Usage Based Insurance – the New Normal? – E&Y Summary Report
Article Synopsis :
In today’s “sharing economy” insurance consumers expect the same level of simplicity and transparency they get elsewhere.
In the monograph “Usage Based Insurance – the New Normal?”, EY asserts UBI as an opportunity for insurers to tailor products to customers’ specific behaviours and usage patterns, with greater flexibility, personalization and specialization.
Though there are currently 165 active UBI offerings across 35 countries encompassing five million policies, this still represents less than 1% penetration. EY expects this number to jump to 15% by 2020.
UBI holds the potential to reduce claims costs 40% and policy administration costs by as much as 50%. Evidence also suggests lower acquisition costs and more accurate pricing. The bad news is substantially lower premiums. The typical UBI solution for auto insurance takes six to nine months to deploy, including:
- UBI configuration and product design
- Actuarial analysis and market research
- Systems integration
- Website and portal development
- Launch, roll-out and change management
Beyond “pay as you drive” (PAYD), EY envisions telematics-enabled “pay as you live” (PAYL) policies, utilizing real-time health and other contextual data to enable disruptive new products in life and health insurance.
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Digital Insurer's CommentsIs UBI a disruptive or sustaining innovation? A disruptive innovation is defined as one that helps create a new market and value network, and eventually disrupts an existing market and value network over time. This sounds like UBI to us.
It’s still insurance but insurance measured, delivered, and priced in real-time. There are privacy and security issues, but when the payoff is a 30-40% reduction in premiums, as EY and others suggest, consumers will find a way to make the market.
As IoT evolves and new synergies develop between insurance carriers, technology companies, manufacturers, mobile app developers and mobile network providers, UBI will eventually disrupt markets beyond auto.
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