Valued at an estimated $46.9 billion in 2024, the usage-based insurance (UBI) market is expected to grow to $70.5 billion by 2030, according to researcher and technology service provider MarketsandMarkets. As adoption grows, UBI could fundamentally change how insurance companies operate.
UBI requires car owners to share their driving data in exchange for more personalized rates. As insurers gather and analyze more information about how people drive, they can adopt advanced underwriting practices, offer new services, and reduce claims losses. For better or worse, those evolutions may affect your auto insurance coverage going forward. Here’s what you need to know.
Key technologies driving change
Telematics is the core technology underpinning UBI. It collects and transmits driving data via a plug-in device, smartphone app, or connected vehicle. Supporting technologies include cloud computing and artificial intelligence (AI).
Cloud computing provides storage and processing for the data. AI analyzes it, connects driving data with other policy and claims signals, identifies patterns, and makes predictions.
Continued data collection combined with advanced analysis empowers insurance companies to do more than offer personalized pricing — it can improve how they identify and manage risk. As Jeremy Jawish, CEO of insurance tech provider Shift Technology, noted, insurers can move “towards preventing losses, not just processing them.”
The technology can also support faster policy and claims decisions. This shift is already happening, according to Jawish. “We see insurers moving from static, point-in-time underwriting and claims assessments to continuous, data-driven decision making,” he said.
More data points, more analysis
Early UBI implementations focused on a static set of data points like hard braking, speeding, and late-night driving incidents. Today, UBI programs still collect braking, acceleration, cornering, and speeding data. But they may also compile information from multiple sources to detect if customers are doing any of the following:
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Driving distracted: Car data plus phone handling signals or app interactions could indicate distracted driving.
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Driving appropriately for the conditions: Car data alongside information on road, traffic, or weather conditions could reveal how drivers are managing different situations. This could create coaching opportunities, prompting insurance companies to provide real-time, personalized tips to promote driving safety.
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Attempting fraud: Vehicle data can corroborate “when, where, and how an incident occurred,” explained Jawish. This makes it more difficult for bad actors to submit fraudulent or inflated claims.
How drivers benefit from usage-based insurance
Usage-based insurance has benefits beyond personalization, including more equitable pricing, better claims experiences, and unique services.
Fairness for low-risk drivers
“For drivers, the biggest benefit is fairness,” Jawish said. Traditional insurance assesses risk indirectly using proxy factors like demographics, driving history, and vehicle type. Because that process is imprecise, lower-risk drivers often end up subsidizing higher-risk ones. UBI addresses this by using direct driving behavior data to set premiums.
More equitable auto insurance pricing could mean a wider cost gap between safe and risky drivers. Ideally, the steeper financial consequences would do more to discourage risky driving — an outcome that benefits drivers and their insurance companies.
Better claims experience
Vehicle and driver data recorded at the time of an accident can answer questions that previously prevented claims from being resolved quickly.
“Insurers can accelerate claims handling, reduce friction, and, in some cases, even enable near real-time resolution,” Jawish explained.
New services
Advanced data collection and analysis also support deeper, more personalized relationships between insurance companies and their customers. According to Jawish, insurers are already adopting a more service-oriented model. Proactive risk alerts, driver coaching, automated claims, and embedded services tied to vehicle usage could become normal, value-add offerings as UBI adoption grows.
Usage-based insurance trade-offs for drivers
UBI requires drivers to share rich personal data and trust that the information won’t be mishandled by their insurance company. Many drivers currently share their data, but they should be getting something in return, like better pricing or better service.
Whatever the benefit is, “the value exchange must be clear,” said Jawish. If it’s not clear, or if insurance companies prove to be poor stewards of sensitive personal data, driver satisfaction with UBI will suffer.
Potential higher insurance rates for risky drivers
A second concern is the potential for higher rates for riskier drivers. Today, riskier drivers can try to sidestep this outcome by opting for traditional, proxy-based policies. But that choice may not be available indefinitely.
In 2021, insurance experts Harry Huberty and Matteo Carbone predicted that insurers will eventually require drivers to install the insurance app on their smartphone to qualify for coverage.
Drive safely for the biggest benefit
Auto insurance companies are collecting the data and adopting the technology to support more equitable pricing, more personalized service models, and more effective risk management techniques. Since low-risk drivers will benefit most from these changes, now’s the time to commit to safe, conservative driving practices.
Telematics and usage-based insurance FAQs
What is telematics in insurance?
Telematics is technology that collects driving data and transmits it, usually to the auto insurance company. Insurers use the data to set personalized pricing, identify driving patterns, validate claims, and manage risk.
What are the disadvantages of telematics?
Drivers who opt in to a UBI program must agree to share their driving data, which could include GPS tracking, smartphone app usage, and other data points. Also, car owners with unsafe driving habits could experience higher insurance rates after signing up for UBI.
How does telematics insurance work?
Telematics insurance collects information about your driving habits via a device that plugs into your car, your smartphone, or the car itself. The insurance company uses that data to evaluate your claims risk and set your pricing.
