What Is the benefit of Usage-Based Insurance? And How to Market It?

Today, we will be looking at what Usage-Based insurance is all about and how to market it. Due to the ongoing situation with COVID-19, many personal vehicles as well as commercial fleets have spent significantly less time on the road in recent months.

Some people believe they have been overpaying for coverage they do not require at this time. As a result, there is a greater demand for usage-based insurance.

In this article, you will learn what usage-based insurance is and how it works, discuss the pros and cons, investigate the target segments, and share a few.

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What exactly is usage-based insurance?

Usage-based insurance (UBI), also known as pay-as-you-drive (PAYD) or pay-how-you-drive (PHYD), is a new type of auto insurance in which premiums are calculated based on mileage and driving behavior. It offers lower premiums to drivers who drive less and safely.

Also read: 7 Most Appropriate Way to find the best Niche Markets in Insurance

How does usage-based insurance work?

Unlike traditional auto insurance, which bases the premium solely on demographics such as age, location, claim history, or even credit score, usage-based insurance bases the rate on how the car is used – with a set of trackable metrics such as mileage and/or driving habits.

Insurance companies may collect the following information: Mileage, Speed, Location, Time spent driving, Corning idle time (how good you take corners), Acceleration, Braking, fuel consumption and more.

The information gathered will be sent to the insurance company for analysis and will eventually be used to calculate the premium. However, not every insurer uses all of the tracked data to determine premiums. They only use the data in accordance with the type of UBI program they provide.

There are three types of usage-based insurance

There are three main types of UBI, each with its own set of metrics for calculating the premium:

Pay-as-you-drive (PAYD) or pay-per-mile insurance is based on mileage (how much you drive) rather than where or how you drive.
Pay-as-you-drive (PHYD) insurance premiums are based on driving habits (how you brake, accelerate, and turn).
Manage-how-you-drive (MHYD): The premium is calculated similarly to PHYD. To ensure driver safety, this model sends out real-time alerts.

What exactly is Telematics?

Telematics (hardware installed onboard or mobile apps) is used by insurance companies to track actual mileage and/or driving behavior. The collected data will be analyzed and used to compute the premium.

Telematics is classified into three types:

The manufacturer has pre-installed hardware in your vehicle.
Self-installing plug-in device for your vehicle
Smartphone apps that have been downloaded

Smartphone telematics is becoming increasingly popular due to its low cost and efficiency when compared to telematics that require hardware installation. With GPS and mobile phone sensors already built into your smartphones, data collected via dedicated mobile apps has become extremely precise.

Is usage-based insurance always less expensive?

With a UGI program, your premium will be lower if you drive less and more safely than the other policyholders. However, if you do the opposite, your premium will almost certainly rise.

According to Penny Gusner, an analyst for CarInsurance.com, usage-based insurance can reduce premium rates for personal car use by 10% to 30%. So, if you anticipate driving less as a result of WFH, a change in lifestyle, or an office/home relocation, usage-based insurance.

The Benefits and Drawbacks of Usage-Based Insurance

Insurance companies do not have to bear the high cost of sponsoring the manufacturing, distribution, and installation of UBI hardware with mobile apps telematics.

And there is literally no entry barrier for customers as long as they have a smartphone to download a mobile app. Let us examine the benefits and drawbacks of UBI:

The Benefits

UBI is a “win-win-win” situation for drivers, insurance companies, and society as a whole.

Driver benefits: UBI reduces premiums not only for drivers who drive less and safely, but also for inexperienced and risky drivers (who are usually charged with higher rates by insurers). It is because the premium is calculated based on their current driving behavior, which can be improved over time, rather than their previous driving record.
Benefits to Insurance companies: UBI lowers premiums for safe drivers. There will be fewer accidents if more people drive safely. Insurance companies will benefit from fewer claims to pay. This will boost their profit margins.

The Drawbacks

Privacy and potential data breaches are two of the most serious concerns about UBI. By enrolling in UBI, you consent to insurance companies collecting data generated by your driving habits at all times.

