Usage Based Insurance

Most of us have seen the commercials where a mom goes to great lengths to keep her auto insurance discount.  From having co-workers respond to messages for her in the car, refusing to speed even though her kid has to use the restroom, and even goes as far as telling her husband to slow down and not speed when she is going into labor.  All for the discount!  They are advertising their Usage Based Insurance (UBI) program, that has become increasingly popular as people are spending more time at home and off the roads due to COVID-19.

Usage Based Insurance, otherwise known as Telematics, showed up on the insurance scene years ago as a potential solution to drive down insurance premiums for young drivers (17-19 years old).  There has been a significant spike in interest as COVID-19 has changed the way we work, go to school, and has kept a lot of people off the roads.  According to Global Workplace Analytics’ President Katie Lister, her estimate is that ”25-30% of the workforce will be working-from-home multiple days a week by the end of 2021.”  And Forbes projects that there will be a significant focus on e-learning professionally to keep people out of workshops and seminars and staying in the comfort of their own home as they continue education.  With such vital parts of our work life keeping us off from going into the office and spending less time in our cars, shouldn’t car insurance premium options adjust accordingly?  As we saw at the beginning of the pandemic, insurance companies responded with credits and other kickbacks as normal working life halted. UBI is another way insurance companies are responding to the drastic change and finding options that might better fit their customers’ current and future needs.

Traditional insurance premiums are based off hundreds of variables in some cases: driving history, age, gender, credit, etc.  Usage-based insurance takes that initial calculated premium which is then adjusted depending on an individual’s driving habits, or their telematics data.  As an example, two people of the same age, gender, and income could potentially get very different insurance rates due to their driving habits.  Someone with great driving habits who on average drives short distances, doesn’t speed, and rarely brakes abruptly, could get a substantially lower premium than one who speeds and slams their break at every stop!

We have taken the time to do some research on a variety of carriers to see if UBI is really the right decision moving forward for our Atlanta auto insurance clients.  As usage-based insurance becomes more popular, we are certain we will see these programs evolve as more customers hop on board.  But as of right now, here are the pros and cons of UBI:

Pros:

There are obvious perks to utilizing usage-based insurance—especially in today’s world.  The customer can feel more in control of their insurance premium as their driving habits have a direct impact on their premium amount.  By personalizing premiums for safe drivers, the potential to save year after year could increase.

We have seen families enjoy this feature as the telematics app tracks where the driver is going.  This allows oversight for parents if needed as all the data is saved and shared with the insured.  This tracking has also been seen has a negative to some as the telematics will track times of day in the car, length of travel, and start and end locations.  If you are someone who values their privacy tremendously, then usage-based insurance might not be the right fit for you.

Additionally, there is truth to the idea that telematics promotes better driving for all drivers as they become more aware of how their driving habits affect their premiums.  Family members can better monitor driving habits of kids or even older family members and feel a bit more at ease letting their loved ones on the road.  The telematics data has also been helpful for when accidents occur as the data can help paint a picture of the accident and gives the insurance companies a better understanding of the situation from the driver’s seat.

Concerns:

As mentioned above, there are of course some downsides to relying on usage-based insurance options to lower your premium.  Privacy issues have raised a lot of questions on what other ways data collected could potentially be used in the future.  As the programs track a wide variety of behaviors while you are driving, according to multiple CNBC surveys, they found that the biggest concern was people’s location.  45% of Americans surveyed felt that sharing their locations constantly with their insurance provider was too high of a tradeoff for lower auto insurance premiums.

Despite the negatives, many people are finding usage-based insurance beneficial for their lifestyle.  While it is not perfect, we expect insurance companies to continue refining these programs in the coming years to further reward safe drivers and hopefully change habits of more aggressive drivers.  As the industry gains more data, the benefit to not only the auto insurance industry but also safe driving as a society will continue to increase.  It will be up to the consumer whether it is a good choice for you and your auto insurance premium during and after COVID-19!

Resources:

• https://www.marketwatch.com/press-release/global-usage-based-insurance-market-2020-covid-19-impact-analysis-global-industry-size-future-trends-top-countries-analysis-share-showing-impressive-growth-by-2025-2020-09-02
• https://www.nsinsurance.com/news/covid-19-usage-based-motor-insurance/
• https://www.bain.com/insights/how-insurance-customers-are-responding-to-covid-19/
• https://www.insurancebusinessmag.com/ca/news/digital-age/covid19-drives-soaring-demand-for-usagebased-insurance-226099.aspx
• https://www.creditkarma.com/auto/i/usage-based-insurance#:~:text=With%20usage%2Dbased%20insurance%2C%20an,like%20your%20mileage%20and%20speed.
• https://www.forbes.com/sites/williamarruda/2020/05/07/6-ways-covid-19-will-change-the-workplace-forever/#4616a27e323e’
• https://globalworkplaceanalytics.com/work-at-home-after-covid-19-our-forecast
• https://www.cnbc.com/2018/10/05/new-kind-of-auto-insurance-can-be-cheaper-but-tracks-your-every-move.html