All You Need to Know About Usage Based Motor Insurance

The motor insurance industry has seen rapid overall progress over recent years. A lot of that progress can be credited to innovative technological developments in recent years. With the launch of many new ideas for insurance companies and drivers, the industry is looking at new angles and opportunities to improve as a whole. Although little is known about usage-based car insurance, it is an ingenious concept that could change the future of the motor insurance industry. The concept works based on telematics and RF technology to understand the nature of driving as well as learn drivers’ driving practices and provide calculated insurance.

In this type of car insurance, premium rates are determined based on the driving style and the nature of the driver. While this new insurance technology offers rewards for attentive and safe drivers, it also serves as an incentive for rash drivers to work on improving their driving patterns. In this way, it will not only help safer drivers to purchase a car insurance policy at a lower cost but also help rash drivers adopt safer driving practices.

Usage-based car insurance

Traditional auto insurance does not take into account accurate data on the driving pattern and habits of the driver. When you buy car insurance online, it is your past driving record and any traffic events that you have been involved in that are the main factors in determining the premium. However, usage-based car insurance is a concept based on advanced technology and is completely different from the traditional method. In this method, the driver’s data is collected through the assistance of telematics, RF technology, and GPS. Based on the data collected and its analysis, the insurance company determines the exact price of your car insurance coverage. Since the process of deciding the premium is based on accurate data, it will be beneficial for the driver as well as the insurance company.

This plan allows drivers to have more control over their premium price as they decide how they want their insurance price. If they adopt safe driving habits, they may get a lower premium price as a reward, while rash driving will cost a higher premium on their insurance policy.

Working of Usage-based car insurance

The working principle of a usage-based car insurance plan is different from the traditional one. Where a driver’s history on the road determines the premium in regular car insurance, usage-based car insurance observes factors like driving distance, mileage, location, time and driver’s behavior. The data collected of the insured vehicle is sent directly to the insurance company with the help of telematics equipment. After monitoring several parameters such as car cover distance, usage time, the road taken while driving, hard braking, hard cornering, airbag deployment, acceleration pattern and more, insurance companies set the premium price. Insurance companies collect this data from readings of odometers and other in-vehicle telecommunications equipment installed in cars by default. The concept of this policy is to monitor the driving behavior of the individual and to determine the insurance premium based on it. Following this process ensures that there is transparency in the processes of the policy and every driver is fairly charged.

Telematics equipment used in utility-based motor insurance

The following devices are used to collect data for usage-based insurance:

  • Smartphone with car insurance app
  • 12V dongle
  • Bluetooth connection
  • Black box
  • GPS device
  • On-board sensor

Different types of usage-based car insurance

There are four major types of car insurance, depending on the driver’s driving details. The variations of UBI are as follows:

  • Pay-as-you-drive

In this particular UBI variant, the insurance coverage provided to the driver depends entirely on the actual distance covered by the vehicle. Data is collected from the vehicle’s odometer readings.

  • Pay-how-you-drive

In this type of UBI plan, the insurance coverage is determined based on the mileage collected from the GPS data or the total time it takes the car to travel the specified distance. The total number of minutes is calculated using a vehicle-independent module that transmits data via RF technology or cell phone.

  • Pay-as-you-go

This UBI variant provides insurance coverage after taking into account multiple pieces of data such as time of day, driving activities, time taken to cover the distance, and historical risk factors of the road.

The pricing of car insurance has always been a major factor for people to decide whether they want to buy third-party car insurance online or not. Almost every buyer feels that the price they are being charged for the coverage is too high. As a result, many people forego buying car insurance and take the risk of driving without coverage. Accurately determined premium through usage-based car insurance ensures that drivers are charged the right premium for their coverage.

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