Articles - Usage-Base Insurance is set to boom

Usage-Based Insurance (UBI) is set to boom in the coming years. It provides an opportunity to tailor insurance to customers’ specific behaviours and usage patterns. But how can insurers optimize this opportunity? Global UBI market penetration stood at just one per cent in 2015, but market penetration in Europe, Asia, and America is expected to soar to 15 per cent by 2020, EY research suggests.

 By Paul Tarsey, Business Development Manager, Aeris
 The potential that UBI offers is clear. Providers are suggesting that an effective solution has the potential to reduce claims cost by 40 percent, reduce policy administration by 50 percent, substantially reduce acquisition cost, and price policies more effectively, according to the EY research.

 UBI is set to expand as it offers a smart way to reduce costs while giving insurance providers the ability to design differentiated and personalised products. However, if the solutions that providers offer are unreliable, they soon will find that they face major problems when embracing this technology.

 Just last year mobile network operator EE was hit by a major outage, leaving some customers across the UK and Europe without data for several days. All UBI devices that relied upon EE’s network simply stopped working, meaning that providers had no way of measuring how a person was driving and how vehicles were being used – the very thing UBI is intended for.

 Having reliable cellular coverage is business critical for companies offering UBI solutions. If they rely on using a single carrier, and that carrier has an outage, the insurance provider will face major problems that potentially could lose them money and affect their reputation. But if they use a carrier-agnostic SIM in their devices, which utilizes multiple networks, companies can alleviate this problem.

 What’s more, dependable coverage enables the transfer of real-time data, 24-hours-a-day, ensuring that providers can optimize the opportunities that UBI offers. For example, UBI solutions can instantly send a notification if a vehicle is in a crash, removing the need for providers to wait for a First Notice of Loss from a claimant. Not only does this expedite the claims process, it also ensures that the cost to the provider is minimized – providers can instantly arrange for the car to be sent to their approved garage for repairs rather than a rival company’s garage, for example.

 In the case of a customer being involved in a collision, the data can be used to analyze the direction and force of impact to make an accurate assumption of the damage caused and any potential injury to the driver and passengers. This ensures that emergency services could be contacted if the analysis indicates that the incident would have caused serious injury to passengers. It also allows the providers to calculate the potential damage and cost of fixing the car, as well as working out the most suitable recovery vehicle to send.

 Aside from reliability, the other key element to optimizing any UBI solution is flexibility. The key target market will be 17-25-year-olds and the very nature of young drivers demands that providers are flexible. Young drivers, after all, are more likely to sell their car, switch provider, or be involved in an accident, and these businesses must be prepared to adapt to that.

 For example, we have heard about several instances where people sign up to a 12-month contract but are offered a cheaper deal by a rival. The driver then cancels their insurance and the original provider is left paying for a SIM that is not being used. There also can be issues with people tampering with their boxes to make it appear that they are not driving their car. However, by understanding that these problems may arise, UBI providers can plan ahead and work with an IoT expert that can remotely turn off devices and instantly warn users about tampering.

 With the number of consumer subscribers to UBI expected to grow to 142 million globally, providers must act now to ensure they are optimizing the opportunity, and by backing their solutions with reliable connectivity and taking a flexible approach, companies will be well positioned to take full advantage of the rapidly growing market.

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