Valued at approximately $46.9 billion in 2024, the usage-based insurance (UBI) market is expected to grow to $70.5 billion by 2030, according to researcher and technology services provider MarketsandMarkets. As adoption grows, UBI could fundamentally change the way insurance companies operate.
The UBI requires car owners to share their driving data in exchange for more personalized rates. As insurers collect and analyze more information about how people drive, they can adopt advanced underwriting practices, offer new services and reduce claims losses. For better or worse, those developments can affect your auto insurance coverage in the future. Here’s what you need to know.
More information: How to buy car insurance
Key technologies driving change
Telematics is the core technology that underpins UBI. Collects and transmits driving data via a plug-in device, smartphone app, or connected vehicle. Supporting technologies include cloud computing and artificial intelligence (AI).
Cloud computing provides data storage and processing. The AI analyzes it, connects the driving data with other policy and claims signals, identifies patterns and makes predictions.
Continuous data collection combined with advanced analytics allows insurance companies to do more than offer personalized pricing – it can improve how they identify and manage risk. As Jeremy Jawish, CEO of insurance technology provider Shift Technology, noted, insurers can move “toward loss prevention, not just processing them.”
Technology can also support faster policy and claims decisions. This change is already happening, according to Jawish. “We see insurers moving from static, one-time underwriting and claims assessments to continuous, data-driven decision making,” he said.
More data points, more analysis
Early UBI implementations focused on a static set of data points such as hard braking, speeding, and night driving incidents. Today, RBU programs still collect braking, acceleration, cornering, and speeding data. But they can also collect information from multiple sources to detect whether customers are doing any of the following:
-
Distracted driving: Car data plus phone driving cues or app interactions could indicate distracted driving.
-
Drive appropriately according to conditions: Car data, along with information about the road, traffic or weather conditions, could reveal how drivers handle different situations. This could create training opportunities, prompting insurance companies to provide personalized advice in real time to promote driving safety.
-
Fraud attempt: Vehicle data can corroborate “when, where and how an incident occurred,” Jawish explained. This makes it more difficult for bad actors to file fraudulent or inflated claims.
How Drivers Benefit from Usage-Based Insurance
Usage-based insurance has benefits beyond customization, including more equitable pricing, better claims experiences, and unique services.
Justice for low risk drivers
“For drivers, the biggest benefit is fairness,” Jawish said. Traditional insurance assesses risk indirectly using indirect factors such as demographics, driving history, and vehicle type. Because that process is imprecise, lower-risk drivers often end up subsidizing higher-risk ones. The UBI addresses this by using direct data on driving behavior to set premiums.
More equitable auto insurance pricing could mean a wider cost gap between safe and risky drivers. Ideally, more pronounced financial consequences would do more to discourage risky driving, an outcome that benefits drivers and their insurance companies.
Read more: What is usage-based insurance? How telematics can reduce your auto insurance bill.
Better claims experience
Vehicle and driver data recorded at the time of an accident can answer questions that previously prevented claims from being resolved quickly.
“Insurers can speed up claims management, reduce friction, and in some cases even enable near real-time resolution,” Jawish explained.
New services
Advanced data collection and analysis also supports deeper, more personalized relationships between insurance companies and their customers. According to Jawish, insurers are already adopting a more service-oriented model. Proactive risk alerts, driver training, automated claims and integrated services tied to vehicle use could become normal value-added offerings as UBI adoption grows.
Usage-Based Insurance Compensation for Drivers
UBI requires drivers to share valuable personal data and trust that their insurance company will not mishandle the information. Today, many drivers share their data, but they should receive something in return, such as better prices or better service.
Whatever the benefit, “the value exchange must be clear,” Jawish said. If it is unclear, or if insurance companies prove to be poor stewards of sensitive personal data, drivers’ satisfaction with UBI will suffer.
Possible higher insurance rates for risky drivers
A second concern is the possibility of higher rates being applied to riskier drivers. Today, riskier drivers may attempt to circumvent this outcome by opting for traditional proxy-based policies. But that option may not be available indefinitely.
In 2021, insurance experts Harry Huberty and Matteo Carbone predict that insurers will eventually require drivers to install the insurance app on their smartphones to qualify for coverage.
Drive safely to get the most benefit
Auto insurance companies are collecting data and adopting technology to support more equitable pricing, more personalized service models, and more effective risk management techniques. Since low-risk drivers will benefit the most from these changes, now is the time to commit to safe and conservative driving practices.
Telematics and Usage-Based Insurance FAQs
What is telematics in insurance?
Telematics is a technology that collects driving data and transmits it, usually to the automobile insurance company. Insurers use the data to set personalized prices, identify driving patterns, validate claims and manage risks.
What are the disadvantages of telematics?
Drivers who choose to participate in a UBI program must agree to share their driving data, which could include GPS tracking, smartphone app usage, and other data points. Additionally, car owners with unsafe driving habits could experience higher insurance rates after enrolling in UBI.
How does telematic insurance work?
Telematics insurance collects information about your driving habits through a device that connects to your car, your smartphone, or the car itself. The insurance company uses that data to assess the risk of your claims and set your price.