Usage Based Insurance (UBI) – the hottest sector in the insurance market
What do you know about recent trends in the insurance market? This market is extremely sensitive to developments and innovations in technology. This is why there is such unprecedented growth in insurance telematics programs in the usage based insurance sector.
Why it is called usage based? It’s simple – the insurance policy terms depend on user behavioral patterns. According to Wikipedia, the UBI general concept, otherwise known as behavior-based insurance or pay-as-you-drive (PAYD) or pay how you drive (PHYD), includes any scheme where insurance costs depend not only on how much you drive, but how, where, and when you drive.
So, we can say that UBI offers insurers the opportunity to tailor their insurance plans making them flexible and personalized. This approach impacts price and service transparency as well as provides a simplified and dynamic user experience. According to Ernst & Young (EY) data, UBI providers suggest that an effective solution has the potential to reduce claims cost by 40%, reduce policy administration by 50%, and substantially reduces acquisition costs and price policies more effectively. UBI is beneficial both for customers who can directly lower the price of their insurance premium and for insurers who can improve their risk selection, make fraud detection more efficient, and increase customer interaction. This is true both for car insurance and health insurance.
It may seem obvious that the UBI market started its upward trend along with the evolution of the Internet of Things (IoT). In 2013, global UBI market penetration was less than one percent, but in 2016 usage based insurance statistics showed market growth of 32% to over 14 million policies, says PTOLEMUS UBI Quarterly Dashboard.
The biggest market to date is in North America, with over 7.1 million active policies. The next is Europe with 6.5 million active policies, and the rest of the world accounts for the remaining 0.4 million. According to the Ptolemus study, Progressive, Allstate and Liberty Mutual are the biggest UBI insurers in North America. The European market leaders are UnipolSai, Generali and AXA. Among the Telematics Service Providers (TSPs), to which over two thirds of UBI policy volumes worldwide are outsourced, the biggest market share belongs to Octo Telematics. The two other large players are Vodafone Automotive and Movitrack Viasat. Meta System, Xirgo and Danlaw are the leaders among Telematics Technology Providers (TTPs) by the number of UBI devices in use worldwide.
Technology drives the market
At the very beginning of automotive telematics and usage based insurance, the most widely used wireless devices were OBD-II plug-in units. Insurers could track driver behavior by installing telematics devices in vehicles and using specialized software to monitor and analyze the logs.
Typical telematics devices collect and transmit the following data:
Time and location of the drive
For more details from OBD-II technology and driver behavior tracking see here.
However as the IoT has gained more traction worldwide, the approach has changed dramatically. Telematics based insurance is taking a backseat to smartphone technology. Various smartphone apps are used by insurers for UBI programs based on customer self-reporting and behavior tracking.
The usage based auto insurance market now tends to be a market predominantly for younger people as they are the most prolific users of smart technologies and social media. But the share of older people interested in UBI is also growing. Willis Towers Watson (NASDAQ: WLTW, a global advisory, broking and solutions company) data show that the US market is ready for wider use of UBI:
Health insurance with telematics
The health insurance sector is also promising. Here monitoring devices have just started their way toward more customer-oriented insurance policies. The number of available health and fitness apps is snowballing. Those apps usually are bound to web based portals and include basic activity tracking and remote monitoring features. mHealth technology, i.e. the practice of medicine and public health supported by mobile devices, is expanding globally and has shown stable growth since 2011.
The Pay As You Live (PAYL) concept is one that can become a game-changer in health insurance. Just like UBI solutions in auto insurance, UBI in the health insurance sector can clearly benefit customers not only through lower premiums but also the insurers who can offer better pricing, and the government who can reduce the cost of health care.
Fact: the UBI market has great potential and is evolving rapidly. There is still plenty of space for new players. Want to know the current trends? Here they are.
Usage Based Insurance Trends
Development of new technologies can change the whole insurance value chain as most of the current trends in the insurance industry are related to technology or are driven by it. According to a Capgemini Group report in 2016 the main high-impact trends in UBI were:
Increased use of Internet of Things by insurers.
Shift towards UBI in the car insurance sector.
Gamification of processes in the insurance domain.
Increased use of mHealth apps by insurers.
Increased use of customer adherence apps.
Let’s take a closer look at these trends.
Increased use of the Internet of Things by insurers means they can obtain more data relating to their customers and analyze them more closely, thus identifying their needs and risks, and reducing the frequency of claims and their severity. Connected home technologies and wearables are gaining ground all over the world – the above mentioned report forecasts that 29.5 billion devices will be used worldwide by 2020. Find one story about connected home technology here.
