Usage-Based Insurance Market - Industry Dynamics, Market Size, And Opportunity Forecast To 2031

Market Scenario 

The usage-based insurance market has been forecasted to grow CAGR of 20.85% to reach a valuation of US$ 245.86 billion by 2031 from US$ 47.67 billion in 2022. 

Usage-based insurance (UBI) is a progressive form of vehicle insurance that determines prices based on various factors such as vehicle type, usage patterns, time, distance traveled, driving behavior, and location. With the recent surge in the pandemic and the growing prevalence of virtual businesses, the need for daily commuting has significantly diminished. Consequently, individuals no longer require traditional insurance plans that charge fixed premiums. This shift has led to a notable rise in the popularity of Usage-Based Insurance, enabling car owners to pay insurance premiums based on their actual vehicle usage.

Several key factors are fueling the growth of the usage-based insurance market. First and foremost, the increasing adoption of telematics and connected cars is playing a crucial role. These advanced technologies allow insurers to collect real-time data on driving habits, vehicle performance, and other relevant metrics, enabling more accurate and personalized insurance pricing.

Furthermore, insurance companies are rapidly embracing UBI as a means to enhance their profitability. By implementing UBI programs, insurers can better assess risks, identify safe drivers, and incentivize responsible behavior, ultimately reducing claim payouts and improving their financial performance.

Another significant driver of market growth is the development of a comprehensive automotive usage-based insurance ecosystem. This ecosystem involves the integration of various stakeholders, including insurers, vehicle manufacturers, telematics providers, and data analytics firms. Such collaborations facilitate the seamless exchange of data, enable accurate risk assessment, and drive innovation in insurance products and services.

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Market Dynamics

Increasing Adoption of Telematics and Connected Cars

Telematics is rapidly increasing in the automobile sector and playing a significant role in the automotive mainstream. Through usage-based insurance, car telematics helps improve driving behavior, road safety, and align insurance premiums (UBI). The expansion of the telematics sector can be attributed to the fact that the governments are more leaned to legislate telematics services such as emergency-call capabilities, as well as there is a growing demand for automobiles with more connectivity and intelligence in the global usage-based insurance market.

Rapid Use of UBI by Insurance Companies to Improve Profitability

The insurance company evaluates the information and adjusts the premiums accordingly. For instance, a driver traveling at a very high speed and covering long will be taxed more than one who is traveling small distances at slower speeds. Premiums are collected in a variety of ways using UBI, including at the gas pump, with debit accounts, with direct invoicing, and with smart card systems. Moreover, recent advancements in technology have increased the efficiency and cost of telematics, allowing insurers to track not only how many miles people drive, but also how and when they drive.

Restrains

Ambiguity Over Regulations and Legislative Environments

Ambiguities in legislation and legislative contexts may limit the expansion of the usage-based insurance market. For instance, each state in the United States has its own set of laws and regulations governing automobile usage-based insurance. While Illinois has restrictions for pay-as-you-drive (PAYD) plans, it lacks specific standards for pay-how-you-drive (PWD) plans (PHYD). Similarly, Illinois compels carriers to disclose their underwriting models, whereas California restricts product pricing constraints. These ambiguities result in obstructing market growth in the future.

Market Segmentation

Telematics Solution Analysis:

In the field of telematics solutions, Black box car insurance emerged as the dominant in the usage-based insurance market. Black box car insurance utilizes advanced technology to monitor and record a policyholder's driving behavior. The primary objective is to determine insurance premiums based on the individual's driving habits, including both the amount and safety of their driving. By converting the collected data into a score, insurance companies can establish personalized premium rates for drivers, with lower premiums being offered to those who achieve better scores.

One notable advantage of black box solutions is the inclusion of an anti-theft tracker, which aids in the recovery of stolen vehicles by the police. Additionally, these systems often include impact alerts that can notify emergency services in the event of an accident.

Vehicle Type Analysis:

Among different vehicle types, electric vehicles (EVs) are projected to exhibit the highest compound annual growth rate of 24.55% in the usage-based insurance market during the forecast period. As the adoption of electric vehicles continues to rise, modern insurance companies have started offering specific insurance policies tailored to EVs. For instance, ACKO provides electric car insurance, which offers several benefits such as streamlined procedures with no paperwork, zero commissions, and rapid claim settlement.

EV car insurance policies safeguard vehicles against various liabilities, including accidental damage, fire, natural disasters, riots, theft, as well as injuries or property damage to third parties. Due to the unique risks associated with EVs, they also require comprehensive coverage for damage caused by theft or accidents. Notably, the theft of EV control and guidance computer systems, as well as battery management systems, can lead to substantial repair or replacement costs, often amounting to tens of thousands of rupees.

Package Type Analysis:

The Usage-based Insurance market is categorized into different package types, including Pay-as-you-drive, Pay-how-you-drive, Pay-as-you-go, and Distance-Based Insurance. Among these, Pay As You Drive commands the largest market share, accounting for approximately 41% in the base year of 2022. This package type enables policyholders to customize their insurance policies to a significant extent, resulting in reduced premiums. Pay-As-You-Drive car insurance policies are already prevalent in developed nations worldwide and are gaining momentum in India.

