Usage-based insurance (UBI), which monitors a driver’s behaviour through a device installed in the vehicle and charges insurance rates accordingly, is growing in popularity. By 2023, UBI is expected to grow to 142 million subscribers globally.
UBC Sauder School of Business professor Charles Weinberg examined how effective UBI policies are in changing consumers’ driving habits. In this Q&A, Weinberg explains the advantages of UBI to drivers and insurers, and the privacy tradeoffs.
Your study looked at the effect of UBI policies on changing consumers’ driving behavior. What did you find?
Telematics devices installed in vehicles measure a number of elements that insurance underwriters use to price their policies, such as miles driven, time of day, where the vehicle is driven, rapid acceleration, hard braking and hard cornering.
We found that drivers using a telematics device as part of their insurance plan reduced the number of hard brakes they made and improved their overall UBI score (as calculated by the company). However, on average, people drove the same amount of miles per day.
In addition, women were found to improve their driving more than men. Younger drivers also improved more than others, which could be due to the fact that younger drivers learn faster, their habits are less settled, or they have a greater economic incentive to drive safer. Our study did not allow us to pin down the reasons why.
What are the privacy implications of usage‑based insurance?
Privacy is an important issue because telematics devices allow firms to track where customers drive and when. In the case of UBI, people recognize that they are actively allowing their insurance company to have access to some otherwise private information. For example, people might not want others to know where they are driving or whether they are driving late at night. It begs an interesting question: should people trade their privacy for an insurance discount?
However, despite these issues, our study results suggest that drivers enrolled in UBI programs can improve their driving safety, resulting in lower rates and fewer accidents.