Usage-Based Insurance and Telematics. The consumer or the service provider,Who is really benefiting?


Usage-Based Insurance (UBI) is a recent innovation by auto insurers that more closely aligns driving behaviors with premium rates for auto insurance. Mileage and driving behaviors are tracked using odometer readings or in-vehicle telecommunication devices (telematics) that are usually self-installed into a special vehicle port or already integrated in original equipment installed by car manufactures. The basic idea of telematics auto insurance is that a driver’s behavior is monitored directly while the person drives.

These telematics devices measure a number of elements of interest to underwriters: miles driven; time of day, where the vehicle is driven (GPS), rapid acceleration etc. The level of data collected generally reflects the telematics technology employed and the policyholders’ willingness to share personal data. The insurance company then assesses the data and charges insurance premiums accordingly.


Both the consumer and service provider benefit. As insurance is all about risk spreading, having more data on how consumers behave leads to better analysis and underwriting. Currently I believe they are drivers or persons insured that are paying more\less than their risk profile warrants by just being grouped in a certain high\low risk group by virtue of age, career etc. Usage based Insurance makes sure that high risk persons carry more of the burden that low risk persons and this leads to efficient insurance markets as I would call them. Service providers will benefit from the fact that they will have an idea of who they are insuring and leads to better forecasting etc.


Really inciting @ishwida .If insurance is a contract based on good faith ( wont the client feel as if you dont believe in them or wont they feel as their right to privacy is being infringed. On the other hand wont it be expensive for companies especially in Africa to adopt this new development because at the end of the day the cost will be forwarded to consumers?(


True that an insurance contract is based on good faith, but for the consumer it can only help to lower insurance premiums and any rational consumer who acts in good faith would find it more beneficial to give in the data to the insurer unless the consumer knows that they are not acting in good faith which leads to the question is every party to the contract acting in good faith and if not how do we solve the problem. To answer the second question like any new technology it will be expensive initially and only the big insurance companies will be able to afford such technologies and after a while it will start trickling down into other regions. The other thing we should bear in mind is that the huge insurance companies that can deal with big data are looking to have a foot print in African, Asian markets etc. so in the medium to long run the technology or new developments might quickly trickle down the chain. Also not forgetting globalization, huge insurance companies might see an opportunity to spread the risk to untouched regions which might in turn lower the costs of insurance as the pool to insure increases and more data available of who is being insured. A good example is Africa might not be prone to CAT events that lead to massive insurance claims but Australia might be prone to such it only makes sense that in the long run risk in Australia be diversified to Africa and risks in Africa to in that regard i believe will reach efficient risk diversification.


Thank you for you in-depth contribution. Will invite you on my next discussion on financial gerontology and how it affect life assurance firms.