Reinventing Usage-Based Insurance (UBI) with Telematics, Mobility, and Analytics

26 Mar 2018
by Skand Bhargava, Somya Bhadola

More than a decade ago, insurers had started to explore usage-based auto insurance policies. The operational strategy was to make policyholders pay premiums proportional to the miles they had driven. This was based on researches highlighting that crash-risk of motorists was dependent on the distances they covered. If one covered shorter distances, the risk of an accident was low. This gave birth to the first prototype of usage-based auto insurance – pay-as-you-drive. Under this product model, insurers developed diverse methodologies of collecting miles data from the policyholder. However, all these methodologies were constrained by high costs, long turnaround times, data leakages due to dependency on multiple external parties, and the end-customer inconvenience. This led to some insurers withdrawing such policies two to three years after they were introduced.

The tides have now turned, owing to the immense technological developments, and UBI is shining yet again. The business models have also evolved significantly from pay-as-you-drive to pay-how-you-drive, and still futuristic manage-how-you-drive models. Almost all the major insurers, around almost all the insurance markets globally, have either implemented UBI policies or are planning to do so in the near future. In order to leverage this demand-side opportunity, the supply-side of the UBI ecosystem is also pitching in and various players with related services have entered the market.

The insurers’ struggle now is two-fold; first, convincing the end-customer to adopt UBI policies and build sufficient customer base to ensure profitability; second, mitigating cost and time-to-market concerns while addressing competitive intensity. What insurers do not struggle with anymore is building the market case for launching UBI products, because one thing has been established by the market – telematics and UBI are here to stay and would only penetrate more insurance service lines in the future.


This report attempts to comprehensively cover the developments in UBI market, specific to P&C auto insurance. While current trends have been highlighted initially, it moves on to examine the four key dimensions of the UBI market – customer value propositions, evolution of the underlying telematics technologies, process transformations made possible by UBI-enabling technologies, and the fragmented supply ecosystem of the UBI market.

Some of the key findings in this report are:

  • While current traction for UBI products is mostly centered in North America and Europe, emerging markets such as Australia, China, and Japan are expected to significantly contribute to the growth in the future
  • Insurers around the world are now partnering with external suppliers to quickly launch themselves in the UBI space and some notable developments in this regard have been witnessed in 2017
  • The value proposition with which the insurer targets the customer will significantly impact UBI adoption. Not all propositions are effective for all the customer segments. A careful study of the target market is imperative
  • Smartphones and in-built telematics will definitely capture market share from other telematics devices in the medium term. However, their usage is still limited by various constraints
  • UBI will open a huge opportunity for insurers to reengineer their processes and reimagine their operational efficiency, portfolio risks, and customer experience
  • Supply ecosystem for UBI implementation is fragmented at present and insurers are spoilt for choice. However, all the vendors are associated with their specific capabilities and constraints, which insurers should consider before selecting a specific partner


Insurance - Business Process Outsourcing (BPO)


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