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SECTION I FUNDAMENTALS OF THE UBI MARKET potential invasion of consumer privacy and the difficulties in creating a sustainable business model. Today, UBI offerings are based on a various range of pricing models: • Self-reporting based insurance: the premium is calculated based on the driver’s reported milage, Licence • Pay-As-You-Drive (PAYD) - also called Pay-As-You-Go (PAYG): a device in the vehicle sends mileage data to the insurance company. The premium is entirely or partly mileage-based (Sometimes combined with time and location data), agreement • Pay-How-You-Drive (PHYD): a device in the vehicle sends driving style data to the insurance company. The premium evolves with the driver’s risk rating. signed by From the start, these programmes primarily aimed at positively selecting drivers, attracting new customers and retaining them longer. Since the insurance regulations varied greatly between states and privacy issues was a concern, the PAYD model initially took off in a wider number of US states because it did not require vehicle location data. AAAA. Reserved for employees of Yet we can classify UBI policies in two main categories with remarkably distinct characteristics and business models: self-reporting based policies and telematicsbased policies. BBBB a. Self-reporting based policies These policies calculate the premium’s amount primarily on the total distance driven as reported by customers through the odometer of the car. Customers are required to communicate the odometer reading at specific intervals (e.g. at the annual renewal of the policy) and sometimes the insurer performs random checks on customers to ensure that the reported reading is accurate. For insurers, these policies are easy to implement and to integrate with existing operations. As a result, insurers have introduced these in a number of countries. Strictly reserved to BBBB For example, as early as in 2004, Polis Direct introduced in the Netherlands a ‘kilometre policy’ whereby the customer’s premium could increase or decrease by up to 50% based on his actual mileage against his forecast mileage. employees. Distribution to third In the US, MileMeter, a Texas-based start-up, introduced in 2008 a pay-per-mile policy that claimed to save customers up to 75% on their motor insurance premium. They required customers to provide a digital photograph of their odometer at the time of renewal of the policy, which happens every 6 months. Customers had to prepay for 6,000 miles at a time or 6 months at a time. The rate parties is prohibited © PTOLEMUS - www.ptolemus.com - Global Usage-based Insurance Study - January 2016 - All rights reserved Strictly reserved for the internal use of the reader - Distribution to third parties is prohibited 70
SECTION I FUNDAMENTALS OF THE UBI MARKET per mile was calculated by the company based on the age, location, car model and past history of the driver. The company folded in 2012. Fig 1.5: Real Insurance were one of the first to launch verified mileage programmes Source: Real Insurance Licence agreement signed by AAAA. Reserved for employees of BBBB In September 2008, a similar service was also launched by Real Insurance in Australia, called Pay as you drive. Real Insurance is part of the Hollard Insurance Group – a leading South African insurer, which now counts 7.2 million policies in Africa, Europe, India, China, the United States and Australia. It relied on customers to faithfully report their odometer readings at the time of purchase, renewal or filing a claim. They included a fixed base amount in their quote with a variable rate per mile. Similar schemes were introduced by many insurance companies such as Corona Direct in Belgium, MAAF in France, Mapfre in Spain and State Farm in the US. Strictly reserved to BBBB employees. Distribution to third parties is prohibited © PTOLEMUS - www.ptolemus.com - Global Usage-based Insurance Study - January 2016 - All rights reserved Strictly reserved for the internal use of the reader - Distribution to third parties is prohibited 71
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