Disrupting the insurance motor sector with UBI post COVID

UBI-Miles based... will it become the new norm?

I would have never dreamed that 30 years ago developing an insurance product would today be a major talking point in the industry and possibly a massive influence on the way forward in our new world.

What am I talking about? Usage based insurance (UBI).

In the late 90’s I pioneered a daily rate insurance product not knowing that it would go on to be labelled today as UBI. Like all well developed products driven by business demand, I needed a solution that enabled users to pay motor insurance only when the vehicle was used, rather than the traditional annual rated premium.

I remember back then asking UK insurers if they could offer me a daily rate, usage based facility and the answer was “No, Why? It will never happen! Asking for a product out of the realms of insurer’s standard practice forced us, after exhaustive knocking on doors, to find a niche insurer and develop our own EDI software. We developed an insurance product that invoiced for the time requested and driven on cover. In short, this was usage based insurance. 

Drive forward nearly 30 years later and UBI is talked about as the next major development in motor insurance. Millions of employees furloughed or working from home due to Covid has highlighted the need for a mileage based policy, with some insurers acknowledging the issue and returning premiums to their customers due to the reduced miles driven on their book of business. 

The stark fact is that the world will now change for the foreseeable future, with businesses re-thinking their office strategy and requesting more employees to work from home, reducing the requirement of driving to work.

The stark fact is that the world will now change for the foreseeable future   

This reduced use must ultimately force insurers to rethink the way they charge and underwrite motor insurance with reduced mileages racked up and the customer’s requirement for an appropriate costed product.

I can hear the motor insurance industry’s stance on the concept, but just take a look at By Miles, the new player on the block. By Miles tag line is “a fairer kind of car insurance for lower mileage drivers”. This insurtech has ripped the book up of how to underwrite and is taking the industry by storm. Simply, you pay for the miles you drive (albeit there is a fixed annual cost whilst the vehicle is parked and a unique per mile rate driven). It’s a simple principle and providing that the miles based charge overall covers the total scheme, it works for both insurer and customer.

In my mind this equates to premiums paid vs road risk driven. I have a theory that if the actual miles driven on a book of business were recorded against the original proposed declared mileage by the policyholder it would be drastically different, yet insurers have historically not had the technology to record it. For too long the motor insurance sector has underwritten in the same way and have recorded losses year after year.

Ultimately, Covid will transform the way we live and we in our industry will have to be much more creative in our solutions to our customers, the policyholders. No longer will the annual premium be the only way or the highway (excuse the pun). Customers are now more aware of alternatives and UBI is one very attractive product for those searching for lower costs.

Covid will transform the way we live and we in our industry will have to be much more creative in our solutions to our customers, the policyholders

So how can this be achieved? This is where technology steps in and provides data mechanisms to improve underwriting, as well as offering insurers additional revenue streams from telematics (connected car data being one example). Looking after the customer has to include his/her vehicle and all that surrounds it like maintenance, battery, tyres, servicing, breakdown, as well as insurance. The size and ease of technology now enables insurers to enter the arena at a low cost and minimal customer impact, whilst maintaining a level of control over risk like reporting a vehicles true Odometer to allow accurate mileage policies, just like UBI. For too long insurers have pushed telematic technology to one side citing costs as the blocker. The new insurtech companies are showing a new direction of travel using data as an incentive to car drivers as well as profitable insurance schemes.

Note: John Kowalyk heads up the Sales for Trakm8 in the Insurance and Automotive verticals. His experience and knowledge has seen him pioneer UBI, FNOL Mobile apps and an important mile stone in UK insurance in Young Driver telematics where his concept went on to become the norm in the Insurance sector. John now helps insurers develop strategic telematic insurance propositions for niche schemes including personal lines, young driver, UBI and MBI, as well as fleet.

?For more information contact: John Kowalyk-Corporate Sales Director-Insurance [email protected]

Next article coming: How Young Driver telematics transformed the acceptance of technology