Usage Based Insurance Market

[194 Pages Report] The global usage based insurance (UBI) market is projected to grow from USD 30.6 billion in 2023 to USD 80.7 billion by 2028, at a CAGR of 21.4%. The key factors driving the usage-based insurance market are the lower premiums charged compared to traditional insurance for the automotive, the government regulations imposed on adopting telematic devices, higher sales of connected cars, and increasing sales of on-road vehicles, which drive the UBI market.

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Market Dynamics

DRIVER: Increasing adoption of telematics and connected cars.

Telematics has become commonplace in the automotive industry. Car telematics enhance driving behavior and road safety, and usage-based insurance (UBI) aligns insurance premiums. The Global System for Mobile Communications, or GSMA, predicts the telematics market will grow to USD 750 billion by 2030. The telematics sector is expanding for two main reasons. First, governments are becoming eager to impose telematics regulations, which is already happening in the European Union and Russia. Second, there is a growing need for automobiles to be more connected and intelligent. According to a whitepaper by LexisNexis Risk Solutions, between 80% and 90% of those who bought auto insurance in 2017 had telematics-enabled coverage. IMS (Intelligent Mechatronic Systems) forecasts that the vehicle telematics market will expand at 23–24% CAGR over the following several years due to increased regulatory regulations and technology penetration. Additionally, because of the rising demand for linked automobile services, insurance companies may assist clients in times of need, which speeds up the claims process and saves time. Consequently, the growing acceptance of connected car services would significantly impact the market for automobile usage based insurance.

RESTRAINT: Ambiguity over regulations and legislative environments

Each state in the US has its own usage-based insurance rules and regulations. Illinois, for instance, has rules governing pay-as-you-drive (PAYD) plans but lacks specific rules governing pay-how-you-drive (PHYD). Using usage-based automobile insurance in the US is complicated by dealing with many legislations sets. Various automobile insurance requirements in each state have also hampered cross-state fleet operations. For instance, Illinois mandates carriers disclose their underwriting methodologies, whereas California restricts product pricing parameters. Due to inconsistent requirements, insurance businesses are compelled to offer novel goods and services that abide by local laws. As a result, the enterprises must increase the variety of their products. The legal framework for usage-based vehicle insurance favors lower premiums for safe driving practices. Thus, regulatory, and legislative ambiguity may limit the expansion of the usage-based vehicle insurance market.

OPPORTUNITY:Developing automotive usage-based insurance ecosystem

A robust ecosystem is developing around connected car services as usage based auto insurance demand skyrockets. Automotive insurance embedded telematics box and telematics providers, data platform and analytics firms, big data companies, and cloud service providers are some of the participants in this ecosystem. In a number of ways, insurance businesses are undergoing a digital transition. For instance, machine learning or predictive modeling technologies may replace the analytics capabilities of insurance firms. Additionally, traditional data sets comprising risk profiles based on claims history are being replaced by the increasing accessibility of real-time data collected from automobiles. The demand for linked automobile services, the expansion of automotive telematics, and mobile-based telematics will all present huge prospects for usage-based insurance market participants.

CHALLENGE: Data privacy and lack of standardization in the system

The adoption of Usage-Based Insurance (UBI) in the automotive industry brings forth notable challenges, particularly in the areas of data privacy and the lack of standardization. While UBI promises more personalized and cost-effective insurance rates based on driving behavior, it relies on the continuous collection and analysis of driver data. This has raised significant concerns about data privacy, as consumers worry about how their sensitive information is handled and safeguarded by insurance companies. Moreover, the absence of standardized metrics and assessment methodologies among UBI programs creates confusion and complexity for both insurers and policyholders. The lack of uniformity in the industry's approach to evaluating driver behavior and determining premiums makes it challenging for individuals to make informed choices and for regulators to ensure fairness. These challenges underscore the need for robust data privacy regulations and industry standards to promote transparency, consumer trust, and consistent practices in the rapidly evolving UBI landscape.

Usage-Based Insurance Market Ecosystem.

