Asia-Pacific, led by China, will drive the growth of usage-based insurance

While the concept of usage-based insurance (UBI) is not new, it has nevertheless not been fully embraced by the industry and consumers until now. Today, it accounts for a tiny fraction of the total number of auto insurance policies issued worldwide. In many markets, it is still unheard of.

Some of the earliest examples of this kind of insurance products may be found in the US and Japan. National General Insurance is one of the first and largest auto insurance companies to institute a UBI programme in the US back in 2004. Shortly after, Japanese auto insurer AIOI introduced a similar product in 2005. It partnered with Toyota to develop the technology based on the latter’s G-Book telematics system. The product is enabled by telematics and internet of things/ vehicle (IoT/IoV) technologies that rely on in-vehicle sensors or sensors in third party mobile devices to measure mileage and analyse driving behavior in order to assess the risk profile of the insured driver, and thus allow insurers to price premium accordingly. On the surface, this is quite a radical departure from the traditional “projected risk- or actuarial-based” insurance model and is conceptually a more equitable one, as it is based on actual usage and behavior rather than projected usage and risk profile. However, when it comes to adoption, UBI has so far fallen well short of expectations. For sure, there are practical difficulties, such as the added costs of devices, as well as psychological barriers, ie. concerns over privacy, to consumer accepting the product.

Asia Pacific, led by China, will account for more than half of the forecasted 60 million UBI subscribers worldwide by 2025

Figure 1.  Forecast of active mobile UBI policies worldwide - 2018 to 2025

According to PTOLEMUS, a Brussels-based research and strategy consulting firm focused on mobility, of the 875 million auto insurance policies, about 20 million, or a mere 2.3%, were usage-based in 2018.

However, the advent of the smartphones and new insurance technologies (insurtechs) that leverage and integrate mobile connectivity with telematics have reinvigorated the UBI business model.

Take for example, Cambridge Mobile Telematics, a leading mobile telematics and analytics provider, which recently secured a $500 million investment from SoftBank’s Vision Fund. The investment will drive further improvement in the company’s DriveWell platform which is used by insurers, fleets, wireless carriers, and other entities to measure driving risk and improve driver safety. From a wider perspective, it is a signal of confidence in the potential of the mobile UBI market.

A recent study by Ptolemus shows that the mobile UBI market has grown to 4.8 million policyholders as of the second quarter of 2018, representing almost a quarter of the total. It expects the global market for mobile UBI to expand at a compound annual growth rate (CAGR) of 39% up to 2025 to reach 60 million users, and much of that will come from Asia Pacific, and China in particular.

China has from 2010, become the world’s largest automobile market with more than 20 million new cars registered annually, reaching over 25 million in 2018, and will hit over 33 million vehicles by 2025. Coupled with the country’s high rate of smartphone adoption and development of mobility ecosystems, the future of mobile UBI could well rest there.

Leading insurance, insurtech, telematics and related industry players looking to shape the future of the UBI market will do well to keep a close watch on developments from their Chinese peers.