Insights From Our Founder:Exploring User Based Insurance (UBI)
What is Usage Based Insurance and Why Does it Matter to Me?
Usage Based Insurance (UBI) is attained through Telematics sharing data from your car or cell phone to monitor your driving. As the name implies, insurance will be charged based on your usage of the vehicle. Insurance carriers collect information about your mileage and driving habits. Traditionally, insurance rates have been determined by taking legacy data such as claims and driving records, along with location to determine how much to charge for the risk the carrier is assuming. This data is processed along with many insureds. This actuarial work determines a statistical average to charge for the insurance policy.
I have heard countless times “But, I am a good driver….” as we work through client’s coverage and costs. Or “I only drive a few days a week, so I am never on the road…” UBI allows you to prove it.
UBI systems measure safe driving habits. Most systems will collect the following data and share it with your insurance carrier.
Speeding (certain thresholds trigger an event with different carriers)
Turning at an excessive speed
Safe Stops- Limit hard braking
Safe time of the day-Limit late night trips
I like UBI for a few reasons. I feel like I am a better driver than most. If I am lumped in with bad drivers, essentially, I am subsidizing their rates by paying more than I should on my own (just the nature of macro mathematics.) By proving my driving habits, the carrier can discount my cost. Additionally, I want to be a better driver. I do not want myself or my family to get in an accident. By getting a report card of my driving I can work towards correcting unsafe actions.
Is this Big Brother?
The carriers are careful to only measure items related to statistical data used in determining rates. I guess you could perceive it as a little Big Brother-esque, but it is an agreed upon window of data they are looking at with your permission. As for “The Man” watching all our moves I would argue the cell phone in your pocket has already proven that ship has sailed.
Do I have to do it?
The answer is no. With the success for carriers to more accurately price with UBI data, pricing is proving to be more favorable in monitored driving scenarios, which means if you do not have it, you are still lumped in with legacy rated drivers on the road. And note, bad drivers tend not to participate in telematics.
What if I “think” I am a good driver, sign up, and it proves I stink behind the wheel?
Most carriers have safeguards in place to prevent overall rate increases to those with poor report cards. Upon signing up for a telematics program, carriers will give a predetermined discount off the legacy base rate. With historical data from the program. the discount can be increased (good driving) or removed (poor driving.) Talk to your agent about how that system works for that insurance carrier.
The future of telematics is increased usage. Currently there are approximately 2.75B users of telematics in the US. By 2030 it is projected 12.7B users will have telematics. The reason for increased usage is twofold; 1) Insureds want to be charged the best price based on their performance, and 2) carriers are finding it beneficial to more accurately rate for the risk they are incurring.
Auto manufacturers are building telematics into new vehicles already. Some say the systems will even enter the car with cameras monitoring distracted driving. It will be interesting to see how this plays out in the long run.
Questions on UBI? Give us a call and our team is ready to help talk you through it.
Stay safe!
Larry