As was noted in the 2018 update, telematics data is proprietary to insurance companies, and market share growth and policy numbers are difficult to come by. Statistics and forecasts are primarily compiled by market research companies, charging thousands of dollars for access to their reports. Some of these market research companies offer samples of their reports, and findings are often summarized by other sources. Compile figures are broken down by US or North America; individual state information remains elusive. This information would be helpful, since policies and regulations vary between states (NAIC, 2021)
It does appear that user-based insurance (UBI) continues to grow in popularity, despite the general downturn in the economy over the past couple of years. According to Globe Newswire (2021), the UBI market for both internal combustion engine and electric vehicles is expected to grow worldwide to $66.8 billion (US) by 2026, from an estimated $19.6 billion (US) in 2021. This represents a compound annual growth rate (CAGR) of 27.7%.
A report from Allied Market Research gives a significantly more optimistic outlook; this company placed the 2019 UBI market size at $28.7 billion, and projected growth to reach $149.2 billion by 2027 (Das, 2021). Yet another report from Valuates Reports projected the UBI market worldwide would reach $77.25 billion (US) by 2026, from $25.46 billion (US) in 2020 (Canadian Underwriters, 2022). North America represented about two-thirds of the market in 2019 (Das, 2021).
The COVID-19 pandemic greatly impacted the automobile and insurance industries, but most sources seem to feel that it represented an opportunity for the UBI market to expand its influence. Automobile sales of passenger cars fell from 63.7 million in 2019 to 53.6 million in 2020, according to the International Organization of Motor Vehicle Manufacturers (OICA) (Globe Newswire, 2021). This downturn led to a corresponding decrease in the number of new automobile insurance policies (Klonowska, Strupczewski, 2021). However, there appears to have been little to no impact on the UBI market during this period. With many people shifting to work-from-home and driving restricted to essential travel, many policy holders decided to reevaluate their auto insurance, often choosing plans based on miles driven. According to Alleaume (2020), the pandemic-inspired shift in mobility and attitudes towards it are likely to persist beyond the current restrictions. Although she expected continued growth in interest in user-based insurance, she questioned how easily insurers will adapt to this “new normal” with evolving products and customer engagement. However, ResearchAndMarkets.com contended that all of the major UBI providers are dedicated to developing solutions and technology to better analyze user data for determining accurate premiums (Globe Newswire, 2021). William Chan, president of the Canadian Broker Network member BrokerTeam, made the statement, “To say UBI is the future of auto insurance is perhaps not too far from the truth.” He went on to say, “Data, as we know, is driving everything we do. Telematics will only become more essential in auto insurance from both a carrier and customer perspective.” (Canadian Underwriters 2022).
Traditionally, the insurance industry has been slow to initiate technological advances, which made the initial roll-out of user-based insurance rather limited. (Cappiello, 2020). Additionally, installing and maintaining telematics in vehicles, as well as the technology required to capture and interpret data, can be expensive and resource-intensive for the insurer, increasing rates for policy holders (NAIC, 2021). While more than three-fifths of the UBI policies in place in 2019 depended on black-box technology (Garsten, 2020), mobile telematics, including apps on smartphones are showing increased acceptance. Genadi Man, founder and CEO of Swiss UBI provider Kasko2Go endorsed the use of smartphone apps, saying, “We started with a UBI product which we now put as an open source, for free” (Garsten, 2020). Valuates Reports indicated that their market projections are based on the increased adoption of smartphones and connected devices (Canadian Underwriters, 2022). Allied Marketing also predicts that replacing the traditional black with mobile telematics such as smartphones will result in a 30.3% CAGR by 2027 (Garsten, 2020).
Recognizing the growing interest in telematics-based insurance, a number of insurance companies are introducing programs into their policy offerings. Geico Corp., the number two US private insurance company, has been introducing a mobile-app program nationwide, with the recognition that the insurer had “missed the bus” on telematics, and was hoping to catch up to others “matching rate to risk”. United Services Automobile – another top 5 insurer – planned to introduce its SafePilot app to customers in 2021 (Zawacki, 2021). Other large insurers, including Nationwide and Allstate, have introduced connected UBI programs, and startups like By Miles and Metromiles have developed directly in response to market demand (Alleaume 2020). Other companies are making acquisitions, product launches and partnerships to tap into the telematics market (Markets and Markets, 2020).
Pay-As-You-Drive (PAYD) insurance currently dominates the UBI market. This segment has the advantages of ease of deployment and cost-effectiveness for both insurer and consumer. There is no need for complicated algorithms, and it incentivizes customers to drive less (Globe Newswire, 2021). According to Victoria Transport Policy Institute (VTPI) (2019 update), PAYD insurance averages 6 cents per mile, which represents 40% to 60% of average fuel costs. The advantage would be to those who plan to drive less than 80% of average yearly mileage. The report contended that this would represent a fairly small number of total policy holders, although this number would grow as fixed-rate premiums increase with the shift of lower-mileage drivers to PAYD pricing. VTPI estimated that this process would likely take “a decade or so”, but it should be noted that this update was probably completed before the impact of COVID-19. While PAYD insurance is expected to continue as the leading segment of the UBI market through the forecast period of 2027, Allied Market Research (2020) predicted that the Pay-How-You-Drive (PHYD) or manage-how-you-drive insurance will have the highest rate of growth over the next few years as a result of advancing technologies and increased awareness among consumers. Despite the growth of user-based insurance, it still represents a small percentage of the insurance market, and conventional annual policies continue to dominate (Klonowska, Strupczewski, 2021).
