We know what drives policyholders to switch to a usage-based insurance policy: lower premiums as a reward for better, safer driving.
But what drives insurers to add a UBI book of business?
First, participation in UBI policies increased from 13% in 2013 to 20% in 2015. Second, the UBI market is expected to continue growing at a CAGR of 36.4% to reach a market size of $123 billion by 2022, according to Allied Market Research. Forward-thinking insurers want a piece of that action.
That said, spinning up a UBI program is complex, requiring coordination across the enterprise – insurers need to consider its associated costs. UBI is dependent on telematics, and telematics’ cost is projected to rise in the coming years. From Allied Market Research: “This is anticipated to increase the operating expense of UBI service providers, restraining the market growth. However, smartphone-based telematics services are anticipated to gain popularity due to their relatively lower cost.” The leaders have already made the switch.
Progressive, Allstate, and State Farm, which combined represent 35% of the global UBI market, share some obvious winning strategies. Partnerships, expansion through acquisition, and a focus on continuous improvements in customer experience have helped them achieve the competitive advantage with the ability to –
- Attract and retain low risk drivers
- Increase and personalize customer touch points
- Facilitate safer driving habits via constant feedback and loyalty incentives
- Reduce claims frequency and severity
- Lower the overall cost of claims processing while creating “lifetime” loyalty with expedient settlement
- Create a platform for additional products and services that leverage telematics and other Internet of Things data
It’s clear that UBI’s value proposition continues to drive stakeholders forward and the good news is that there is still plenty of room to compete. In fact, insurers conducting risk/benefit analysis are evaluating both complex requirements and potential new business models relative to UBI’s expected return, and coming up with a winning hand, especially if they are looking at smartphone devices as one of the program’s primary data sources.