Insurers See Virus’s Unexpected Boost for UBI

The Covid-19 pandemic has disrupted lives and livelihoods globally but one of the most startling and apparent changes has been the rapid decline in vehicular traffic.

Insurance industry experts say that, in turn, may also accelerate adoption of user-based insurance (UBI). After all, the thinking goes that if people are driving less, they may be more interested in paying less for insurance plans aligned with how much they drive.

“What we’re witnessing now is the tipping point for connected car insurance – with that tipping point being the catalyst for further digital transformation of the entire auto insurance experience,” asserted Brian Halk, senior director, marketing, IMS. “It is often in the times of crisis that society undertakes its most significant transformations, and it may mean that an unfortunate pandemic is becoming the catalyst to be the tipping point for connected auto insurance. It’s no longer a question of “if” with auto insurers, the dialogue is shifting to: “How soon?”

He noted that up to 65% of vehicles in some countries have sat idle during lockdown or shut-in orders around the world. That is one result of the measures taken to combat the spread of the coronavirus, which in aggregate have led to some massive societal changes.

This new normal includes the massive shift to a huge increase in people working from home during various quarantine and government stay-at-home orders over the past few months to slow the spread of the novel coronavirus. That has led to the massive reduction in traffic, rebates by insurers, and a spike in interest in UBI.

Miles driven in the US plunged by nearly half (46%) during the three months from February 2 through May 1^st, according to data from Arity that was shared with TU-Automotive. The data shows a slight recovery through mid-May (down 35% from February 2 through May 16) as more states began opening up their economies and people ventured back out in larger numbers.

Chris Wiklund, group product manager for Arity’s mobility intelligence team, said: “With the COVID situation and driving down so much, you’re going to see long-term impacts, telecommuting will increase. You no longer have to drive as far if you don’t need to drive as much so pay-per-mile (plans) become a lot more interesting. We fully expect increased adoption of UBI.”

Tony Largo, a consultant with extensive experience in the insurance and telematics field, concurred that WFH will boost UBI, saying: “If there’s a net decrease in people driving to work or commuting they’re going to want a mileage program, they’re not driving 20,000 miles per year and instead are driving 10,000, that would involve some form of connectivity (for UBI). You could see a 10% increase in mileage plans because companies are allowing employees to work from home more.”

This does not seem like a short-term trend with many large companies including tech giants Facebook, Google, and Microsoft saying that many employees will not return to offices. “It is clear that the COVID crisis has changed people’s perception about their own mobility,” said Frederic Bruneteau, managing director, Ptolemus Consulting, adding: “They have formed new habits on mobility. They don’t see long commutes as the norm anymore. They don’t see business trips as the only way to start a business relationship.” While the promise of UBI has yet to be fully realized, Ptolemus’ data provided to showed 16% annual growth in 2019 for the US to 11.5 million active policies and the global market expanded by 12% to 28.4 million active policies.

Bruneteau is bullish on UBI in a COVID-19 world not only as people drive less but also due to greater economic uncertainty: “We believe that mileage-based insurance, as pushed for years by challengers such as Metromile, will now grow even faster. Unfortunately, the crisis will also involve a large number of dismissals and push policyholders to make insurance a variable part of their budget.”

Some insurers are already seeing increasing inquiries into UBI products. “With the current COVID-19 environment, there’s interest in more pay-as-you-go insurance products, like Allstate’s Milewise, proving that people’s needs are changing quickly and constantly,” said Steven Armstrong, vice-president of personal property-liability products for Allstate.

Rival insurance giant Nationwide is also seeing increasing interest in discounts that not only reflect how much policy holders drive but also how safely they drive. “The days of the ‘one-policy-fits-all’ approach to auto insurance are over,” stated Teresa Scharn, Nationwide’s associate vice-president of personal lines product development, adding: “We are already seeing usage-based insurance programs, and the customized options they can provide, are becoming the choice for drivers.

Nationwide has also teamed up with Ford and Toyota to attract new vehicle buyers to UBI, with driving data shared through embedded technology. Scharn predicts UBI uptake will increase in tandem with sales of newer vehicles featuring enhanced connectivity to track driver behavior: “Receiving data directly from the vehicle only adds to the ease of use for the customer experience, no longer requiring plug-in devices or mobile phone apps to track their driving behavior. Nationwide expects this trend to continue and thinks that by 2025, 70% of new business will come from our usage-based insurance programs.”