UBI, or Usage-Based insurance, is still in its embryonic stages and will need to grow into a standard of insurance. UBI is certain to be the future of auto insurance. Although UBI has begun to lay the foundation, it is still not clear how UBI will appeal to consumers. How will it become a mass-market proposition?
Usage-Based insurance, as its name implies, offers two popular models of auto insurance: pay as you drive or pay how you drive. Advanced telematics technology is used to pay-how you drive. Driving data such as hard brakes and rapid acceleration can affect insurance premiums. This detail-oriented system is able to change not only insurance, but also reform driving. The USPs of Usage Based Insurance are the most effective ways to attract the auto insurance market.
How to Drive
Initially, driver information was collected to investigate accidents and make insurance claims. The need to go further led to the introduction of pay-as-you drive. This model is possible by capturing real-time driving data. It will calculate every acceleration and hard brake, average speed, frequency of driving, usage information such as locations, parking, and other details. Combining them with historical data to create an insurance plan and assign premium values.
The mass market will be attracted to any initiative that saves money. Consumers are always looking for ways to cut costs in an economy as chaotic as the Bermuda Triangle. The usage-based model of insurance uses telematics and analytics in combination with shared data to create an affordable insurance policy. This data is used to determine insurance premiums. If the policyholder is careful and doesn’t use his car a lot, then his insurance premium will be lower.
This model is also beneficial to insurance agencies. Telematics, for example in the case of a car accident, can record real-time driving data to determine what caused the accident. This helps avoid fraudulent claims and reduces the risk of losing your money.
Incentive-based System and Customizable Features
Unscrupulous drivers are paid far less than those who drive prudently. But, driving improvements are not unrewarded. Rewards and perks are a great way to motivate yourself. UBI employs an incentive-based system that encourages better driving. The insured’s premiums will decrease if he improves his driving skills.
Insurance providers also offer other features that are unique to each insurer. These features include roadside assistance, driving tips, geo-fencing, location information such as fuel stations, eateries, and fuel stations.
B.F. Skinner conducted an experiment to examine the effects of incentives and rewards. A guineapig was placed in a box with a lever inside. A food pellet would fall out of the box every time the guineapig pressed the lever. Gradually, the number of times that the guinea-pig pressed the lever per day increased. Operational conditioning refers to behavior modification by a reward system. Reward systems also work well for humans. This principle can be applied in many areas, including education, human resource management and marketing. It has produced good results.
UBI incorporates this principle into its incentive-based model in order to encourage safe driving. This model not only saves money for the insured and insurer, but it also encourages safer driving. It is a win-win situation for everyone.
There are several concerns that must be addressed. Privacy concerns are top of the list as people worry about sharing information about their location. Another concern is the regulation of data collection so clients can transfer their data and get benefits without having to start over.
UBI is still in its infancy phase. These concerns will be addressed over time. These challenges are far greater than the benefits UBI offers.
These are UBI’s competitive benefits that can make UBI a viable mass-market proposition. It is vital to inform the public about how UBI can make auto insurance more profitable and socially responsible. This tool can be used by insurers to offer insurance solutions as well as for marketing purposes via consumer engagement features. Policyholders can drive more safely and will be charged as they drive.
Usage-Based insurance is a multifaceted approach to reducing costs, customer engagement, and inspiring responsible driving. UBI will ultimately result in the satisfaction of insurance providers, clients and society as a whole.