The shift towards UBI in the car insurance sector was boosted by a upsurge of smartphone capabilities, the growing number of connected cars as well as by the increasing popularity of smartphone powered apps and telematics. It is expected that by 2020, telematics usage based insurance will be used by approximately 36% of auto insurers. This suggests that new opportunities for new direct insurance startups making use of the development of new mobile applications.
The gamification of processes in the insurance domain is also a result of the spread of social media and smartphone apps. Gamification, i.e. the application of game-design elements and game principles in non-game contexts, is used to boost user engagement and make internal training in insurance companies more effective. Here again there is considerable room for new software development to create apps that will attract Generation-X and Generation-Y customers that are used to playing games in everyday life.
The increased use of mHealth apps by insurers is driven by the high adoption rate of mobile and wireless technology and the necessity to determine customer’s health condition. mHealth apps allow easier risk profile estimation, reduced administrative costs and lower healthcare spending. This trend is also promising for new market players, as new apps will be launched by well-established insurance companies and newcomers to this market.
The increased use of customer adherence apps is one trend very specific to the health insurance sector. Here again, the key drivers are mobile technology adoption and high healthcare spending of customers. Adherence apps help customers to get more adequate knowledge of their treatment and regularly follow their medication. They are also beneficial for insurers as adherence to treatment plans means fewer insurance claims. Existing customer adherence apps are mainly for Apple, Android, and Blackberry OS devices. Until this market matures, there are a lot of possibilities for more apps to be developed to attract and retain more customers.
The trends we discussed clearly play into the solutions offered in usage based insurance. Are you ready to talk about some?
As technology evolves and components of telematics in the insurance industry get cheaper UBI continues gaining momentum in the global market. At the moment, UBI solutions can be divided into two main groups:
Car tracking devices either installed additionally or built-in by OEMs in car insurance or wearables in health insurance, and
The top players in the global insurance market already use telematics and have launched mobile apps for their UBI solutions. For example, according to NerdWallet in the USA, every leading insurance company offers some kind of product:
Allstate’s Drivewise program utilizes a nationwide app and a plug-in device. Mileage, speed, time of day and braking activity are all measured.
Progressive’s Snapshot program uses a free plug-in device and mobile app to measure driving data.
The Hartford’s True Lane program uses a free plug-in device and mobile app to track trip distance, driving time, acceleration and braking.
Archer Software’s experience in this domain includes both automotive and healthcare apps.
One success story in the automotive sector is the development of a Driving Behavior Monitoring and Safety Management Solution for the GreenRoad driver safety platform. Utilizing the latest telematic technologies, Archer delivered a state-of-the-art comprehensive solution for tracking vehicles, analyzing driver performance and improving it.
Another one of our clients, RiskMatch (USA) (now a part of Vertafore (vertafore.com)) offers web-based solutions for insurance intermediaries and underwriting partners throughout the U.S. The platform (riskmatch.com), built on Amazon Web Services (AWS), delivers an array of portfolio management and placement solutions, analytics and data management services designed to enable brokers and agents to enhance performance, reduce costs, facilitate growth, and improve their client service capabilities. Archer’s work on platform development is still in progress. Our NetOp/SysOp assisted the RiskMatch office in US to develop the platform using Linux, HTTP, Advanced Networking and Monitoring technologies.
Our healthcare software portfolio includes the Chronic Wellness Tracker, a web-based self-management application for people who are challenged with chronic illnesses. This app allows patients to track their symptoms and show them to their doctors. The application provides online registration, as well as adding symptoms and comments to the form. You can find more detailed information on the project here.
The Shift Life-Wheel family of applications was developed for Wisen LLC, which creates tools for wellness support. Archer Software developed 3 different applications that are easy-to-use, display vitals and produce graphs: Free iOS application to indicate attributes of wellness, Free iOS application to indicate general attributes of life, and Pay iOS application to indicate pet’s life categories. More information on these apps can be found here.
Since the UBI sector is the most dynamic market in global insurance, and has only started to gain momentum, it is the perfect time to join the trend and step ahead of the competition. UBI solutions can be used by government insurers, commercial fleet insurers, driving schools and graduated drivers licensing programs to lower costs and strengthen customer relationships. Mobile apps and portals in auto and health insurance will soon be an integral part of this business. It’s only a matter of time. Hire us to develop software for your UBI solutions to keep ahead of the market.