Usage-Based Insurance: Smarter Insurance Through Cellular Connectivity
The underwriting model auto insurance companies have used for decades relies on imprecise data. Rather than base rates on their customers’ driving track records, insurance rates are determined by factors either outside of their drivers’ control -- such as their gender and age -- or by factors that don’t necessarily correspond with driving ability like their credit score.
Insurance companies that use largely irrelevant data sets to evaluate risk and determine insurance rates cannot effectively reduce costs, because even drivers who fall into the “safe driver” demographic can still pose tremendous risk on the road.
UBI (usage based insurance) solves this problem by monitoring the drivers that insurance companies insure, so they can provide drivers with a fair rate that is reflective of their driving habits. In addition to being a custom-tailored approach, UBI also provides insurance companies with a more relevant data set so they can accurately assess a driver’s risk, reduce instances of fraud, and clearly determine who is at fault in accidents and collisions.
But for insurance companies to successfully integrate UBI, they must choose an Internet of Things (IoT) connectivity method that has ubiquitous reach, proven reliability and low deployment and maintenance costs. Cellular networks provide the fastest, most secure connection for any UBI operation.
How Fleet Telematics Fueled the Growth of UBI
Since the turn of the century, cellular IoT networks have allowed fleet managers to reduce costs and increase their fleet vehicles’ lifespans. Cellular’s wide-range and fast speeds give fleet managers the ability to gather data about their vehicles while they are moving around the country. Traditionally, this data is used to reduce fuel consumption and log miles to create customized maintenance schedules for vehicles.
As fleet telematics matured so did the types of data it recorded. Thanks to fleet telematics, there are now automotive sensors to detect and report sudden increases in speed, hard braking and even crashes and collisions, which is the exact information insurance companies can use to determine driver risk and implement a successful UBI model.
Some insurance companies already issue cellular IoT connected on-board diagnosis (OBD) modules to drivers to determine risk, but these programs generally only track drivers for a few months. Even if these programs don’t provide a permanent UBI solution, they’re a great test for insurance companies to ease into a UBI model while providing drivers a lower rate for safer driving.
Impartial Party: Using Real-World Driving Data to Assess Claims
According to the Insurance Information Institute, insurance fraud accounts for losses of $32 billion per year. Traditionally, insurance companies assessed claims based on customer and witness testimony; insurance companies have to take claimants at their word unless there is glaring evidence that fraud has occurred.
Fraud comes in many different varieties that can be hard to detect without real world vehicle data. One common form of fraud involves drivers adding false health or vehicle damage to increase claim payout. For example, a driver may be rear ended on a busy highway and claim extreme neck or back pain, or add extra vehicle damage and scratches to their report. With UBI, insurance companies can now cross reference the testimonials of drivers with speed, location, and time data collected from vehicles, providing a chronological account of vehicle actions to determine how severe a crash -- and any resulting injuries -- should have reasonably been.
Staying Up to Speed With UBI
Adopting UBI practices not only assists in fraud detection, it also allows insurance companies the flexibility to provide individualized coverage while adapting to market and government changes. Safe drivers are the best customers an insurance company can have, and as the UBI market matures, safe drivers will flock to companies who provide a lower rate based on their driving habits.
According to LexisNexis, half of USA drivers participate in UBI programs when asked, but many customers are never made aware of the programs. This provides an opportunity for insurance companies to advertise their UBI programs and appeal directly to a sizable, secure customer base.
UBI can also save insurance companies time and money due to legislative changes in insurance law. Insurance companies in the European Union used to provide rates based on gender and age until 2012 when the EU ruled that such practices were gender discrimination. By focusing on the individual driver, UBI models allow insurance companies to sidestep broad demographic data altogether so that as insurance and discrimination laws change, insurance companies can quickly adapt without completely revising their pricing structure.
Whether your company is interested in testing IoT UBI systems on the small scale, or implementing a full scale UBI solution, Aeris has the expertise to deliver your data.
Contact Aeris today to find out the first steps for your UBI solution.
Keywords: Internet of Things, IoT, Usage-Based Insurance, UBI,