Originally published in Insurance CIO Outlook Magazine 8/30/2019
Usage-based insurance (UBI)—otherwise known as behavior-based insurance or pay-as-you-drive (PAYD)—is being offered by a large number of insures as a “next generation” insurance product. Powered by in-vehicle telematics technology, UBI enables insurance providers to produce more accurate customer risk profiles by closely monitoring driving behavior. When used properly, telematics should provide deeper risk insights by using leading indicators to improve pricing models, as well as reduce claims and costs. In theory, this model is meant to result in more profitable business for the insurer and better pricing for the customer. BUT, there’s a catch. Turning raw driving data into actionable information is a major challenge for insurers who truly want to use telematic insights to write profitable business and help their clients reduce their risk and total cost of ownership (TCO). There is a steep learning curve to understand the complex picture coming from the driver and the vehicle. Insurers need to take into account what happened during a driver’s trip, including event-related data (location, time of day, miles driven, weather conditions) and behavior-related information (how they drive— braking, acceleration, speed, turning, distraction), and in an ideal world combine it with a driver’s historical on-road performance information including incident, collision and license check (MVR) history to complete the total picture!
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