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The Benefits of UBI Policies

Informed consumers are enjoying the wide range of opportunities provided by telematics

Not too long ago, we did most of our shopping and business at local stores and services. Then, as shopping malls rose around the world, consumers were excited by the vast range of available choices. Now, with on-line shopping, our choices seem virtually endless, even confusing. And shopping for services, such as vehicle insurance, has become, in some case, downright frustrating. How can we be sure to find the best-priced policy in this onslaught of offers?

Traditionally, car insurance policy pricing has been based on categories profiled by demographics such as age, sex, place of residence and prior insurance history. This, however, has changed with the introduction of usage-based insurance (UBI) policies, which allow insurers to collect data on individual drivers, analyse their driving style (speeding, braking, curve negotiation, journey length, time spent driving, time of day a vehicle is used the most, etc.) and custom-tailor policies directly to their needs.

While a part of the population remains sceptical about the treatment of personal data and wary that insurance companies may use the collected data to drive their own earnings, the opposite is true: UBI policies mainly benefit consumers. Instead of lumping drivers together in generic categories, telematics data allows insurance companies, for example, to provide benefits – and cheaper insurance – to safer younger drivers and increase the cost of individuals in traditionally safe categories that instead tend to speed often. Indeed, in the United States, a rapidly growing share of personal auto policies are based on the data collected by vehicle telematics systems and smartphones.

According to a recent report by IHS Markit, at present, Italy is the only country in which UBI policies represent a double digit share of the market. The United Kingdom is another mature market, followed by France, Germany and Spain, while Germany has the greatest percentage of consumers concerned with data privacy.

In the United States, a country with over 260 million vehicles on the road, the market potential is enormous. IHS Markit reports that, in 2015, the United States accounted for over 5 million UBI policyholders, far more than any other country worldwide. And, due to its sheer size, China is another market that is expected to drive the adoption of UBI policies. Globally, IHS posits that by 2023, 142 million drivers will have adopted UBI insurance policies.

Clearly, the collection of big data and pattern recognition mining systems will continue to play a major role in insurance policy development and pricing, but the industry is increasingly defining new algorithms that integrate their market research with personal driving data to develop fairly-priced personalized insurance policies. Moreover, various reports have confirmed that drivers, who know that their data is being monitored, tend to drive more safely. Indeed, telematics insurance is not just about reducing the cost of insurance policies and providing added value services. It increases road safety by pro-actively alerting drivers to imminent dangers or unsafe driving (speeding, hard braking, etc.) and is an invaluable educational tool that can be used to show drivers how to improve their driving styles and habits.

Finally, telematics data monitoring is also an effective method for uncovering various types of insurance fraud, another element that plays a significant role in determining the cost of insurance policies. Telematics data analysis allows insurance companies to detect drivers who declare a false home address (something which is often done to take advantage of cheaper insurance policies available in given areas or even different states), purchase a personal insurance policy, but use it for business purposes (such as with Transportation Network Companies) or even just to verify claims data accuracy.

The adoption of telematics systems has introduced an entire range of added value services, including emergency alerts, roadside assistance and stolen vehicle geo-tracking, as well as advanced navigation systems with information on traffic, parking and weather condition, vehicle diagnostics and predictive maintenance alerts, and a wide range of infotainment opportunities. If you add it all up, UBI is a win-win opportunity, especially for the consumer.

For further information: Octo Innovation, Insight and Intelligence

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