Due to the pandemic’s ongoing effects on mobility, a growing number of insurers are launching their own versions of usage-based insurance (UBI) within personal motor insurance. Incumbents are taking a piece of the UBI cake. Despite the market shift towards these newly available policies, they are still a long way from being the industry standard, especially as their competitive edge diminishes when policyholders drive miles above a certain threshold.
UBI policies provide the greatest financial benefit to individuals driving less than 7,000 miles a year. GlobalData’s 2020 UK Insurance Consumer Survey found that 73% of policyholders expected their annual mileage to fall by up to 3,999 miles due to lockdown restrictions and remote working becoming more widespread. Data from the same survey taken a year earlier shows that three quarters of policyholders had a 2019 mileage of less than 9,000, meaning that COVID-19 has led to a greater number of individuals suddenly becoming more suitable for a UBI policy.
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With a number of insurers trying to capitalise on this change in trend, many have launched UBI for motor insurance or their own versions of flexible insurance products. Recent examples include LV=, which launched a flexible monthly insurance policy in August 2020. LV= gives customers the flexibility to cancel their motor insurance premium whenever it suits them, allowing for refunds if customers are mid-month in their premium. Marmalade is another insurer that stands out, launching its own version of UBI with its pay-as-you-drive policy launching in December 2020. Through Marmalade, customers will need to purchase an initial 500 miles, with an auto top-up option of between 100–500 miles. Customers are charged for a top-up once they drop down to 50 miles. Meanwhile, By Miles has been a strong player in this space, being the first insurtech to launch a UBI product in the UK. By Miles charges customers a flat annual fee and then a fluctuating monthly premium determined by vehicle use.
However, while these insurance policies divert themselves from traditional policies, with annual premiums, they could do more to deliver greater levels of personalisation. For example, customers remain categorised based on how many miles they drive, and there are no additional benefits for those who drive in safer conditions, such as good weather or low traffic.
Additionally, if UBI customers were to drive more than 7,000 miles, they may possibly have been better off getting an annual-based premium, depending on which UBI policy they have.
Insurers that have taken the initiative to launch UBI products are in a better position to capitalise on consumer data by delivering greater levels of personalisation and flexibility. However, insurers should be using this data to better understand their customers’ risk and be able to reward them, so that the benefits to customers go beyond merely offering better value for low mileage. Otherwise, the benefits of UBI will not be enough to retain customers if their mileage ends up increasing as mobility levels pick up. Incumbents can’t simply use UBI and hope it solves all problems.
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