Some people are concerned that this is a form of surveillance. However, attitudes are changing. According to Accenture, 69% of global consumers are willing to share data on their health, exercise, and driving habits in exchange for a lower premium from their insurers, a 19% increase from two years ago.

What customer groups might benefit from usage-based insurance?

Young motorists: Inexperienced drivers, including those under the age of 25, are considered high-risk by insurance companies. Traditional auto insurance usually requires them to pay a higher premium. However, UBI rates are determined by actual driving behavior, which can be improved by driving safely.
Drivers with poor credit: Similarly, some insurance companies charge higher premiums for people with poor credit. However, usage-based insurance does not account for this.
Drivers with a history of claims: People who have had previous accident claims are more likely to have their premiums raised as a result. After a claim, their no-claim-discount will be reset to zero. UBI may not rely as heavily on historical data, such as claim history.
Infrequent drivers, such as students, retirees, or city dwellers: These groups of drivers may drive much less than people who use the vehicle on a daily basis. Because of the lower mileage, UBI will assist in lowering their premium.

How should usage-based insurance be marketed?

According to Acumen Research and Consulting, the global usage-based insurance (UBI) market will grow at a CAGR of around 29% by 2026, reaching around US$190 billion.

As a result, we anticipate that the market will become extremely competitive, with both existing large players and emerging insurtech startups. Marketers could consider the following four product promotion tactics to stand out from the crowd:

Personalize your marketing message for each segment

We just identified at least four segments that will benefit from using UBI. They represent a diverse demographic, and each segment should have its own set of requirements. You should capture their attention by using marketing messages that are tailored to each segment.

For example, seniors, students, and teachers will require a different approach. Additionally, providing personalized packages to meet their various needs will.

Promote the Social Cause

On top of the money-saving elements, UBI is also beneficial to society for advocating good driving habits and preventing accidents. Millennials, in particular, are eager to contribute to positive social causes.

Promoting the social cause of UBI would help prove to customers that your brand is authentic and can be trusted.

Collaborate with Insurance Aggregators

When it comes to buying insurance online, comparing car insurance has become an essential part of the customer journey. Working with insurance aggregators increases a brand’s chances of exposure.

Your goal is to be as open and honest about the quotation process as possible. And it is critical to keep it simple and straightforward.

What businesses provide usage-based insurance?

Here are some brief summaries of some popular usage-based programs.

Allstate Drivewise — The mobile app calculates your cash back based on your driving speed, braking, and time of day.
Esurance DriveSense — The app tracks a variety of driving behaviors, including miles driven at high speeds, hard braking, and significant speed changes.
Credit Karma — members can take a test drive through the Credit Karma App with Karma Drive, a usage-based insurance program in partnership with Progressive and Allstate. The app monitors your driving habits and provides you with insights and feedback. You’ll find out whether you qualify for an insurance discount with Progressive or Allstate at the end of your test drive.
Liberty Mutual RightTrack — The program keeps track of your mileage, nighttime driving, braking, and acceleration.
Metromile — The app calculates how much you pay for coverage each month based on a base rate and the number of miles you’ve driven.
Nationwide SmartRide — This app tracks your driving distance, hard braking, acceleration, idle time, and nighttime driving.
Progressive Snapshot — The Snapshot device or mobile app tracks your mileage, driving time, and driving style.
State Farm Insurance Drive Safe & Save — The mobile app tracks mileage as well as driving behaviors such as acceleration, braking, cornering, speed, and distraction.
Travelers IntelliDrive — The app records your driving time, as well as your speed, acceleration, braking, and distractions.

Conclusion

As you can see, there’s more to UBI than simply promoting the price. UBI may grow faster than anticipated because social distancing is here to stay as more organizations support the WFH model.

The sooner you understand how UBI works and how it can benefit your target customers, the better your chances of distinguishing your brand from competitors.