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All you need to know about Usage Based Insurance

06/07/2022 • Edouard Boisnel

Today, new technologies allow insurers to improve their relationship with their policyholders. The emergence of connected car insurance makes it possible to simplify the underwriting and the handling of claims. With a mobile application, even young drivers have a better understanding of contracts, especially with the emergence of digital and connected car insurance. Insurance by the mile, by the minute or by behavior, discover the different options available. In this article, we will see how connected car insurances can better take into account the policyholders' habits to better meet their needs and limit costs.

What is Usage Based Insurance?

In automobile insurance, usage corresponds to the usual use of the insured vehicle. It is one of the criteria allowing the insurer to calculate the amount of the premium. The elements relating to usage can be the mileage covered in the year, the place of residence and parking, personal/professional trips, additional drivers or the loan of your car.

More specifically, in the context of connected car insurance, reference is often made to mileage and actual time of use of the vehicle (Pay-as-you-drive, Pay-as-you-go) or to behavior (Pay-how-you-drive).

For these two types of UBI offers, the insurance premium will be indexed on precise quantitative parameters obtained thanks to connected technologies:

  • Actual mileage or driving time: The premium is directly adapted according to the mileage or time information regularly reported by the policyholder. 
  • Scores representative of behavior: The insurer offers a premium that will be indexed on driving scores, built on elements representative of the risk of accident: the driving dynamics of the insured (sudden accelerations and braking, loss of grip), distraction at the wheel (use of the phone).

We can also see the emergence of offers combining the two criteria, km/duration and behavior, through green offers whose premium can take into account the CO2 emissions of the insured. The lower the emissions, the fewer kilometers are driven, and the more responsible the policyholder who adopts eco-driving (also quantified with a score).

Example: Yeet insurance offers a 20% discount with the launch of the "Yeet-VTC" application. Data from the driving behaviors of the insured are collected and analyzed from the drivers' smartphone. The better the driving score, the lower the premium.

How does UBI work?

Pay As You Drive

The insurance premium is adjusted to the actual kilometers driven by the driver. This system is convenient for drivers who rarely use their vehicle. It avoids paying for insurance when they don't drive and allows them to pay an amount proportional to their usage. 

An example of possible pricing for the insured is as follows:

  • The policyholder pays a reduced flat rate premium for when the vehicle is parked
  • A supplement, via a monthly invoice for example, is added according to the actual kilometers driven. 
  • A mobile telematics application can automatically measure the mileage driven and create this process.
  • There are also offers on the market where the insured must regularly send a photograph of his odometer

Pay How You Drive

The insurance premium is adjusted according to the policyholder's actual driving behavior. The principle is to reward drivers who drive safely. This system is a good way to offer attractive deals to categories of drivers such as young people or professional drivers, whose premium is by default higher based on the usual pricing criteria.

An example of pricing for the insured is as follows:

  • The customer buys a behavioral policy with the possibility of a discount at start 
  • An on-board technology (OBD box connected to the vehicle) or a mobile application determine the driver's prudence through driving scores
  • Regularly, a discount can be applied on the premium (monthly, quarterly, annually) if the policyholder obtains good driving scores
  • For this type of offer to be attractive, the pricing will not be punitive but rather incentive-based and reward-oriented.

Smartphone telematics as a solution

DriveQuant technology connects insurers and policyholders directly from their smartphones, in two ways:

  • By providing a white label telematics application to the insurer
  • By providing a mobile telematics SDK that the insurer will integrate into its existing application

The mobile's sensors are used to detect the vehicle's movements and thus measure the policyholder's mileage or driving behavior.

This technology creates a real turning point in car insurance

  • On-board devices have shown their limits in the promotion of pay-as-you-go offers: cost, logistics, support platforms, complexity of installation and transparency of the data collected...all this makes the policyholder experience unsatisfactory, costs the insurer money and creates little value. 
  • Data from connected vehicles is also still too expensive and not sufficiently standardized to be exploited on a large scale by insurers. 

Smartphone solutions are the only ones today that allow the implementation of these offers:

  • Implementation is simple and the data is universal and standardized
  • The data is qualitative and the mobile application format facilitates transparency for the user. 
  • It’s the only way to measure and prevent distraction on the phone, one of the main sources of accidents.
  • It’s the only way to create a real relationship between insurer and insured and to increase the value of protection:
    • Automated coaching
    • Challenges and rewards
    • Accident detection and dispatch of assistance
    • Simplification of the claims process

Concrete example of pay-as-you go insurance : Altima customer case

DriveQuant helped Altima to set up a pay-as-you-go car insurance thanks to martphone telematics. Altima wanted to reach the "short-distance drivers" segment, and two criteria were chosen for this new premium offer: distance driven or driving time. 

Altima's policyholders simply log on to the application to choose the criterion on which they wish to base their insurance. They have access to all their trips from their smartphone and can follow the cost of their premium in real time. 

Learn more about this case study and how DriveQuant developed 100% connected insurance for Altima