Telematics-based insurance policies are seen by many as too intrusive and are typically used as a gateway policy by young drivers, saving them considerable amounts in premiums while they build experience. But motor now has another way in UBI.
Instead, the far less intrusive usage-based insurance (UBI) approach could prove to be the way forward for the motor insurance market, and a similar adoption by a major vehicle manufacturer looks set to ignite interest.
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UBI premiums comprise two elements in motor. The first is a single payment which provides cover for the vehicle when it is not on the road, with the second element being a small fee charged for every mile the vehicle is driven.
Given that the distance travelled is the only metric being recorded, the policies will likely feel less intrusive than telematics. They will also be a welcome alternative to the 37% of motor insurance policyholders that have an issue with the idea of their driving ability being graded, according to research from GlobalData’s 2018 UK Insurance Consumer Survey.
Popularity of UBI
With UBI typically saving low-mileage drivers money over the term of the policy, the shift towards fewer miles being driven, as well as car sharing, may see policies of this nature become increasingly popular.
A number of insurtechs have spotted the growing potential of UBI, including Bymiles in the UK and Metromile in the US. Increasing vehicle connectivity may also see vehicle manufactures enter the UBI market, as evidenced by Volvo’s recently announced partnership with Ergo to launch Volvo Car Protection, providing drivers in Germany with coverage for between one and 21 days. Although this is not a UBI policy, it does indicate that manufacturers are becoming increasingly aware of the need for more flexible insurance policies. This, combined with the increasingly sophisticated technology installed in vehicles, puts them in a strong position to leverage the vehicle data and develop specialist policies more aligned to UBI.
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