If you are on the lookout for a type of vehicle insurance that takes into consideration your good driving skills, then usage-based insurance (UBI) might be a good fit for you. UBI is being offered by certain auto insurance companies as an option that tracks your driving behaviour and could end up resulting in cheaper vehicle insurance if your driving is assessed as safe.
Usage-based insurance is a model of vehicle insurance that bases the cost of a policy on how safe a driver’s habits are. The data required for usage-based insurance is collected by the driver’s vehicle and analysed by the insurer to determine the final rate of insurance. The better the driver, the lower the rate.
How Does Usage-Based Insurance Work?
While traditional vehicle insurance companies use a number of factors such as your age, location and insurance score to determine your insurance premium, usage-based insurance also considers your driving style to determine how much you will have to pay for coverage.
UBI can be a boon for both vehicle insurance companies and drivers. Some drivers can profit from a lower premium with UBI than with traditional insurance, while insurance companies benefit by motivating the insured to drive more safely.
Usage-based insurance programs make use of the vehicle telematics data that can be collected from mobile networks, GPS and similar tracking technologies. They usually track the following driving behaviours:
- Hard braking
- Hard cornering
- Distance driven
- Time of day
- Phone usage while driving
- Driver drowsiness detection
The technology that tracks your vehicle’s telematics data depends on the insurance company. Driving data is generally collected in the following ways:
- Through your vehicle’s in-built systems or vehicle management system
- Through a device plugged into the vehicle’s on-board diagnostics, similar to a vehicle tracking device
- Through a smartphone app
- Through devices called ‘tags’. A ‘tag’ is a vehicle tracking device that pairs with your smartphone over Bluetooth
Certain insurance companies also offer you a choice of how you would like the data to be collected, depending on where you reside.
While the way your driving behaviour affects your insurance premium is dependent on the insurer, a standard UBI plan tracks your habits with a vehicle tracking device over a period of time. Once the review period is up, you may be offered a discount on the basis of the telematics driver behaviour data.
Potential Benefits of Usage-based Insurance
- Benefits to society and the environment from more responsible driving
- Benefits to insurance companies through improved customer segmentation
- Potential cost-savings for responsible drivers
- UBI technologies can be used for other applications as well
- More choice in vehicle insurance for consumers
- Social benefits from increased access to insurance
- High-risk drivers have incentives to drive better
- Continuous vehicle tracking enhances personal and vehicle security
- Gamification of data encourages good driver habits
Key Features of Usage-Based Insurance (UBI)
- Drivers generally save 10-15% in premiums annually
- Safe drivers who don’t drive a lot get the best discounts
- The data is collected either directly from your vehicle’s telematics system, or through a special monitoring device
- The data is mostly used to calculate discounts and not to raise rates further
Types of usage-based insurance
Usage-based insurance typically falls under two categories:
- One form of UBI monitors driving behaviours such as distance, time of the day and speeding. These are known as pay-how-you-drive programs.
- The other type singularly tracks how many miles you drive and can be called pay-as-you-drive, pay-as-you-go or pay-per-mile plans.
Is Usage-Based Insurance Right For You?
The highest discounts under usage-based insurance are given to safe drivers who cover less distance than the average motorist. This makes these plans the best option for students, retirees, stay-at-home parents, and drivers who rarely use their vehicles because they make use of public transportation.
In India, the insurance authorities are looking forward to the introduction of usage-based vehicle insurance in the country, hence it is likely that major insurance companies will start offering such policies in the future.
Usage-based insurance might be the one for you if:
- You drive less than the average motorist per year: If you drive a shorter distance than this, you can benefit from going ahead with a usage-based program.
- You are a gentle driver: Insurers track driving styles and tend to penalise drivers for things like braking hard or driving at high speeds.
- You don’t have an issue with being tracked: You need to be comfortable with the insurance company monitoring your driving data on a daily basis, which includes location data.
If you believe you’re a safe driver or you work remotely, have a short commute or log less distance than the average driver, usage-based insurance could possibly bring down your auto insurance rates.
Be sure to carefully study vehicle insurance programs to understand the data being collected and how much you can potentially save before making a decision.
Usage-based insurance policies will take time to be accepted wholeheartedly in India by all stakeholders of the motor insurance industry because of the challenges involved; for example, the widespread use of tracking/Telematics devices in cars.
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