The opportunity for usage-based policies is huge in the UK, given that 50% of drivers are considered to be in the low mileage sector as they drive less than 7,000 miles per year, according to GlobalData Financial Services
The average motor insurance premium has risen to £484 in Q2 2017, hitting a record high according to the Association of British Insurers.
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Premiums have risen by 11% (£48) year-on-year, which is the largest annual rise seen over the last six-year period. The rapid increase has been due to the government’s decision to reduce the personal injury discount rate from 2.5% to -0.75%, in addition to increases in insurance premium tax.
Usage-based policies are a cheaper option that could allow low-mileage and infrequent drivers to save money on their premiums in the face of rising rates.
The government has highlighted that the number of low-mileage drivers is increasing. According to the Department for Transport (DfT), 50% of 4-wheel car drivers in England drive less than 7,000 miles per year.
The opportunity for usage-based policy providers is therefore significant, considering that half of drivers are deemed low mileage.
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By GlobalDataThe motor insurance market is seeing an influx of new policies being launched for infrequent drivers. Usage-based car insurance policies are becoming increasingly available.
These policies are either framed around the time a car is used or the distance driven, and are aimed at infrequent drivers.
Cuvva
Cuvva, a Scottish start-up reinsured by Swiss Re, offers pay-as-you-go car insurance.
The insurance is purchased by paying a monthly subscription of between £10 and £30, depending on the car and where the user lives.
This is to insure the car when it is parked. After that, drivers need to purchase premium ‘top up’ insurance using the Cuvva app, starting from £1.20 an hour, during the time they plan to actually drive their car.
Metromile
Similarly Metromile is a private motor insurance start-up that launched in 2011 in the US. It offers customers a pay-per-mile service through a mobile app, where the user pays a base rate along with a fixed rate per mile. Most recent to enter the market is By Miles, a new pay-per-mile product set to launch by the end of 2017.
The opportunity for low-mileage policies is also expected to increase, with the proportion of drivers with an annual mileage of less than 7,000 having risen from 42.0% in 2012 to 49.7% in 2015 according to the DfT.
With rising car insurance premiums, drivers are becoming more sensitive to price and may become more open to trying new policy concepts such as this if it will allow them to make savings.
