Auto Insurance Gets Smart

Create: 08/08/2017 - 15:26
usage-based insurance UBI

Photo: Intel RealSense™ technology for vehicle safety


The insurance industry may be the next market ready for an IoT disruption. On the whole, rate options offered by insurance providers still rely on out-of-date underwriting practices that focus on factors such as age and gender—which are not under the control of the customers—rather than focusing on their actual driving habits. With such inflexible factors largely determining pricing, there’s a frustrating limit to how much you can actually save.

Other changeable variables that have nothing directly to do with your driving, such as marital status, immediately—and significantly—affect rates even though the person’s individual driving history hasn’t changed a bit. According to a study commissioned by InsuranceQuotes, on average, a single 20-year-old male pays 25 percent more than a married 20-year-old male does for the same auto insurance coverage. Fortunately, IoT technologies are beginning to change how the auto insurance industry determines rates, making it possible for drivers to personally affect how much their coverage costs.

A Better Way to Better Rates

Powered by connected devices, usage-based insurance (UBI) is leading the charge in revolutionizing how insurance rates are calculated. With the driver’s permission, these smart devices enable real-time transmission of data on driving practices. This newer kind of auto insurance uses IoT technology to track and monitor the customer’s speed, braking and more. As a result, insurers are able to reward safer driving practices with lower premiums. They can also better tailor their offers to the actual habits and preferences of the customer, rather than relying on the broad categories of the past.

The three most significant benefits of UBI, as compared to old-school policy options, are found in its ability to positively affect driving behavior, produce more accurate risk assessments and lower premiums for safe drivers.

1.) Encourages Positive Behavior Modification and Risk Reduction

IoT sensors provide feedback that can be used to help positively influence driver behaviors, encouraging a reduction of the driver’s risk level. Using real-time data collection, the drivers’ insurer can send positive messages to their smartphone when they are engaging in safe driving behaviors, such as speed limit or seatbelt compliance. These increases in responsible actions benefit both the driver and the carrier since risk reduction translates into lower costs for both parties.

2.) Increases the Accuracy of Risk Assessment

Enabled by IoT-technology, telematics data delivers a much more accurate and complete view of a driver’s actual behavior. Mounted in the vehicle, the telematics device captures pertinent information such as what time of day driving is taking place, journey duration, acceleration rates, corner speeds, braking and more. Insurers then analyze that data to form an accurate “safety and risk” profile for the driver, allowing them to provide more appropriately priced offerings.

3.) Lowers Young Customers’ Premiums While Increasing Satisfaction

Policies that are based on how you actually drive can result in up to 40 percent lower premiums for drivers aged 18 to 23. As millennials continue to gain in market share, the attractiveness of technology-based services only increases in turn. In addition to tracking driving practices, additional integrations can enable drivers to do things such as feed their precise mileage into expense-tracking programs, track gas costs per trip or easily split gas costs with fellow carpoolers.

UBI models are the future of auto insurance and expected to increasingly dominate the market. Safe drivers will go where the best rate is, making IoT-enabled UBI a win-win proposition.

Get Ready for the New Model

About Author

Patricia Schnaidt
Patricia Schnaidt is an expert business technology writer. She has held top publishing and editorial positions at InternetWeek, Network Computing, Windows Magazine and LAN Magazine. Schnaidt has written countless articles, lectured extensively, and authored "Enterprise-wide Networking" (Prentice-Hall). She holds a B.A. in Computer Science from Columbia College, Columbia University.

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