What Is Usage-Based Insurance?

What is Usage-Based Insurance?
Posted 29 Sept 2011 by Ron McNamara

Usage-Based Insurance – or ‘UBI’ for short – is a generic term for motor insurance that increasingly relies on telematics (wireless in-vehicle devices that log & transmit data), to potentially determine WHEN (e.g. time of day), WHERE (e.g. geographic location), WHAT (e.g. number of miles driven) and/or HOW (i.e. driver behaviour) a vehicle is driven. It is also sometimes referred to as 'Pay As You Drive' ('PAYD') or Pay How You Drive ('PHYD') insurance.

The journey information captured allows insurers to better rate risk, achieve competitive advantage, improve customer service, develop new products, reduce claim cost & improve safety.

There are several reasons influencing insurance companies growing interest in this area at this time. Firstly, research has shown that such programmes work – those being monitored have significantly less collisions. Secondly, technology has advanced, improving intelligence of data captured and resulting in powerful, timely behaviour modification. Thirdly, a European directive prohibits insurance companies from rating individuals based on gender, from the end of 2012. Finally, general insurance company losses globally as well as increased motor claims, have contributed to significant increases in premia – a phenomenon that has recently seen the Office of Fair Trade (OFT) in the UK launch an investigation into reported 40% increases.

On the commercial / fleet side, Aviva UK are quite clear on the benefits for employers in adopting telematics. Aviva states:

• It can help measure a company’s attitude to risk.
• It provides an accurate log of a vehicle’s carbon footprint. This can be used for corporate responsibility reporting.
• It monitors vehicle speeds and measures the forces exerted on the vehicle.
• It helps businesses comply with their ‘duty of care’ requirements.
• It reduces fuel costs; businesses can analyse data to ensure the most efficient use of their vehicles.
• It details hours driven and can warn managers when a driver might be feeling tired.
• Some systems provide in-vehicle visual and/or audible feedback to alert the driver.
• It can be used to benchmark individual drivers.
• It enables businesses to manage driver behaviour.
• It can assist in stolen vehicle recovery and breakdown location assistance.
• It supports fraud investigation, helping to establish where the responsibility lies.

Already available in several countries – notably US (10 of the top 25 insurance companies have gone public with UBI offerings), Italy & UK – it is only a matter of time before individuals and employers have more choice when it comes to renewing their motor or fleet policy.

The question is, which major insurance company will be first to market in Ireland in 2012...?