SOUTHFIELD, Mich.--(BUSINESS WIRE)--Usage-based auto insurance (UBI) is a growing segment of the automotive insurance market, the result of a technological revolution as the Internet of Things (IoT) continues to further influence various industries, including automotive.
In 2015, close to 12 million consumers globally subscribed to this type of insurance, according to a new report from IHS Automotive, part of IHS, Inc. (NYSE: IHS) and a leading source of critical information and insight to the global automotive industry. The number of consumer subscribers to UBI is expected to grow to 142 million globally by 2023, according to the IHS report.
This specific type of automobile insurance uses real-time information about a driver’s actual driving ability and habits to assess actuarial risk, capturing information from the in-vehicle telematics system. In the decade or so since its initial launch, UBI has inspired as much frustration as hope from its believers and practitioners. Expectations were high from the start, but these expectations were long thwarted by market stagnation and the reluctance of insurers to embrace the solution.
“The current UBI landscape is in transition with robust expansion,” said Stacey Oh, manager, automotive technology at IHS Automotive. “New insurers are entering the market, new markets are being opened and new solutions are being launched.”
However, providers are still identifying and developing the strongest business models, the best value proposition and the most suitable data capture device as those providers seek to alleviate divergence with the auto industry. The added challenge of constantly evolving technology -- including telematics, the connected car and mobility itself -- are influencing factors.
Current regional leaders, markets to watch
Today, Italy is the only country in which UBI has a double digit share of the insurance market, representing 10 percent of the market there in 2015, according to the IHS Automotive report. Government intervention was a strong influencer there. In 2012, in response to fraudulent insurance claims, Italy’s Prime Minister instituted a decree stipulating that if an insurance company already offered a UBI product with a “black box,” it must offer the box to the customer at no charge and offer a significant upfront premium discount for consumers.
Italy and the United Kingdom are by far the most mature UBI markets in Europe. Activity is growing in France, Germany and Spain, though the solution remains very niche-like in these markets. Insurers are unsure of what business propositions work best and consumers are still unfamiliar with the product. Privacy concerns, especially in Germany, make consumers wary of sharing data.
Due to its market potential, the U.S. will lead the way in UBI marketing and innovation in the coming year, IHS says. America is the largest car insurance market in the world, with more than 260 million vehicles in operation in 2015. According to IHS estimates, there were more than 5 million UBI policyholders in 2015 in the U.S., by far the most of any other country. Italy was a distant second, with just 3.6 million subscribers out of 36.8 million vehicles in operation in 2015.
Another key market to watch is China. The Chinese government began granting foreign insurance carriers access to the market in 2012, and approximately 15 insurers will launch UBI pilot programs this year. The sheer size of the automotive market allows for the UBI subscriber volumes to grow from 50,000 in 2015 to over 22 million by 2023, according to IHS Automotive forecasts.
Other influencing factors
The future of UBI is also explored in this report, with sections on Millennials, pay-per-mile (Uber) and pay-per-ride insurance, ADAS and the autonomous car. The pay-per-ride model will become increasingly important as millennials impose their preferences on the market. Whether or not the customer works for an Uber-type company or simply prefers leasing a car whenever necessary, he will want to be insured only for that trip or the distance driven. And, with UBI, he could choose to travel at a time when the trip insurance premium is lowest.
As UBI evolves, the technology that created it is also evolving—and, as a result, so is society. A smartphone-only solution will eventually dominate the global UBI market, but likely only for a short time. The connected car is well on its way, and the vehicle itself may well be the ultimate UBI device. By the time connected cars are common on the world’s roads, it could also be that, because of product innovation and the rise of alternative mobility models such as ride sharing and car leasing, the UBI market will not be anything like that of today.
About the Methodology:
The IHS Usage Based Insurance Report is based on more than 40 interviews from across the value chain, from insurance carriers, data aggregators, telecommunications companies, to automotive OEMs. More than 70 companies are mentioned throughout the report as it offers a comprehensive review of the business models, barriers to uptake, market drivers, case studies, pilot programs, value propositions and device debates. The forecast section is regional and country level, based on IHS Automotive forecasts which include Passenger Cars (PC) as well as Light Commercial Vehicles (LCV). UBI attach rates as the share of autos in-use with UBI-based insurance policies, as well as UBI subscriber numbers and UBI growth rates are provided.
About IHS Automotive (www.ihs.com/automotive)
IHS Automotive, part of IHS Inc. (NYSE: IHS), offers clients the most comprehensive content and deepest expertise and insight on the automotive industry available anywhere in the world today. With the 2013 addition of Polk, IHS Automotive now provides expertise and predictive insight across the entire automotive value chain from product inception—across design and production—to the sales and marketing efforts used to maximize potential in the marketplace. No other source provides a more complete picture of the global automotive industry. IHS is the leading source of information, insight and analytics in critical areas that shape today’s business landscape. IHS has been in business since 1959 and became a publicly traded company on the New York Stock Exchange in 2005. Headquartered in Englewood, Colorado, USA, IHS is committed to sustainable, profitable growth and employs nearly 9,000 people in 33 countries around the world.
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