Usage-Based Insurance

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Learn about telematics-driven usage-based insurance

What is usage-based insurance?

Usage-based insurance (UBI) is a type of vehicle insurance that uses driving behavior to determine the cost of the policy. Early versions of UBI used driver-reported mileage as the primary variable on which premiums were determined. Modern UBI programs use rich telematics data to identify risky driving behavior and price policies accordingly.

What data is collected for UBI?

Telematics devices collect many driving behavior data points and the list grows daily. The number and variety of data points available to insurers to optimize pricing models expands as telematics devices evolve. Common data points include:

  • Location
  • Speed
  • Cornering
  • Braking
  • Trip duration
  • Road type
  • Distance
  • Direction

How is the data used?

The data collected is only useful if it can be translated into actionable insights an insurer can use to improve business outcomes. The collected vehicle data is analyzed to identify driving behaviors that indicate risk. A score can be assigned to signify to an insurer the relative risk of each driver. Octo is always working to translate new data into actionable information insurers can use to identify risky behavior. Common risky behaviors include:

  • Night driving
  • Frequent driving
  • Frequent hard breaking
  • Frequent hard acceleration
  • Distracted driving

Telematics data can also be used to create value-added services for policyholders, engage with customers, and improve driver performance.

Benefits of UBI programs

 

  • Driver behavior data helps insurers better price risk
  • Lower premiums for safe drivers help insurers attract and retain more profitable customers
  • Better drivers tend to opt-in to UBI policies, helping insurers improve their risk pool
  • Increased pricing transparency can help improve customer loyalty

UBI by the numbers

 

  • 20% of US households participate in a UBI program1
  • Policyholders receive up to a 40% reduction in premiums
  • 10% increase in policyholders’ likelihood of renewing their policy2
  • 11% increase in customers’ likelihood of recommending their insurer3

Tomorrow’s Telematics for the Insurance Industry

The insurance industry’s adoption of telematics is still relatively low, but rapid growth is expected over the next few years. This growth presents an opportunity for innovative insurance carriers, and a risk for those who lag behind.

Read this white paper to learn how insurance carriers can leverage telematics beyond usage-based insurance.

Read the Report