The major OEMs of the usage-based insurance market have the latest technologies, diversified portfolios, and strong distribution networks globally. The major players in the usage-based insurance market include UnipolSai Assicurazioni S.p.A (Italy), Progressive Casualty Insurance Company (US), Allstate Insurance Company (US), State Farm Automobile Mutual Insurance Company (US), Liberty Mutual Insurance Company (US), AXA (France), Assicurazioni Generali (Italy), Allianz (Germany), Webfleet Solutions (The Netherlands), Verizon (US).

The PHYD segment, by package type, holds the second largest market share.

Pay How You Drive (PAYD) is a usage based insurance (UBI) program that charges drivers based on their driving distance. PAYD programs are typically more affordable than traditional insurance plans, especially for drivers who drive less than average. PAYD programs appeal to younger drivers, who are more likely to be interested in new technologies and personalized insurance products. PAYD programs can also help insurers retain customers looking for ways to save money on their insurance premiums. According to IIHS, in 2021, a total of 3,058 teenagers were dead in motor vehicle crash deaths. According to LexisNexis Risk Solutions, 17-19-year-old drivers’ casualty statistics fell by 31% in 2018 since 2011 in the UK, providing compelling evidence of the role of telematics. Telematics insurance programs reduced auto crashes involving young drivers by 20%. Growing concerns about safety among parents and developments in behavioral telematics technology have driven market growth in the US. Hence, this telematics insurance program has reduced auto crashes involving young drivers by 20%.

Overall, the PAYD programs make UBI more accessible, affordable, and attractive to consumers. PAYD programs also promote safer and more efficient driving, enabling new and innovative insurance products and services. As a result, PAYD programs are playing a key role in driving the growth of the UBI market.

The new vehicles are the fastest-growing segment in vehicle usage type for the usage based insurance market.

The value of old vehicles depreciates over the years, so the average UBI premium is less than new vehicles. According to OICA, passenger car sales increased from 56.4 million in 2021 to 57.4 million in 2022, witnessing an increment of 1.7%. However, this increase in sales statistics has increased the usage-based insurance market. The European and North American governing bodies have focused on safety due to an increase in sales of pre-installed telematics devices, sensors, and connected car technology. This increase in demand for security is driving the UBI program. Also, according to Capgemini, China and is expected to represent a connected car market share of 20.8% by 2023.

Additionally, according to Novarica's Research Council CIO Survey (2020-Q4), telematics is currently being used by 35% of large Passenger cars and commercial (P&C) vehicle insurers and 12% of mid-sized P&C insurers. Europe is the second largest usage-based insurance market for new vehicles, where the adoption of usage-based insurance is projected to increase in Germany, France, and Spain. Also, growing initiatives by the government have driven the UBI market. For instance, In December 2019, the amendments in the Motor Vehicle Act with revised penalties for violation of possession of a basic TPL policy increased the sales of auto insurance policies in India. Such revisions in the insurance sector and increased sales of connected cars are expected to positively impact the usage-based insurance market, especially for new vehicles.

Plug-in Hybrid electric vehicle holds the second largest market share in electric vehicle.

Plug-in hybrid vehicles (PHEVs) are significantly impacting the Usage-Based Insurance (UBI) market by offering a unique opportunity to monitor and assess driving behavior while promoting eco-friendly driving habits. According to IEA, global PHEV sales stood at 2.9 million in 2022 compared to 1.9 million in 2021. The adoption rate of usage-based insurance is comparatively higher in PHEVs as these vehicles are classified as premium vehicles and have higher insurance premiums. Also, according to Markets and Market analysis, the charging infrastructure market is projected to grow from USD 11.9 billion in 2022 to USD 76.9 billion due to surplus investments made for the public charging stations by the government, business, and private firms to fulfill the needs of increasing sales of EVs and PHEVs globally, which has ultimately boosted the market for pre-installed telematic devices in the PHEVs.

The governing body of the US has implemented a federal tax credit law, wherein all EV and PHEV owners get up to USD 7,500 tax credit, making them convenient and affordable to consumers. These initiatives have increased sales for PHEVs globally. Also, as the PHEVs are offered with advanced sensors and telematic devices, there is no need for external telematic device fitments. Hence, these factors have made PHEVs the second-largest market during the forecasted period.

Asia Pacific is the fastest-growing market in the usage based insurance market.

