Understanding the 3 Types of Usage-Based Insurance
The world is getting smarter, and insurers, usage-based insurance (UBI) and insurance telematics are getting brainier as well. Both insurers and customers are finding smarter ways to buy and sell insurance. And it’s all thanks to the rise of insurance telematics.
As discussed before, telematics is real-time data measured across vast distances. For the insurance industry, telematics presents better optics into driving habits. But there are several different ways insurers can reach that goal. With the prevalence of different UBI products, each model offers certain use cases.
Let’s take a look at some of the most popular solutions, their advantages and drawbacks.
Usage-Based Insurance Products
There are three main categories of usage-based insurance (UBI).
Dongles are a type of telematics hardware, commonly known as onboard devices (OBD). Insurers or third-party developers provide them. Insurance companies themselves generally own them.
Dongles plug into a vehicle’s onboard computer, capturing real-time data around specific events. They can measure everything from acceleration and braking figures, to speeding and collisions.
A perfect example is Progressive Snapshot. Progressive uses OBD dongles to capture driving habits and offer personalized discounts to customers based on their driving behavior.
Pretty cool, right? Not really. The problem with dongles is they only measure what the vehicle is doing. In the end, cars don’t cause crashes – drivers do. And in cases where more than one driver share a vehicle, dongles only tell part of the story for insurers.
Embedded Insurance Telematics
Embedded telematics are a newer UBI market, and have two primary use cases.
The first is by original equipment manufacturers (OEMs), or vehicle builders. Onstar by General Motors and ConnectedDrive by BMW are two popular examples. Manufacturers embed these telematics systems into the vehicle (hence the name). And like dongles, they share lots of valuable data about the vehicle in real-time. They report on things like tire pressure, remaining oil life, tune-ups and more! Owners can stay ahead of necessary maintenance and mentally prepare to splash cash ahead of time.
The other use case is for parking garages. These smart garages combine telematics data with their own powerful sensors and algorithms. The result is parking garages that can forecast parking availability, and alert drivers!
However, embedded telematics suffer from the same limitations as dongles and OBDs. They are linked to vehicles as opposed to drivers! As a result, they cannot offer risky driving insights and alerts. They can only measure a vehicle’s overall usage.
Connected Smartphone Applications
Smartphone-based telematics applications, offer a third way forward by using the highly accurate sensors in smartphones to monitor driving habits.
What exactly do smartphones have over OBDs and embedded solutions? First, they are equally, or (in most cases) more accurate. Zendrive, specifically, is up to 6x more accurate in predicting crashes and identifying risk on the road than today’s leading insurers.
Secondly, telematics solutions, which link directly to a driver’s phone can do things no others can. Things like measuring distracted driving, which is 100x worse than thought. And things like providing insurers with risk assessments for unique, individual drivers. This allows them to offer rates based on real-world driving habits and not approximations based on “similar drivers”.
As telematics grows, so too will the ways in which insurers use these new technologies.
By knowing all the pros and cons, both insurers and consumers stand poised to profit. After all, knowledge is power. And in 2019, data is knowledge.