Big changes are coming to the auto insurance industry. These changes will result in enhanced pricing sophistication, increased profitability, better control of claim costs and differentiation between policyholder services and products. In addition to these changes, the outcome will result in a much better ability to improve the behavior of drivers. That will lead to a great reduction in the frequency and severity of accidents for policyholders.
Many larger insurance companies are already utilizing applications for usage-based auto coverage, which is commonly referred to as UBI. Midsize and smaller companies are expected to follow suit. Since the benefits of this new technology will be phenomenal, insurers are jumping on board with the changes quickly.
Although the long-term benefits are attractive, the main benefit is to obtain information that eliminates guesswork. This means insurers can identify drivers’ risks. Easier identification means insurers can measure the risks, and they can then take steps to reduce those risks. The benefits are not only for insurers. Drivers who have low-risk profiles and impeccable records can certainly benefit, but even drivers with tarnished records will favor the change. This is because it affords them the opportunity to learn safer driving behavior, which will lower their rates over time.
The following points sum up all of the benefits for drivers:
– Lowered frequency of accidents.
– Lowered severity of accidents.
– Better tracking technology to recover stolen vehicles.
– Quicker emergency response times after accidents occur.
– Less driving, energy consumption, pollution and traffic congestion.
– Better accuracy in deciding which party is at fault during claim settlements.
However, it is also important to look at the challenges this technology brings. Storing information, transmitting, analyzing and scrubbing the large amounts of data can be a tremendous task. While there are programs that cost less, the UBI technology can still be costly. In addition to this, products must be specifically designed to make sense from an economic point of view. This is true for policyholders and carriers.
So, what is in store in the future? Although there are obstacles to overcome, consumers’ acceptance of UBI has been very promising. This is especially true for consumers who have expressed the desire to improve their abilities on the road. If they want to demonstrate that they have learned how to drive responsibly, they may do so to obtain a lower rate. Insurers acting now to adopt UBI will be in the best positions for bringing and keeping the best customers. However, insurers choosing to enter the game later will have less selection and more struggles.