In a perfect world, insurance companies would always focus on the individual driver as the basis for calculating the annual premium rate. Rather than relying on the mass of statistics to make educated guesses on the risk of a claim being made, the insurer should assess how safely the insured drives. Until fairly recently, the only way for an insurer to monitor the quality of driving was for one of its agents to sit as a passenger. This is inefficient and, of course, the driver is only too aware of the presence of the monitor and therefore drives with excessive care. Then along came technology. Motor manufacturers discovered they could make safer vehicles if they added in a lot of computer power to the suspension, braking system and fuel delivery system. Then the computers began to calculate and display speed and mileage, to power GPS navigation systems and all the other gizmos we now take for granted. So insurers realized we were all carrying a vast amount of data around with us, so they offered a Faustian deal. Allow the vehicle to transmit all this data to us and if it shows you are driving safely, we will reduce your premium rate. Who could resist?
What data could the insurers collect?
• how many miles driven?
• time of day the driving occurs;
• GPS data to show where the vehicle is driven;
• how quickly does the vehicle accelerate?
• how heavily does the driver brake?
• does the driver go round bends quickly?
• has the airbag deployed?
How many insurers offer UBI?
The latest survey shows 70% of all insurance companies either offer or are about to offer this form of insurance. This reflects a general belief among insurers that the use of telematics will dramatically change the assessment of risk between now and 2020. From the other side of the fence, it seems the driving public is approaching a tipping point when they are likely to begin switching to UBI in ever greater numbers. As the switch accelerates, it will make it more difficult for the traditional insurers to hold down the rates as their share of the market shrinks, i.e. all the safe drivers will switch leaving the bad drivers behind. The only major company not planning to offer UBI is GEICO. All the others are now relying on either their own plug-in devices or smartphone apps.
Who will switch first?
Every safe driver has an immediate benefit but the group most likely to lead the charge into the use of the new technology are the young drivers because:
• they are most willing to trust the new technology;
• they have the most to gain from premium rate reductions.
The real motivation will come when insurers stop advertising the maximum saving (usually 40%) and begin offering a minimum discount if the driving proves safe. The majority of people are not impressed by a guaranteed minimum 5% saving. The majority want a minimum guaranteed saving of between 10 and 15%. The leader is Progressive which so far has 1.6 million drivers using Snapshot. This is a good start.