There is Nothing Accidental About How Usage Based Insurance Changed the Auto Insurance Market

UBI applies driving behavior and mileage as key measures for pricing, and discounts in auto insurance. An analysis in 2020 by Allied Market Research suggested that UBI is rapidly changing the North American auto insurance market and predicted that globally, with a 25% CAGR, UBI will approach $150Bn USD by 2027.

Smartphone based UBI for auto insurance is expected to be the primary area of growth, likely because everyone has one, and mobile phones are already a replacement for wallets, purses, keys and credit cards. Using a phone to measure miles driven along with the specific time of day, geographic usage, rapid acceleration or hard braking, could be quite simple.  Phones already contain the hardware: GPS, accelerometers, and cellular backhaul. For ultimate success, all that remains is a monitored phone app,  and of course customer permission.

The important insurers in the UBI automobile marketplace are already household names: Allstate, Aviva, AXA, Liberty Mutual, Mapfre, Nationwide and Progressive.  These insurers have developed an appreciation for consumer consumption habits and have determined how to increase their strategic advantage to grow their market share.  They recognize that UBI may eventually replace the need for motor vehicle record (MVR) gathering and in the future may simply apply a UBI score tied with accident records to select and retain the best insureds, leaving adverse selection problems to the less prepared carriers.

As the most market-savvy insurers claim the lion’s share of the large consumer auto market, the companies that hesitate or approach UBI with a wait-and-see attitude, might find themselves frantically maneuvering to catch up with the leaders.  The pandemic may have brought UBI to the attention of every auto insurance customer.  And now that the cat is out of the bag, consumers will be far more aware and enthusiastic about accuracy and fairness in insurance premiums, and perhaps for other kinds of insurance too.

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