UBI to Dominate Auto Insurance by Next Decade

SMA research report looks at how telematics with transform the personal auto market.

Strategy Meets Action (SMA), an insurance strategic advisory firm, announces a new research report, “Usage Based Insurance/Telematics: A Catalyst for Change” with results of a survey of North American property and casualty insurers indicating that 75 percent of insurers believe usage-based insurance (UBI) will fundamentally alter the auto insurance industry between now and 2020.

"Insurers have been experimenting with telematics for 15 years. Now, telematics is rapidly gaining momentum, and every auto insurer should be thinking about their plans for telematics and usage-based insurance," says Mark Breading, co-author of the study and SMA Partner.

Co-author Richard Welch of REW Consulting sees the industry nearing a tipping point. "Telematics is going to have a profound effect on the auto insurance business," says Welch. "Even if consumer adoption is in the low end of the consensus range, usage-based insurance will grow rapidly, and as it grows, the traditional market will shrink, making it very difficult for companies not playing in the usage-based segment to maintain market share."

Highlights of the study include:

  • Seventy percent of North American property and casualty insurers are engaged in some stage of usage-based insurance, whether they are operating active programs, conducting pilots, or building strategies.
  • Almost 20 auto insurers are now running UBI programs in US and Canadian markets.
  • Eight of the top 10 US companies now have UBI programs or pilots underway.
  • The most frequently used variables in UBI programs are mileage, time of day, speed, and hard braking.
  • The key challenges insurers face in building successful UBI programs are managing technology costs, understanding loss experience, creating consumer demand, and overcoming patent issues.

The SMA study assesses the features and benefits of the current UBI programs in the marketplace and looks at the implications for consumers and insurers. Also addressed in the report are the types and ownership of the telematics devices, details on the collected data, how the data is used, and the key challenges to the growth of UBI.

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