5 questions: What's next for UBI

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Capgemini, a global technology consultancy, recently conducted research showing consumer demand for usage-based insurance (UBI) increased sharply from 2019 to 2020. The firm says there’s an enormous market opportunity for insurers with this type of product, but only half of insurers currently have new offerings for usage-based insurance live. To gain insights from the research, Digital Insurance interviewed Kiran Boosam, vice president, insurance, at Capgemini.

DI: What is the UBI model; how does it work?
Boosam: Generally speaking, UBI is a type of auto insurance that tracks miles driven and driving behaviors using telematics devices or mobile apps, and charges premiums based on the usage of the automobile and driver’s behavior.

Broadly, there are two prominent UBI models followed globally: a pay-how-you-drive (PHYD) model that accounts for an individual’s driving behavior and patterns, allowing the insurance company to offer a personalized premium; and a pay as you drive (PAYD) or pay-per-mile model that offers insurance coverage for distance covered/number of miles driven and often combining the driving behavior as well.

DI: What factors are driving the increased consumer demand for UBI?
Boosam: In today’s sharing economy, one-size-fits-all insurance policies are no longer attractive. Transformational technology, evolving risk landscape, and changing consumer lifestyles have led to the advent of new business models such as UBI, on-demand, and peer-to-peer models that are redefining the way insurance is both offered and consumed.

In recent years, consumers’ interest in new insurance models has increased, especially for UBI. The consumer demand for UBI jumped further in 2020, as over half of customers surveyed globally for Capgemini’s World Insurance Report 2020 are seeking UBI.

This trend is mostly driven by three factors. One is that in recent years, consumer preference for bespoke services has increased across industries. Today, consumers want their auto insurance premiums to be more personalized based on how much they drive and how they drive, rather than being charged for a full year based on factors such as credit score, demographic information, or vehicle model.

A second is the advent of digital technologies has been the key catalyst for increasing consumers’ preferences for hyper-personalized offering at their fingertips. Technological progressions in smartphones, sensing devices, and artificial intelligence is driving the demand to deploy UBI programs that can enable anytime-anywhere services as well as risk-prevention features.

And third, the COVID-19 pandemic is providing further impetus to consumers to adopt the UBI program. As social distancing and working from home are now the new normal for millions globally, a greater percentage of consumers will see the value in offerings based on the UBI model.

DI: What are the top benefits of this model for insurers and customers?
Boosam: UBI is game-changing for both insurers and customers. It enables insurers to be more customer centric by making premiums more accurate and personalized. UBI models also help insurers attract the lower-risk customer segments by offering discount for safe driving behaviors. Insurers can also position themselves differently compared to their competitors by leveraging UBI platforms to offer a hyper-personalized product as well as increase the number of touchpoints with their customers.

UBI offerings appeal to the customers as it is tailored to their usage and driving behavior. These offerings put customers in control of their premiums and allow them to manage their auto insurance premium costs and get better value propositions.

DI: What key market opportunities does this type of product offer for insurers, and what should they be doing to capitalize?
Boosam: UBI products are in high demand from the customers. The World Insurance Report found that more than 50% of the customers are interested in such products. It highlights that since UBI products are personalized and perceived as value for money, they are in demand from all customer segments.

As per a study by Valuates Reports, the UBI market will witness a growth rate in excess of 20% between 2020 and 2026. That clearly highlights huge opportunities for insurers.

DI: What did you find most surprising about the research findings, and what were some of the highlights?
Boosam: The three key findings that really surprised us are that the digital divide between the age groups is narrowing, and almost everyone is digital now; customers trust themselves for making purchase decisions and their willingness to purchase insurance from non-traditional players is rising fast; customers now demand hyper-personalized, experience-led engagement, and innovative offerings such as UBI have become mainstream and an integral part of the experience-led engagement.

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Telematics Usage-based insurance Capgemini