the benefits without having to start from scratch.

UBI is still in the early stages 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 make UBI a mass market proposition. It is essential to educate the masses on how UBI can transform auto insurance into a system that is profitable for all parties and socially responsible. Insurers can use this tool not only to offer insurance solutions, but also for marketing purposes through consumer engagement features. Policyholders will pay while driving, which can result in better driving.

Usage-based insurance is a multifaceted system of reduced costs, customer involvement, and inspiration for responsible driving. The final result of UBI will be the satisfaction of insurance providers, their respective clients and society in general.