The Future Of Car Insurance: Digital, Predictive And Usage-Based

Imagine shopping for your next car insurance and the car company offers an insurance that connects a black box, dongle or a mobile phone app, which tracks how you drive, and saves you up to 30 percent on premiums. This, in essence, is the future of connected car insurance, also called usage-based car insurance (UBI), whereby based on how you drive, when you drive and where you drive, you will receive a competitive quote if you are what the technology deems a ‘safe driver.’

Usage-based car insurance started in the late 2000’s as a niche experimental effort by a select number of insurance companies in select regional markets. Fueled by an increase in the number of connected cars and smartphones, it has now become a mainstream offer by most insurance carriers especially across North America and Europe. Driving information can be accessed online or on apps allowing customers to monitor their driving patterns and make needed adjustments to improve their chances for better discounts. Today, big insurance names offer mileage-based, driving behavior-related discounts, and customers now have the option to choose an insurer before they walk out of a dealership with their new car.

Car insurance policy with money and key fob

Source: Frost & Sullivan 

Pay as you drive (PAYD) and pay how you drive (PHYD) business models are likely to become the preferred types of metrics to calculate premiums. In addition, greater influence of data analytics will see options such as manage how you drive (MHYD), gain momentum beyond 2020. A recent Frost & Sullivan analysis suggests that there is an appetite for UBI policies and is expected to reach close to a 100 million drivers by 2020, dominated by Italy, UK (exceptional push from a safety angle for younger drivers) and the US.

With some smartphone apps that provide “try-before-you-buy” (TBYB) options, this is also seen as a “cool” product, which is predominately targeted at millennials, allowing them to find out how safe they are behind the wheel or what score they can obtain and share with followers on social media. Pay-per-ride or pay-per-use models can be expected to become increasingly significant as these “cool” millennials impose their preferences on the market.

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