Asia Pacific is estimated to be the fastest-growing region for the usage-based insurance market. The Asia Pacific region has some of the highest vehicle ownership rates in the world. This means a large pool of potential customers for UBI products. The UBI ecosystems in many Asia Pacific nations are partnering with some service providers for the UBI program. For instance, GrabTaxi from Singapore has collaborated with AXA to provide UBI insurance for all GrabTaxi drivers. The Asia Pacific region is also one of the fastest-growing regions regarding IoT technology. In the past 4-5 years, key countries like China, Japan, and India have rapidly adopted the IoT technology used by automotive OEMS present here.

Toyota Motor Corporation (Japan), Honda Motor Company (Japan), Hyundai Motor Company (South Korea), Nissan Motor Company (Japan), Kia Corporation (South Korea), Suzuki Motor Corporation (Japan), Geely Automobile Holdings (China), SAIC Motor Corporation (China), Great Wall Motor Company (China), BYD Company (China), and Tata Motors (India) are the major key players in this region. According to OICA, the passenger cars sold in the Asia Pacific region grew by 10.6%, which was 58.3 million in 2022, which has gradually propelled the adoption of UBI program. Also, some governing bodies like China promote using connected cars to reduce traffic congestion and improve air quality. This number of initiatives to promote the adoption of connected cars and IoT technology has made the Asia Pacific region the fastest-growing market for UBI adoption.

Key Market Players

The usage based insurance market is consolidated with players such as UnipolSai Assicurazioni S.p.A (Italy), Progressive Casualty Insurance Company (US), Allstate Insurance Company (US), State Farm Automobile Mutual Insurance Company (US), and Liberty Mutual Insurance Company (US) are the key companies operating in the usage-based insurance market. These companies adopted new product launches, partnerships, and joint ventures to gain traction in the automotive insurance market.

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Scope of the Report

With the given market data, MarketsandMarkets offers customizations per the company’s specific needs.

The study segments the usage based insurance market:

Usage Based Insurance Market, By Package Type

• Pay-As-You-Drive (PAYD)
• Pay-How-You-Drive (PHYD)
• Manage-How-You-Drive (MHYD)

Usage Based Insurance Market, By Vehicle Type

• Light-duty Vehicle (LDV)
• Heavy-duty Vehicle (HDV)

Usage Based Insurance Market, By Vehicle Usage

• New Vehicle
• Old Vehicle

Usage Based Insurance Market, By Device Offering

• Bring Your Own Device (BYOD)
• Company Provided

Usage Based Insurance Market, By Electric Vehicle Type

• Battery Electric Vehicle (BEV)
• Plug-in Hybrid Vehicle (PHEV)
• Fuel-cell Electric Vehicle (FCEV)

Usage Based Insurance Market, By Technology Type

• OBD-II
• Smartphone
• Embedded Telematics Box
• Other Technologies

Recent Developments

• In June 2023, UnipolSai introduced BeRebel, a new car insurance policy based on the pay-per-use model. BeRebel is the first of its kind in Italy and Europe. It is a monthly, kilometer-based, fully digital car policy. It has a fixed monthly cost of about USD 10.69, which includes 200 km of travel, and an additional kilometer driven will be charged at a cost of about 2 cents/km. The Unused kilometers can be carried over to the following month. This policy is based on telematics data, which tracks the kilometers driven and the driving style.
• In February 2022, State Farm Mutual Automobile Insurance Company launched a usage-based insurance (UBI) program that uses data from a vehicle’s telematics system to track driving behavior and mileage. Drivers who exhibit safe driving habits and drive fewer miles can earn discounts on their insurance premiums. In this service, the agent provides a small device that plugs into the vehicle's diagnostic port where the device will collect data from the vehicle's telematics system and send it to State Farm.
• Progressive Corporation and Protective Insurance Corporation announced in February 2021 had signed a legally binding agreement in which Progressive agreed to buy all of Protective Insurance Corporation's outstanding Class A and Class B ordinary shares.
• In July 2021, Unipol's Linear Assicurazioni and Cambridge Mobile Telematics (CMT) launched Italy’s first try-before-you-buy auto insurance program. The program, called “Drive Smart, Pay Less,” allows drivers to test drive a car insurance policy for 14 days before they commit to buying it. The program uses CMT's DriveWell telematics platform to track the driver’s behavior. The platform measures speed, acceleration, braking, and cornering to assess the driver’s risk profile.

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