COVID-19 is shifting the traditional motor insurance business model

Due to social distancing and government lockdowns, car owners have been driving much less. This is creating greater demand for usage-based solutions in the motor insurance segment, as consumers have been feeling unrest over paying for a service they aren’t currently using.

According to GlobalData’s 2019 UK Insurance Consumer Survey, 9.7% of drivers currently have a usage-based insurance (UBI) policy. Demand for UBI policies has traditionally been low because of the lack of available services offered by insurers. Motor insurers have traditionally relied on annual premiums as a means to asses risk and price for customers.

While calculating premiums on an annual basis has been customary for insurers, this form of business model has not worked in the favour of customers since the outbreak of COVID-19. Meanwhile, some motor insurers have offered rebates but have not gone so far as to allow customers to switch providers if they desire.

Before the outbreak of COVID-19 there were only two major motor insurance products that attempted to notably change the market. First was By Miles’ real-time pay-per-mile insurance, aimed at users who drive less than 7,000 miles a year. Then in 2019 Aviva launched AvivaPlus, a monthly insurance premium that allows customers to cancel at any time at no extra cost. However, with customers’ driving behaviour changing at an accelerated rate due to the COVID-19 lockdown, a growing number of insurers are looking to develop more flexible motor insurance premiums.

In August 2020, LV= launched a motor insurance subscription product, eliminating instalment charges and admin fees associated with making policy changes while also allowing customers to cancel their membership at any time. The insurer has been encouraged to launch this product owing to changes in customer behaviour resulting from the COVID-19 pandemic.

Going forward, COVID-19 will provide a significant push for UBI policies. It is likely that a greater number of motor insurers will launch these types of products into the market as demand among consumers grows.