The rise of UBI isn’t not just fueled by drivers saving more money on their auto insurance, but is also the result of rapidly evolving telematics, IoTs, and connected vehicles, which help insurers monitor driver behavior safely, securely, and accurately.
It has long been predicted that telematics and usage-based insurance (UBI) will enable risk pricing to be done in real-time, ushering the end of the annual renewable car insurance policy. 2021 looks like the year that will consign traditional auto insurance to the history books.
The pandemic changed everything, including auto insurance. The unchanging one-size-fit-all legacy model is no longer viable, with changing car usage, new consumer expectations, and sweeping digitization of all services.
Telematics takes a leap forward
Telematics first appeared in the early 2000s riding on high industry expectations, but captured only a five percent market share in the coming decades. But as 2020 came to a close, the pandemic positioned telematics and UBI in a high demand position. Just this one year has upended several industries, and brought forward change in insurance by a factor of years. What would have taken decades to achieve has now happened in less than a year.
This is most true for UBI, propelled by growing acceptance of data sharing, changes in mobility & car ownership patterns, and demand for flexible insurance products in an uncertain economic climate. While UBI first brought in risk selection giving insurers the advantage of more accurate pricing and underwriting, today it is enabling intelligent insurance products facilitated by continuously analyzed driving data, and low cost tethered apps & smart devices that act as sensors.
This increased demand, fuelled by greater connectivity and quick strides in vehicle intelligence, is also buoyed by the increasing willingness of governments to mandate telematics services like its emergency call capabilities, as seen in the European Union and Russia already.
The shape of UBI to come
In 2021, it appears that a true return on investment (ROI) in telematics technology is here. The key to ROI will come from increased customer engagement, incentivized safe driving, and faster claims management. By essentially adding a low-cost hardware in every insured car that provides automated first notice of loss (FNOL) alerts, and forensic levels of crash detail, means that liability and damage repair decisions can be done faster– and fairly.
According to Digital Insurance auto claims in the US, and European cost insurers approximately $360 billion annually. With leveraging of telematics data this figure will reduce, potentially delivering a double-digit combined operating ratio improvement for its capacity providers through the use of data in claims alone.
Also, UBI will require a new kind of customer engagement from insurers, not restricted to a claim. Now, insurers will incentivize changes in driving behavior and create frequent touch-points and opportunities based on how often customers look at driving scores.
Insurers cannot afford to miss the telematics led UBI revolution, and ignore the game changing ROI that is on offer– improved loss ratios, gains from claims efficiency, and increased customer retention.
As the demand for usage-based insurance for automotive continues to increase significantly, a strong ecosystem is evolving around connected cars. This ecosystem involves OEMs, insurers, IoT, data platform and analytics companies, telematics providers, big data companies, and cloud service providers, most of which are are also witnessing unprecedented digital transformation.
