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Usage-Based Insurance Accelerates In the United States

 

As UBI programs continue to gain popularity across the United States, driving behaviors, miles driven and time of day travelled will begin to replace traditional auto insurance.


Lately, it’s been hard to ignore the traction usage-based insurance (UBI) has been gaining in the United States. The future of automobile insurance is rapidly transforming away from traditional auto insurance to premium auto insurance programs powered by telematics data.

New York State Encourages UBI Programs

No longer relying on traditional auto insurance factors like: age, gender, vehicle type and years of driving experience to calculate insurance premiums, telematics based auto insurance programs now calculate a variety of customized variables based on individual driving behaviors, offering premium rates to top drivers. These voluntary programs are beneficial because they bring new technology to vehicles, giving drivers the option of installing a telematics device (commonly referred to as a black box), that with their consent, measures driving behavior to provide discounts. Measured driving data includes: miles driven, braking, acceleration and time of day travelled as key factors. New York’s Department of Financial Services (DFS) issued a press release to all New York auto insurers encouraging them to adopt UBI programs. DFS Superintendent Benjamin Lawsky was recently quoted saying “Telematics programs can be a win-win for insurers and drivers. They can save policyholders money and save lives by making our roads safer. We encourage Departments making use of this innovative technology.”

American Billionaire Warren Buffet Latest American Usage-Based Insurance Supporter

Headlines were made in the auto insurance industry this month when American billionaire Warren Buffet spoke out to confirm his support of UBI programs in the United States. At a recent Berkshire Hathaway shareholder meeting, Buffet discussed usage-based insurance and driverless cars in response to a question from financial journalist Andrew Ross Sorkin of The New York Times.

Motley Fool captured and reported on the interesting exchange (below):

Andrew Ross Sorkin: Could you explain how you think about usage-based car insurance pricing, and how it could affect the industry in the next decade?


Warren Buffet:
 Usage-based pricing has been favorable among firms that have tried it. There’s no question that knowing how customers drive is a valuable insight into how to price the premium. Insurance is about evaluating the propensity of loss when calculating the premium. And, it’s very easy to understand in life insurance that a 90-year-old is more likely to die than a 20 year old, despite Charlie’s situation. That’s obvious. Females live longer, that’s obvious. So there’s various variables and you try to set the proper price in insurance. If you lived in a state where the population was 1 rather than 100 million, there’d be a lower chance of an accident. Through studying usage using varying methods, they’re using variables to try to get information about the likelihood of that driver being in an accident.

As UBI programs continue to gain popularity across the United States, driving behaviors, miles driven and time of day travelled will begin to replace traditional auto insurance. Many experts predict that up to 20 percent of all vehicle insurance in the U.S. will incorporate some form of UBI within the next five years.
The National Association of Insurance Commissioners affirmed in a recent article that, “This growth is being propelled by technology advances, which continue to substantially improve the cost, convenience, and effectiveness of using telematics devices.”

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