What is Usage Based Insurance?

It’s always important for the insurance industry to respond to ongoing trends amongst its consumers, and to provide appropriate, flexible products that work for their customers. This seems to be the thinking behind usage-based insurance, which is an attempt to provide lower-cost insurance products to those who, for instance, only use their car sparingly.

The concept is simple enough. For example, a driver who doesn’t use their car for their commute could be paying a full premium upfront to protect their car, but due to their level of usage, the policy isn’t cost effective. With a policy that is effectively pay-as-you-go, money is shaved off the annual premium due to the reduced use of the vehicle.

There’s value in its flexibility, too; insurance can be provided for a set period of time on a specific vehicle, so if you wanted to share the driving with a partner or friend on a holiday abroad, you could insure the vehicle for a specific period instead of paying a standard fee.

Usage-based insurance certainly has its merits. It’s a response to the ever-changing nature of people’s needs and requirements, offering flexibility to purchase cover at a moment’s notice. With the installation of telematics on a policy holders’ vehicle, insurers also receive real-time information on events such as crashes or injuries and can react to claims far quicker as a result.

The scheme, though flexible, isn’t without its issues. Insurers typically install said telematics on the vehicle to measure how far it’s been driven whilst taking other measurements, with the installation carrying its own cost. Not only that, but drivers who are only insured for a specific period of time could effectively be encouraged to reach their destination sooner, thus driving less safely. That element has been alleviated somewhat by reminders sent to the driver that their cover is due to expire, but use of a mobile phone whilst driving is hardly something to encourage!

It’s also worth noting that usage-based insurance would certainly work well for city dwellers, but wouldn’t be as appropriate for drivers living in the country or those who aren’t on the road as much. Still, as a means to offering flexible protection and cover for drivers who don’t require comprehensive cover, it certainly makes the process of purchasing motor insurance a little simpler.