COVID-19 drives soaring demand for usage-based insurance

Consumers want hyper-personalized service from their insurers

COVID-19 drives soaring demand for usage-based insurance


By Bethan Moorcraft

Consumer demand for usage-based insurance (UBI) has soared in the past year. According to global technology consultancy Capgemini, the global UBI market was estimated at around US$24 billion in 2019 and is projected to reach US$125.7 billion by 2027. Furthermore, the firm recently reported that consumer demand for UBI increased from 35% in 2019 to 51% in 2020 – and with technological advances fast-tracked in the insurance industry because of the coronavirus pandemic, it’s a safe bet that interest in UBI will only continue to grow.

UBI has benefits for both the customer and the insurer. The customer gains a sense of control over their insurance and can often enjoy lower premiums if they’re a good risk, while the insurer can use UBI to generate new revenue streams and incentivize low-risk behaviours. So far, UBI has been most prevalent in the personal auto insurance market, but there are endless opportunities to expand the capabilities into commercial lines.

“It’s all about data,” according to Seth Rachlin (pictured), executive vice president - P&C insurance leader at Capgemini. The Capgemini and Efma World Insurance Report 2020 revealed that 51% of consumers want UBI because it offers hyper-personalization as well as value. In order to achieve the hyper-personalization necessary to provide UBI, insurers need to gather real-time data, but not all insurers are engaging with this theme. According to the report, only 38% of insurers are currently capturing data from real-time Internet-of-Things (IoT) devices and only 33% mine data via natural language processing-based support systems like chatbots.

“The World Insurance Report 2020 shows a profound jump in the number of consumers who are interested in UBI, especially the pay-as-you-drive and pay-per-mile type solutions,” said Rachlin. “To operate those programs, insurers have got to be able to consume the right data to make those offers effective and to price them properly. The finding in our report about UBI before the COVID-19 pandemic, it’s prior to everybody having their car sitting in the garage for a few months. We’ve seen several carriers who have pay-as-you-drive, usage-based offerings experience a substantial increase in demand for those offerings as a consequence of the pandemic. I think that underscores the desire to have the insurance product more tailored to the use and the risk than the more traditional term-based coverages in the market today.”

The coronavirus pandemic has accelerated change in the insurance industry – most of which has been underpinned by technology. It has also had an impact on how people think about buying insurance and the types of products and services they need. For example, the public health crisis has triggered a mass change in how drivers view fixed-term auto policies. Over the past three months, many Canadians have questioned why they should have to pay expensive auto insurance bills when they’re not able to use their vehicles as expected. Most Canadian P&C insurers have reacted to the situation by offering customers premium rebates, but this is only the start. Insurers are now under pressure to think about alternative models and how they can incorporate IoT-enabled UBI into both personal and commercial lines.  

“One theme we’re very focused on right now is IoT and how it supports underwriting through better insight to the customer,” said Sean Ringsted (pictured, above), Chubb chief digital officer. “Before the COVID-19 pandemic, IoT was very much focused around prevention of water damage to property, but we’ve seen during the public health crisis that it can also help to protect unattended buildings. If you think about that from a personal and commercial real estate perspective, IoT technology has real potential to drive change in the industry, both in terms of service to customers and also how we think about the underwriting and the pricing of risk.  

“Down the road, that takes you to a UBI model because the depth and the extent of data that you can collect via IoT technology enables you to underwrite on more of an exposure basis as opposed to an experience basis. You’re now switching the value proposition for customers – whether they’re a consumer or a commercial customer – from a repair and replace model (your property is flooded, so we’ll give you some money to repair the damage), to a predict and prevent model, which is a much better value proposition for the customer.”

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