Usage Based Insurance (UBI) is on the increase. Recent PwC research demonstrates that insurers consider this trend to be the second most important for the sector. In Italy, over 15% of car insurance premiums are based on driver behaviour. In the USA you receive dental insurance discount based on your brushing behaviour. In Germany the use of Domotics determines your contents insurance premium and in South Africa wearables share your lifestyle data with healthcare insurers. UBI is unstoppable and will lead to seismic shifts in the insurance world.
It is generally known that companies that collect a wealth of personal data can draw up very precise customer profiles. This applies to retailers, telephone companies and banks. Such companies are not, or not yet, using this data to determine risks or develop products to the same extent as insurance companies. But they’ll certainly do so once the market is ripe for this. Of course insuring is more than simply estimating risks. And yet such a development can change the existing business model. Take the banking sector, for instance, new entrants are taking on banks by developing new business models for just one part of their business operations, such as payments, asset management or financing.
Other risk spreading
Not all consumers are prepared to share their privacy-sensitive data with insurers. In the Netherlands, 45% indicate that they would share health data, obtained via a smartphone or wearable, with healthcare insurers. In the USA, that percentage is lower for biometric data than for data about the home. The expectation is, however, that low-risk consumers are more likely to be prepared to take out insurance based on use or lifestyle. We’re also seeing the formation of communities of people who have similar risks, interests or networks. All these developments result in much more segmented risk groups, each group with its own requirements and demands.
UBI is still very much connected with risk reduction, acceptance and fraud detection. Improving customer experience is given much less attention. But by using data to offer advice (improving driving style, energy consumption behaviour, people like you etc), prevention (warnings for weather conditions, burglary etc) and service (low petrol prices, purchasing advantages etc), insurers can offer their customers much more than just damage cover. What’s more, with smart apps, wearables and sensors you can learn a lot about your customer’s moods and circumstances. You can use this knowledge to get your message across to the customer at the right time and by using the right tone of voice. Being inventive in giving consumers something back for their data will be at least as important for a good business model as a low premium.
Consequences for IT infrastructure
UBI will not only impact the business of insurance companies. It also demands radical IT infrastructure modifications. Data must be collected, stored, made secure, analysed and used to determine the premium and offer advice. Products need to be adapted to customers’ new insights and wishes. Supplementary services with new devices must be introduced. Security needs to be scaled up. Architects, designers and developers are working on the ideal infrastructure needed to guarantee the required speed, connectivity and flexibility. Develop this yourself, contract it out or acquire and connect.
UBI is much more than a new kind of car insurance. Don’t be surprised by the speed and size of this development and make sure it has a prominent place on your agenda.