The collection and analysis of data from telematics is an evolving, but important part of setting rates, as well as identifying driving risk and driver classification (Sun, Bi, et al., 2020). Conventional thinking equates fewer travel miles with a decrease in accident risk. Based at least partly on this theory, several US insurance companies issued premium refunds during the pandemic, totaling around $10 billion (Sassian, 2020). However, it turned out that the risk was not actually reduced; serious and fatal accidents increased in US cities during the height of COVID-19, and incidents of speeding also spiked (Klonowska, Strupczewski, 2021). These unexpected results brought out the need to find better ways to adequately assess risk.
Ma, Zhu, et al. (2018) researched the use of second-by-second GPS data, integrating this into new or existing pricing structures. The authors stressed the importance of collecting data on pertinent accident risk factors such as hard brakes, hard starts, peak time travel, speeding, and travelling above the speed of the traffic flow. They sought to quantify the relationship between hazardous driving practices and risk of accident in order to set up more reliable premium rates.
Siami, Naderpour, and Lu (2021) studied real-world travel data, including 500,000 trips by 2500 drivers. They worked with five well-known clustering algorithms to determine which was best suited to categorize driving styles, finding that k-means clustering and a self-organizing map produced more accurate patterns than the others tested. The authors felt that the results of their research will provide the basis for developing a risk analysis and decision support system for insurance companies when determining premiums.
Another study calculated driver risk classification using least square and binary logistic regressions applied to Internet-of-Vehicles (IoV) data (Sun, Guillen & Perez-Marin. 2020). The authors stressed the importance of using sensor data to accurately analyze driver risk, which they felt had implications for traffic safety as well as auto insurance.
As noted earlier, the emergence of COVID-19 drastically changed travel behavior, and consumer attitudes toward auto insurance is not likely to change even as the pandemic wanes (Klonowska, Strupczewski, 2021). The continued trend to remote working, and less use of cars for daily commuter driving will no doubt change the way consumers view and shop for auto insurance. The UBI industry became more appealing to vehicle owners who did not want to pay full premiums when their driving was limited (Markets and Markets, 2020). Additionally, serious financial problems initiated by the pandemic affected many individuals and well as companies; this is an issue that will probably remain for some time, and could cause users to review the pricing and flexibility that can be found with telematics-based policies (Klonowska, Strupczewski 2021).
However, some concerns and resistance remain on the part of consumers, chief of which is the issue of privacy. However, privacy concerns may increasingly become less of an issue for users with the growing acceptance of information sharing on technology devices such as smartphones and tablets, as well as social media networks (NAIC 2021). One study found that, while consumers generally see insurance companies as trustworthy partners in the use of their personal driving data, they do not show the same level of trust with telematics device producers (Milanović, Milosavljević et al. 2020), and a user study of a German insurer offering UBI policies found that users felt that the way that driving scores are calculated should be more transparent (Quintero, Railean and Beneson 2020).
Many insurers are seeing the growing interest in UBI programs as an opportunity to educate consumers on their programs, and address concerns over the collection of personal data that make many skeptical of trying telematics-based products (Canadian Underwriters 2022). Education does seems to be needed, since the market for UBI products is still relatively small; an October, 2021 survey of Canadian drivers showed that only 57% of those polled had heard of UBI, and 81% had not tried it. Results also showed that “67% expressed concerns about program accuracy, 56% said they worried about privacy, and 51% were concerned it would negatively affect their current rates” (Canadian Underwriters 2022).
Zawacki (2021) cites “customer inertia” as a roadblock to widespread acceptance of UBI, with a general sense of contentment with the status quo, particularly among older consumers. A J.B. Power survey regarding the nearly $10 billion refunded to customers by insurers mentioned earlier found that, while many welcomed the refunds in light of lay-offs and financial hardships, others – perhaps too distracted with dealing with their immediate needs – were not even aware they had received a refund (Sassian 2020). A third-quarter 2021 Voice of the Connected User Landscape survey of licensed drivers found that 11.1% of respondents had installed their insurance company’s UBI app, although only 9% of these actively used it. However, another 35% said they were either very or somewhat interested in trying it. (Zawacki 2021). That same survey indicated that UBI use and interest varied considerably based on factors such as age (younger users were more apt to have apps installed that those of later generations) and household income (interest levels were much greater in higher income households as compared to lower income ones). Results of the survey:
Zawacki, 2021
UBI can prove beneficial, depending on the needs of the individual consumer. Michia Rohrssen, co-founder and CEO of Prodigy, which provides software packages to auto dealers, including insurance options, stated, “The reality is this sort of one size fits all model for insurance was just waiting to be disrupted. Now that we’re all sitting at home all of a sudden it makes sense. I dropped my personal bill by almost 50% by going to UBI” (Garsten 2020). Safety features can also lend appeal, particularly for parents to have the ability to track driving practices of teens, and fleet managers to assess risky behaviors (Allied Market Research 2020, Markets and Markets 2020).
Ben Breiner (2022) of ValuePenguin, a research and analysis company for consumers, offered this comparison of savings using UBI, either with an installed telematics device or a phone app.
It is currently difficult to assess the true impact of telematics-based insurance and its growth in the US, since governmental authorities do not appear to track usage within the individual states. Worldwide, while some countries provide incentives for UBI use, including China, Germany, Singapore and South Africa, a general lack of standardized systems, policies, and regulations could hinder the growth of this market.
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