70% of Auto Insurers Plan Some Form of Usage-Based Insurance: SMA

Of the companies that responded to an SMA survey on usage-based insurance practices, all of them offer some sort of premium discount.

While a third of auto insurers offer some form of usage-based insurance (UBI) today, overall penetration of the product in the market is expected to stay low in the immediate future, according to research from Boston-based insurance technology analyst firm SMA.

Insurers largely expect only about 5% of overall policyholders to enroll in usage-based insurance by the end of next year. By 2020, the prevailing view is that one in five policyholders will enroll in UBI.

That isn't stopping insurers from exploring the product. A total of 70% of respondents are planning, piloting or using it today. And, it seems the early vision of "pay-as-you-drive" insurance is prevailing, with miles driven the runaway most-used data point in UBI programs, followed by time of day.

"Pay-how-you-drive" is gaining steam as well, however: The next four most popular data points for UBI rating are braking, speed, acceleration and sharp turns. Where people are actually driving, however, does not matter as much in refining UBI-based premiums.

"Of the 10 types of information now collected, miles driven is the one factor that has historically been a central rating factor (although it can now be precisely verified)," SMA says. "Fewer existing programs are leveraging location or routes driven."

Both business-side and IT executives cited cost as the major hurdle to overcome for UBI implementation. With "black box" devices representing a major component of that cost, it's no surprise that the majority of survey respondents expect UBI programs of the future to collect data via in-car platforms or policyholders' own smartphones. Only 5% expect insurers to provide black boxes in a decade, compared to 53% expecting in-car technology and 20% expecting smartphone utilization to be in the lead.

[Aviva's new UBI smartphone app]

"Automobile manufacturers are already building a variety of data collecting devices and services into new cars, so this model is likely to expand," according to SMA. "As telematics technology improves, it will become easier to track, store, and analyze the incoming data."

Nathan Golia is senior editor of Insurance & Technology. He joined the publication in 2010 as associate editor and covers all aspects of the nexus between insurance and information technology, including mobility, distribution, core systems, customer interaction, and risk ... View Full Bio