Usage-based insurance (UBI) is personalizing the previously impersonal business of auto insurance. This business model — also known as pay-per-mile, pay-as-you-drive, or pay-as-you-go policies — enables insurers to charge customers per mile they’re driving or based on their driving behavior, rather than demographic information.
The UBI market is expected to grow significantly over the next few years, driven by the coronavirus pandemic and advances in technology. Globally, it’s expected to reach $125.7 billion by 2027 at a compound annual growth rate of 23.0%, up from an estimated $24 billion in 2019, according to Reportlinker.com.
UBI offers a number of benefits for auto insurers, some of which are passed down to consumers. By adopting such a model, insurers can work to enhance customer loyalty and satisfaction. It also allows insurers to cut costs by reducing payouts for claims and to improve their risk assessments, as they’re able to consider a wider range of data to more accurately assess the real risk of an individual.
In The Usage-Based Auto Insurance Report, Insider Intelligence evaluates the growth opportunities within UBI, outlines the model’s benefits, and highlights key players in the space. We profile three incumbents and one insurtech within the UBI space and detail information about their onboarding process, IoT devices, data collection, and pricing. Additionally, we spotlight some of the key considerations in relation to each offering, as well as the impact of the pandemic on the insurers’ operations.
Our outreach process involved exclusive interviews across three providers in July 2020, while Progressive’s Snapshot profile is based on desk research due to interviewee unavailability. Additionally, we discuss why more incumbents should move into the UBI space and define key features they should offer to get a competitive advantage.
The companies mentioned in the report include: Allstate, Metromile, Nationwide, Progressive, Root, Slice, State Farm, Travelers, USAA, and Zego.
Here are some key takeaways from the report:
- The coronavirus crisis is spotlighting and accelerating the need for personalized car insurance policies, as driving rates have declined over the past few months amid shelter-in-place directives.
- Incentivizing safe driving among customers can help reduce claims, which in turn can boost revenue for insurers as they have to pay out less money; and by using alternative data, insurers are enhancing their underwriting methods to better assess an individual’s risk level.
- Partnerships with original equipment manufacturers (OEMs) are a game changer in the industry, as they allow insurers to retrieve data from the vehicles directly — and those doubling down on such partnerships have a further competitive advantage.
- Allstate, Progressive, Metromile, and USAA have all developed UBI car policies, and they’re leveraging different technologies and data to measure customers’ risk.
In full, the report:
- Outlines the benefits of developing a UBI offering.
- Details what kind of features a UBI offering should have to be competitive, and explains how insurers can get an edge over competitors’ products.
- Spotlights four players within the UBI space that offer such policies for auto coverage.
- Highlights what types of IoT devices they’re using to collect data, and provides information on what kind of information is being collected.
- Discusses how these four players have been affected by the pandemic, and notes key considerations for each of their offerings.
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