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Usage Based Insurance (UBI) – Advantages, Challenges and FAQs

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If you’re looking for a type of car insurance that rewards your safe driving skills, usage-based insurance (UBI) can be a good fit for you. UBI is an option offered by auto insurance providers that could result in lower car insurance rates. How does the UBI work, you may ask? Read our recent article that covers topics such as how UBI generates a premium based on exactly how a policyholder drives his or her vehicle.

True UBI means that the premium can go up or down based on the usage with shorter intervals between price adjustments, such as monthly or even weekly. By implementing UBI, insurance providers can have a competitive advantage while selling the policy as the prices will now be usage specific which will not only benefit the insurance provider but also the users.

Let us look at the advantages of UBI to the users as well as insurance providers…

Advantages of UBI for the users:

  • Reward in the form of discount for safe drivers

If the driver meets the insurer’s expectations, he will be greatly rewarded as the drivers will have access to customized rates based on the driving pattern.

  • Tips on improving driving skills

Recording of driving pattern can encourage better driving habits as the data can help the driver understand his mistakes and improve his skills.

  • Family member or employee tracking

Telematics tools/software come with tracking mechanism by means geofencing that can benefit the companies that want to track their fleet of vehicles or can owners who want to know where their young drivers/family members are going.

  • Identify risky drivers

The driving behavior of the driver in your presence can be very different than their driving behavior without your presence. The telematics data can alert you of such discrepancy and help you identify risky drivers that can cause damage to your car.

  • Accident investigations

In case of an accident, safe drivers can benefit from the GPS data leading up to the incident as the authorities and insurance providers can use the telematics data to pinpoint what went wrong and settle the claim more accurately.

  • Recover stolen vehicles

As the UBI relies on the tracking devices installed in the vehicle, it can help to access the device and pinpoint the location of the stolen vehicle leading to faster recovery.

10 Advantages of UBI for the insurance providers:

  1. Attracting low-risk drivers
  2. Enhanced customer loyalty
  3. Reduced claims costs
  4. Fraud reduction
  5. Stolen vehicle recovery
  6. Increased pricing accuracy
  7. Lower acquisition costs
  8. Increased renewal
  9. Improved liability determination
  10. Automated claims management

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Also Read: Top 8 Technology Trends That Will Drive Growth in the Insurance Industry

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Besides the above-mentioned advantages, the UBI also comes with a set of challenges:

  • Concerns with privacy: This is one of the biggest disadvantages of usage-based insurance. With the increasing no. of cyber-attacks, there will be privacy related concerns with UBI as the users driving information, location history etc. will be stored in a database linked to the devices that are on ‘always-on’ mode.
  • Interpretation of information could be an issue: The technology is not able to recognize when a driver is being defensive and when he is being reckless. For example, if one breaks hard in order to save a child running on a street, the telematics system can give you a negative mark. Similarly,
  • The hassle of integration: Going through the hassle of having your family members or employees download apps or install the required trackers in the cars can be a hassle, especially for companies with a large fleet of vehicles. It is further problematic to go through the hassle again if one plans to switch the insurance provider.

Some of the Frequently Asked Questions (FAQs) about Telematics or UBI:

  1. Is Telematics or UBI approved by IRDAI?

According to IRDAI’s draft proposal, a central repository of telematics data can be created where data from various sources flows to create a common pool. “Insurance Information Bureau of India (IIBI) which acts as a data repository for insurance companies can manage the data and its protection,” it stated. However, currently it restricts insurers to offer full-fledged telematics-based insurance products.

  1. Can I choose UBI for my new car in India?

UBI is not widely available in India at present. There are a limited set of insurance providers in the country who are offering UBI. The list includes the likes of Bajaj Allianz General Insurance Company, ICICI Lombard, HDFC Ergo, TATA AIG, Liberty General Insurance etc.

  1. Are there any privacy risks due to the data being collected?

The UBI runs on the data collected via telematics. Sharing of data is not optional but one can clarify the doubts by getting in touch with the insurance provider and read through the policy document to clarify the concerns.

Conclusion

Overall, it’s clear that the global automotive insurance industry is changing and changing rapidly. Indian insurance providers who get involved with usage-based insurance programs early will stand to gain over their counterparts who will be slow to adopt the change.

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