We’ve seen studies and numbers lately that suggest that usage-based insurance (UBI) in personal auto is beginning to plateau. And although commercial auto UBI represents a small share of the auto insurance segment now, the first carriers to the market may be the biggest winners. And why not - Commercial UBI could be a better market than personal lines UBI.
The Weaknesses of Personal UBI are the Upside to Commercial
Why aren’t more individuals signing up for UBI coverage? It is fair to suggest that people don’t like being tracked! People want to drive without carrying Big Brother as a passenger. Some want to text and drive, others like to speed. Is their driving being tracked in exchange for such small discounts on their premiums worth it? Studies suggest as little as 5% of individual policy holders say it is.
The beauty of UBI in commercial auto is this: whether drivers like it or not, when they are in company vehicles, it is the company’s right to know and monitor where they are and how they drive. The company pays their wages, they pay for the vehicles, and they pay for the insurance on those vehicles. Commercial UBI encourages drivers to drive slower, safer and free of distractions like texting, looking at pictures or emailing while driving.
The Benefits to Commercial Carriers, Agencies and Their Clients
Based upon usage and tests, GeodeTech has observed the following benefits for carriers and insureds due to changes in driver behavior.
Value to Carriers and Agencies Selling a Commercial UBI Solution:
- Provide powerful incremental business value by helping your insureds manage their businesses better and more efficiently
- Become “stickier” with your insureds by providing discounts for good behavior
- Provide a fleet management service and data that will become critical for clients managing their business
- Mobile app-based solutions allow for quicker deployment and a much lower cost than fixed devices.
- Create a competitive advantage by retaining your top clients and fleets when they go for renewal and winning business away from commercial carriers that aren’t as forward thinking
- Loss reduction due to changed driver behaviors
- Potential to increase revenue by packaging fleet management alongside UBI
Value to the Insureds:
- Due to driver behavior changes, tests have shown:
- A reduction of speed that results in cost savings anywhere from $12 driving only 100 miles a month to $60 (500 miles a month) in gas/mo. reducing average driving speed by 10 MPH
- Lowered wear and tear on vehicles
- A reduction in miles driven (saving more money on gas) because drivers know they are being tracked and tend not to go out of their way for things like lunches, breaks, or errands on the job
- Driver productivity increases ranging from 30-35%
- Reduction in losses
- These changes increase your probability that your premiums will be reduced or stay at the same level.
The bottom line is that insurance carriers and large agencies that write business for commercial lines should consider the value of usage-based insurance. The reduction in losses, the incremental value it would bring to their customers, and the competitive advantage by being early to market makes sense.
