The pros (and cons) of usage-based insurance
Usage-based vehicle insurance seems like a no-brainer: why would you pay an insurance premium based on some anonymous average, when your own fleet is so impeccably behaved that it deserves a much lower one?
These days, a telematics solution is perfectly able to monitor the insurance related KPIs of your fleet – speed, mileage, braking behaviour, etcetera – and accordingly calculate a premium that is tailored to the behaviour of your drivers.
And of course, everybody thinks they’re a better-than-average driver, and should pay lower-than-average car insurance. In an article on the topic, Forbes uses the example of Milewise, a usage-based car insurance offer in the U.S. that offers, in the case quoted, a 49% reduction on the previous car insurance premium.
Surveys show large majorities of drivers are pro insurance pricing based on actual driving behaviour. The mainstreaming of vehicle connectivity makes it increasingly easy to provide usage-based car insurance (also known as pay-as-you-go car insurance).
The scene is set for a large-scale disruption of the car insurance world. And why not? Pay-as-you-go seems like a fairer system than paying a blanket premium, often based on no less crude metrics than a driver’s demographic and geographic profile. Yet there are a few cons as well.
One concern is privacy. Private consumers opting for usage-based insurance is one thing, but corporate fleets requiring their drivers to be monitored closely is another.
However, the general rule with telematics is that identifiable benefits eventually outweigh any objections about privacy, which can be largely addressed by anonymising data capture and treatment.
In fact, the tracking and reporting on driving behaviour might even be turned in to a positive experience, offering drivers a chance to improve their behaviour against various benchmarks, effectively ‘gamifying’ the practice of safe driving.
And that is a major plus for usage-based insurance: it has the potential not just to measure behaviour, but also to change it for the better. Insurance is no longer just something renewed every so often, but a practice that can be improved upon, each and every day.
That altered mindset explains the seeming paradox: that usage-based insurance is able to promise lower-than-average premiums to drivers (and fleets) who – like it or not – are just about average themselves.
But where’s the advantage of lower premiums for the insurer? One part is the gamification (and improvement) of driver behaviour, as mentioned above. The other is the usage-based part. Premiums go up when driving more (or later). That leads to less driving, which also has benefits in terms of congestion and pollution. And of course, provides less occasion for accidents to occur.
However, precisely this - incentivising people to drive less – might be one of the main drawbacks when it considering to implement usage-based driving in corporate fleets, especially those whose job it is to do deliveries or otherwise make frequent trips. For fleets with relatively low mileage, switching to pay-as-you-go insurance is certainly worth considering.