COVID-19 has led to a fall in insurtech investment. Yet despite these setbacks, usage-based insurance (UBI) continues to attract funding during the COVID-19 pandemic.
According to GlobalData’s 2019 UK Insurance Consumer Survey, 9.7% of drivers currently have a UBI policy.
However, we expect this figure to increase for insurtech as a result of COVID-19. UBI operates on a model whereby policyholders’ premiums are calculated depending on the utilisation of the insured asset.
Due to social distancing and the government-mandated lockdown, car owners have been driving much less, highlighting the advantages of these products. Given that mileage is a key factor when calculating motor premiums there have been calls for premium refunds, yet only a handful of insurers have offered any. As a result, UBI policies will become more popular because of COVID-19.
UBI policies are currently much more popular among younger drivers. 22.3% of drivers between the ages of 25 and 29 purchased a UBI policy in 2019, while at the other end of the spectrum uptake was just 2.2% among those aged 50–54. And younger people are more likely to be adversely affected by the COVID-19 pandemic due to a lack of savings and the large representation of this demographic in the hospitality sector. As a result of COVID-19 customers will appreciate UBI’s value proposition more, as they will feel unfairly treated by paying to protect an asset they barely used during the past few months.
The increased attractiveness of these types of policies is reflected in continued investment during this financially difficult period. Although insurtech funding decreased by 54% in Q1 2020 compared to the same quarter in 2019 according to Willis Towers Watson, UBI provider By Miles recently raised £15m in funding. The company claims to have had its strongest week ever in April 2020, highlighting interest in UBI propositions even during a period of financial hardship. Meanwhile, pay-per-mile motor insurer Just Auto Insurance launched in the US during the COVID-19 pandemic.
With interest in UBI policies remaining high despite economic downturn, more policies of this nature will continue to be developed. While these policies are mostly focused on motor insurance, more lines of business will begin to experiment with the model as well.