Usage-based or RBU insurance is in the embryonic stage and has a long way to go before it becomes the insurance norm. That said, there is no denying that the RBU will become the future of auto insurance. While it has already begun to lay the groundwork, the question remains: How will UBI attract consumers? How will it become a mass market proposition?
Usage-based insurance, as the name suggests, has two popular car insurance models: pay as you drive and pay as you drive. The pay-per-drive model uses advanced telematics technology, where detailed driving data such as a hard brake or rapid acceleration can alter insurance premiums. This detail-oriented system can change not only insurance, but also completely reshape driving. Focusing on the USPs of usage-based insurance can definitely appeal to the auto insurance market.
Pay as you drive
Initially, the driving information was collected for the purpose of investigating accidents or insurance claims. However, the need arose to take this technology one step further, leading to the start of paying for the way you drive. The implementation of this model requires capturing driving data in real time, calculating each fast acceleration and hard braking, average speeds, driving frequency, usage information such as locations, parking, etc. and combine it with historical data to write an insurance plan and map premium values.
Pocket friendly
Any initiative that can save money will appeal to the mass market. With an economy that is as difficult as navigating through the Bermuda Triangle, consumers are constantly looking for ways to cut costs. The usage-based insurance model combines telematics, analytics and shared data to calculate an insurance policy that doesn’t burn your pocket. Insurance premiums are decided based on this data. For example, if the insured does not use his vehicle much and is a very careful driver, his insurance premium will be relatively lower.
Even insurance agencies benefit from this model. In the case of a car accident, for example, telematics can capture driving data in real time and determine exactly how the accident occurred and what damages occurred, avoiding fraudulent claims and reducing the risk of losses.
Incentive-based system and customizable features
A cautious driver pays much less than a reckless one. However, the improvement in driving is not without being rewarded. Who doesn’t love the rewards and benefits! UBI uses an incentive-based system to encourage better driving. If the insured improves his driving style, his premium amounts will surely be reduced.
Other than that, insurance providers offer other custom features that differ from one insurer to another. These features can include driving tips, roadside assistance, geofences, location information such as gas stations, restaurants, and more.
Conditioned for safe driving
BF Skinner had conducted an experiment to study the effects of rewards and incentives. He put a guinea pig in a box that has a lever inside. Every time the guinea pig pressed the lever, a pellet of food fell out. The number of times the guinea pig pressed the lever in one day gradually increased. This behavior modification through a reward system is called operant conditioning. Humans also give in to rewards. This principle has been used in various fields of education, human resource management, marketing, etc. and it generated good results.
UBI instills this principle in its incentive-based model to encourage people to drive safely. This model not only saves money for both the insurer and the insured, it also encourages better quality driving, a benefit for all stakeholders.
Challenges
There are some concerns that need to be addressed. Privacy concerns top the list, as people worry about divulging details of their whereabouts. The other concern is regulating the data collection method so that clients can transfer their data to another insurance provider and reap the benefits without having to start from scratch.
The RBU is still in the early stages and therefore these concerns will be addressed over time. However, these challenges outweigh the benefits that RBU offers.
These are the competitive advantages of UBI that can lead UBI to a mass market proposition. Educating the masses on how the UBI can transform auto insurance into a win-win and socially responsible system is critical. Insurers can use this tool not only to offer insurance solutions, but also for marketing purposes through consumer engagement features. Policyholders will pay while driving, which can result in better driving.
Usage-based insurance is a multifaceted system of cost reduction, customer engagement, and inspiration for responsible driving. The final result of the RBU will be the satisfaction of insurance providers, their respective clients and society in general.