Furthermore, the Pay-As-You-Drive insurance policy provides mandatory Third-party Liability Car Insurance coverage for the policy period, offering comprehensive coverage based on the distance traveled by the vehicle. This approach allows for greater flexibility and cost savings, aligning the insurance premium with the actual usage patterns of the insured vehicle.

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 Region Analysis:

North America is anticipated to emerge as the largest region the global usage-based insurance market during the forecast period. This dominance can be attributed to several factors, including the growing adoption of Mobility as a Service (MaaS) and the strengthening partnerships between telematics and insurance companies. Furthermore, the presence of key usage-based insurance companies like Progressive Casualty Insurance Company, Allstate Insurance Company, State Farm Automobile Mutual Insurance Company, and Liberty Mutual Insurance Company in North America is expected to drive the market forward.

North America usage-based insurance market also benefits from a well-established insurance industry and advanced telematics infrastructure. The region has a strong presence of insurance giants and industry leaders, including Progressive Casualty Insurance Company, Allstate Insurance Company, State Farm Automobile Mutual Insurance Company, and Liberty Mutual Insurance Company. These companies have been at the forefront of developing and promoting usage-based insurance offerings, leveraging their expertise and resources to drive market growth.

On the other hand, the Asia Pacific region is projected to exhibit the highest compound annual growth rate (CAGR) during the forecast period. This remarkable growth can be attributed to the increasing prevalence of mobile connectivity and smartphone technology across the region. These technological advancements provide a solid foundation for the integration of telematics solutions and insurance services. Additionally, the rising sales of electric vehicles equipped with telematics capabilities in the Asia Pacific region contribute to the growth of the usage-based insurance market in this area.

Competitive Landscape

The global usage-based insurance market is dominated by a group of top 10 key players, collectively holding a significant market share of approximately 65-75%. The remaining players in the market contribute around 25-35% of the revenue. Among these top 10 players, notable companies include Allianz, AXA, All State Insurance, Cambridge Mobile Telematics, Liberty Mutual Insurance, Metromile Inc., Nationwide Group, Root Insurance, and Travelers Group. These companies have established themselves as leading contributors to the usage-based insurance market.

Recent strategies adopted by key market players are:

• In June 2021, Progressive Corporation entered the acquisition of Protective Insurance Corporation. As per the terms of the merger agreement, Progressive has agreed to acquire all the outstanding class A and class B common shares of Protective Insurance.
• In January 2022, John Hancock and Allstate announced a collaboration to provide John Hancock Vitality members with rewards in terms of points for safe driving. The partnership comes in response to an increase in vehicle crash-related injuries. Customers will benefit from understanding how their choices, including driving behavior, impact their overall health.

List of Key Companies Profiled:

• Allianz
• AllState Insurance Company
• ASSICURAZIONI GENERALI S.P.A.
• AXA
• Cambridge Mobile Telematics
• Liberty Mututal Insurance Cmopany
• Metromile Inc.
• Nationwide Corp. Group
• Progressive Casualty Insurance Company
• Root Insurance
• Sierra Wireless
• State Farm Automobile Mutual Insurance Company
• The Hartford
• Travelers Group
• Verizon
• Webfleet Solutions
• Other Prominent Players

Segmentation Overview

The Usage-based Insurance market is sub-segmented into:

By Telematics Solutions

• On-board Diagnotics (OBD-II)
• Smartphones
• GPS Device
• Embedded System
• Black Box
• Others

By Package Type

• Pay-as-you-Drive (PAYD)
• Pay-how-you-Drive (PHYD)
• Pay-as-You-Go
• Distance-based Insurance

By Distribution Channel

• Direct
• Agency
• Bank
• Brokers & Insurance Marketplaces

By Vehicle Type

• ICE Vehicles
  • Petrol
  • Diesel
  • Others
• Electric Vehicles
  • Battery Electric Vehicle (BEV)
  • Plug-in Hybrid Vehicle (PHEV)
  • Fuel-cell Electric Vehicle (FCEV)
• Hybrid

By Vehicle Application

• Personal
  • 2-Wheelers
  • 4-Wheelers
• Commercial
  • Passenger
  • Heavy Vehicles
• Off-road Vehicles

By Vehicle Ownership

• New Vehicles
• Used Vehicles

By Region

• North America
  • The U.S.
  • Canada
  • Mexico
• Europe
  • Western Europe
    • The UK
    • Germany
    • France
    • Italy
    • Spain
    • Rest of Western Europe
  • Eastern Europe
    • Poland
    • Russia
    • Rest of Eastern Europe
• Asia Pacific
  • China
  • India
  • Japan
  • South Korea
  • Australia & New Zealand
  • ASEAN
  • Rest of Asia Pacific
• Middle East & Africa
  • UAE
  • Saudi Arabia
  • South Africa
  • Rest of MEA
• South America
  • Argentina
  • Brazil
  • Rest of South America