Usage-based insurance: thinking beyond the black box

From shifting customer behavior to channel fragmentation, digitization to business or operating model innovation, few if any industries have remained immune to the digital transformation. 

Some may argue that the insurance sector has lagged others in confronting disruption or seeking to be the disruptor. Insurers are facing a number of fundamental, if not existential, questions about their future which will be very different thanks to telematics.

The concept of telematics and the technology behind it is by no means new. The sector is facing a collision of forces, each of which in isolation may not be enough to catalyze significant change, but in concert are creating opportunity and risk in equal measure.


We no longer “go online”, we’re just “online”. The quality of data, long a concern for insurers evaluating their telematics strategies, continues to stride ahead, with 4G connectivity reaching some of the most rural areas and talk of 5G rollout already dominating. 

Coupled with the incredible ubiquity of the smartphone and its ever-pervasive role in our lives, consumers have never been more connected to the world around them. 

In India, for instance, researchers forecast more than a billion smartphones will be sold in the country over the next five years. In Western Europe, smartphone penetration per capita has reached almost 70 percent. The prominence of these devices and their influence on our now increasingly app-based lives shows no sign of abating.

Growing expectations

Empowered consumers expect more from businesses than ever before. We’re no longer only compared to our peers, but to products and services from other industries. Some attribute the growing expectations to Amazon, Netflix, or Uber. But whoever you credit, or blame, for your customers’ heightened definition of value and expectations, it’s inescapable – and ignoring it isn’t an option.

Shifting behaviors

Owning a car doesn’t necessarily hold the allure it once did, at least for the younger generation. A combination of financial pressures improved urban public transport, environmental concerns, and the immediacy and flexibility offered by the sharing and gig economies are changing the automotive sector. Millennials, already the world’s largest demographic cohort, have greater freedoms than previous generations and are shunning the traditional path to car purchase and historical patterns of transport usage.

Simple economics

The insurance sector’s reliance on age, occupation, postcode, and brand of car to serve as a proxy for risk is imprecise, to say the least. And it’s not just insurers that are finding themselves hamstrung by legacy profiling. Consumers, especially in their early driving years, are increasingly expressing frustration with carrying the cost burden of bad drivers, similar in socio-economic status, but potentially radically different in behavior.

The looming threat of automation

Myriad societal and regulatory questions are either unanswered or yet to be asked, but like it or not, automation is coming to the insurance industry, with accounting and advisory leaders KPMG predicting the sector could shrink by as much as 70 percent by 2050 due to “autonomous vehicle technology, a rise in on-demand transportation and shifting of liability to manufacturers”.

These forces are creating many opportunities for insurers willing to embrace change and adapt. Consumers increasingly understand the value inherent in their personal data and that they can offer contextual information about their behavior with ease in exchange for tangible benefits from the businesses with whom they choose to share it.

Advances in connectivity, data reliability and the wide penetration of smartphones mean the traditional black box, with its associated cost and practicality issues, is no longer the only option for insurers and drivers seeking a fairer, more accurate approach to assessing risk and setting premiums. 

App-based smartphone telematics is creating an opportunity to lift the motor insurance sector out of the margin-eroding, price-focused situation that aggregators have helped to create; to change the conversation with drivers from price to value, from savings to safety.

A message to insurers

Embrace the smartphone, for it’s more than just a phone. Stop looking at risk as something you manage, and take the advantage to influence it. Stop assessing who wants to drive, and start understanding how, when, where and why they really drive. And use this to find ways to become “sticky” by being a more valuable part of your customers’ lives, not just an annual mandatory purchase.

About Amodo 
Amodo is an award-winning insurtech company. Amodo Connected Insurance Platform enables insurance companies to create and brokers to place hyper-personalized usage-based insurance (UBI) products on the market. Amodo clients use its platform to gain strategic insights into customers' profiles, segment them into relevant groups and acquire profitable ones. Over the past nine years, this European insurtech launched close to 50 Connected Insurance projects worldwide with some of the leading companies such as AIG, Porsche Insurance, UNIQA, and many others. Amodo was named by Financial Times as one of the top 5 Insurtech companies globally, is a winner of a prestigious Digital Insurance Agenda Diamond Award in 2020, and has been named by Frost and Sullivan as the Best Practice Leader in the Usage-Based Insurance market in 2021. 


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